19th Jul 2016 09:17
LONDON (Alliance News) - MX Oil PLC Tuesday said production from the Aje field offshore Nigeria is being hampered by mechanical issues and regulatory approvals that will cause production for the rest of the year to be substantially lower than planned.
The field is being advanced through a three-phase development programme and initial production from the two existing wells on the field was expected to reach peak production of 11,000 barrels of oil per day by the end of March this year.
MX Oil said that target rate has not been achieved because of mechanical issues and Nigerian regulatory approvals, warning they could not be resolved until the end of the fourth quarter.
That means production from the two wells on Aje will be maintained at a restricted rate of 7,000 to 8,000 barrels per day until then - between 27% to 36% lower than the original target.
That will not be the only delay to the project that MX Oil has suffered. Initial production was expected to start in December last year but the first oil was not pumped out until five to six months later in May this year.
The Front Puffin floating production, storage and offloading vessel is commissioned and has been tested and is expected to offload the first crude oil to be taken from Aje at the end of August this year. Notably, the FPSO has the capacity to deal with production of up to 40,000 barrels per day, considerably higher than current rates.
"We are very pleased that oil production has properly commenced from the Aje field and we look forward to these production rates increasingly in the short to medium term and to first revenue from oil produced to date," said Chief Executive Stefan Olivier.
MX Oil has been participating in OML113 by investing indirectly through a subsidiary of Jacka Resources Ltd and currently holds a 5.0% revenue interest in the asset, and said "material reductions in operating costs" have been delivered at the project with further expected to come through in the future.
The second phase is still being planned and will involve two new wells being drilled to take peak production up to 19,000 barrels per day. In the longer term, phase three will push peak production up even further but it is not yet known by how much.
Although the Aje field is currently suffering from some issues, it will be the first project to deliver some financial income for MX Oil, which came close to selling the investment earlier this year.
The company had planned on moving into Mexico after the country opened up its energy market to foreign producers after around 76-years of a state monopoly, but the licences it acquired failed to impress as much as the company had hoped.
After the company that was supposed to buy the interest in the Aje field failed to make the initial payment on time, MX Oil said it was considering retaining the asset, especially as oil prices improved from the start of the year.
Although MX Oil has not yet confirmed whether or not it will sell or retain the Aje field, last stating that "the option of retaining this investment continues to become more attractive", the company will be keen to benefit from the first lifting of oil from Aje at the end of August so it can take a share of its revenue.
MX Oil shares were down 2.4% to 1.0 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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