THISDAYonline

One of the biggest issues currently in the nation's capital market is the Niger Delta Exploration and Production Plc's (NDEP) offer for subscription of 19,733,333 ordinary shares (of N10.00 each) at a fixed US Dollar amount of US$0.30 per ordinary share (or N42 per share being the naira equivalent based on selected subscription only fixed conversion rate).

The amount required is payable in full on application, to raise approximately US$5.930 million for part-financing of participation (as project sponsor and joint venture investor) in the Ogbelle Field Development and other Upstream Petroleum Industry Projects.

The successful execution of the completion board meeting held in Lagos recently signalled the official opening of the offer on July 31, 2001, with an indication that applications must be for an initial minimum of 15,000 shares (valued at US$4,500 or N630,00) and in multiples of 500 shares (valued at US$150 or N21,000). The closing date of the offer is exactly 21 working days after the opening date (i.e. August 28, 2001).

The company informs prospective subscribers that the offer for subscription in question has not been under written by any individuals or organisations in any form.

Meanwhile, subscribers to the issues have been directed to make their payments either in US$ at the fixed US Dollar amount of US$0.30 per ordinary share (or in naira at N42 per share being the naira equivalent based on the selected subscription only fixed conversion rate of N140 per one US$).

The Chairman of the company, Chief Godwin Aret Adams explained that the 19.733 million ordinary shares being offered were expected to result in proceeds of approximately US$5.920 million (equivalent to naira 710,399,974 at the assumed project translation rate of US$1 = N120).

He added that the proceeds plus those of any over-allotment shares will be applied principally towards the part financing of NDEP's 82.61 per cent (US$12.495 million) participation stake (as a Joint Venture Partner) in the Ogbelle Field Development, and meeting any funding obligations arising from its role as the project's sponsor and the costs of finance organisation and further project development (US$2.916).

"The total financing required by NDEP for these purposes is US$15.411 million (the "NDEP Project Costs"). Of the US$ 30.250 million overall costs of the Ogbelle Project, US $15.125 million are to be financed by cash call contribution by the Ogbelle JV partners, while the remaining US$15.125 million is being organised as project finance on behalf of all the Ogbelle JV partners," he further noted.

The company warned that subject to applications meeting the specified minimum quantity and, thereafter, any additional desired quantities being whole multiples of the specified minimum lot, the shares being offered will be allotted strictly on a first come first served basis.

In the event of over-subscription for the shares being offered and subject to approval of Securities and Exchange Commission (SEC), NDEP disclosed that the directors intend to allot up to a further 10 per cent of the shares currently on offer (i.e. 1,973,333 extra shares or US$592,000) out of such oversubscribed amount, while the shares being issued will rank pari passu in all respects with the ordinary shares of the company.

Although, the company disclosed that the shares of NDEP have not been and will not be quoted on any Stock Exchange immediately upon conclusion of the offer, it was the intention of the directors of NDEP to seek quotation of the company's ordinary shares on an approved Stock Exchange within the next 3 to 5 years, or sooner if considered suitable.

The company was incorporated as a public limited liability company on March 25th, 1992 as the Midas Exploration Drilling Fund Plc (with Registration Number 191616). The name was later changed to Niger Delta Exploration & Drilling Fund on June 15, 1995 and finally to Niger Delta Exploration & Production Plc on November 28, 1996.

The company has an authorised share capital of N500 million in 50 million ordinary shares of N10 each, while its issued and fully paid stood at N114.6 million in 11.5 million ordinary shares of N10 each.

The company further explained that simultaneous to this equity offer, NDEP is raising US$2.868 million in Project Finance Borrowing and US$6.623 million in Irredeemable Participating Investment Notes to complete the required funding of its equity stock (including its sponsor obligations) in the Ogbelle Field Development as well as other oil and gas property opportunities as more fully described herein.

What makes this offer very attractive and irresistible is the company's involvement in the proposed Ogbelle Oil Field Development in which it is the project Sponsor as well as Joint Venture Partner with the largest stake. The Ogbelle Field Development is being undertaken by NDEP, Niger Delta Petroleum Resources Ltd. ("PETRE") and one other co-venture pursuant to a Farmount Agreement dated August 7, 2000 concerning NNPC/Chevron Joint Venture's OML 54. The President of the Federal of Nigeria was Known to have consented to the farmout which will represent the first marginal field development in Nigeria.

The company further explained that the Ogbelle project involves the production of crude oil from the Ogbelle field and processing of the associated gas into higher-value products, while the produced (wet) gas will from an early stage of the project not be flared into the atmosphere, as it will, from the project's sixth month, be fed into a gas-scrubbling plant where its further separation into NGLs, LPG and dry gas will take place. And, the driver (cleaner) gas will then be taken via pipeline to the nearest node for injection into third party facilities, while full provision for the cost of such pipeline is included in the current field development programme.

Available information reveals that the overall project cost of approximately US$30.25 million is to be funded by a combination of 50 per cent project finance and 50 per cent as cash calls on the joint venture partners, while the project's proposed financing arrangements will also represent a landmark event in the Nigerian financial scene and should showcase the desire and ability of local financing institutions to structure and fund the plentiful attractive investment opportunities in the strategic upstream sector of the Nigerian Oil and Gas Industry.

The company recalled that in December 1995, Geotrix System Ltd. ("Geotrex"), a foremost Nigerian E & P Consulting Company, updated the Ogbelle Field's reserve estimates, initially obtained from Chevron, which had drilled a discovery well within the field in 1980. Adding that "preparatory to this financing, an independent reserves assessment of the field was obtained in October 2000 from Chapman Petroleum Engineering Ltd. of Calgary, Canada ("Chapman"). The project's illustrative financial projections presented in this document are premised on the expected recoverable oil reserves of 10 million barrels with a production profile ranging from an average daily flow rate of 3,500 barrels per day (in year one), which peaks at some 4,400 barrels per day (in years two and three) and thereafter slowly declines to the minimum flow rate of some 1,400 barrels per day (in year ten). Based on production test results, the Ogbelle Crude is of premium quality with API gravities ranging from 43.6 to 47.3."

Further details reveal that all technical and engineering designs for the project have been completed and the suppliers are advanced with the fabrication in the US of the major production facilities, the flow station together with a Gas Scrubbing Plants, while firm orders have been placed for the line pipes, while a crude Handling Agreement relating to evacuation of the Crude Oil and NGLs to be generated by the project has been signed with Shell Petroleum Development Company.

In addition, sales contracts have been signed or stable understandings reached with credible off takers in respect of outputs of the project - the project's entire production of Crude Oil (and NGLs) are contracted to be sold to Shell Trading International Limited of United Kingdom and the LPG agreed to be sold to a spread of major and independent marketers, even as these sales contracts represent the heart of the proposed collateral arrangements for the providers of project finance.

Directors & Advisers

The directors of the company have been described as professionals, tested and proven in their various fields. They are individually, successful businessmen who bring a multi-disciplinary range of expertise to NDEP, including proficiency in geology/petroleum engineering, finance and general administration. In particular, four of the seven directors have considerable experience and active participation (approximate cumulative total of close to 100 years) in the public and private sectors of the oil industry.

To ensure continuity of strategic policy formulation and management (irrespective of any board changes) and hence the long-term success of the company, operational control and management of NDEP's affairs is provided by Petroleum Investment Management ("PIM") under a management contract ("management contract").

The current NPET board comprises the PIM directors plus Mr Ben Osuno and Brigadier-General Abba Kyari. PIM maintains a complement of well qualified personnel whose services are utilised in carrying out its day-to-day operational and management functions under the management contract. Other directors include Chief Godwin Aret Adams (chairman), Dr. Layi Fatona (managing Director), Mr Sammy O. Olagbaju, Dr. Uduimo J. Itsueli and Mr David Richards (Finance Director).

Hamilton Hammer & Co. Ltd. acts as Financial Advisers and Issuing House, while PriceWaterHouseCoopers as the reporting accountants and the registrars and transfer office is United Securities Limited. The directors and advisers have assured that all requirements or arrangements that would result in the efficient production, treatments, transportation, storage and the sales of envisaged are in hand.

Financial Expectations

There are indications that the Ogbelle Project is premised on conservative assumptions and has very strong economics, which show that the project will generate sufficient cash flows to service and repay respectively, the Ogbelle JV's debt of US$15.125 million and NDEP's debt of US$2.868 million within a maximum of 31/4 years (39 months), inclusive of up to 15 months moratorium, if repayments are made at the earliest practicable times, as this would result in substantial net positive cash flow into NDEP, from the Ogbelle Project's second year of operations.

Opinion

There are indications that NDEP has packaged tasty ingredients in its involvement in the Ogbelle project which make the on-going offer for subscription very irresistible as it promises a brighter and profitable future for investors in particular, and Nigeria in general.