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Lekoil provides update on fraudulent USD184 million loan agreement
14 Jan 2020
Lekoil has announced that, following the Company's announcement on Monday, it is now in a position to advise that, based on all information currently available to Lekoil, the USD184m loan agreement announced on 2 January 2020 by the Company, purportedly with the Qatar Investment Authority ('QIA'), seems to have been entered into by the Company with individuals who have constructed a complex facade in order to masquerade as representatives of the QIA (the 'Counterparties').
The Company will be contacting the relevant authorities across a number of jurisdictions without delay, with regard to what appears to be an attempt to defraud Lekoil, and would like to thank the QIA for drawing this matter to the Company's advisers' attention on 12 January 2020, who then immediately made contact with the QIA to establish the facts of the situation.
Lekoil's due diligence on the parties involved in the Transaction included, inter alia, meetings with individuals who, the Company now understands falsely presented their credentials as QIA representatives and interaction with individuals purporting to be carrying out legal and technical due diligence on behalf of the QIA (again, falsely). In addition, at the behest of the Company's Non-Executive Directors, a third party due diligence report, based predominately on open source information, was commissioned by Lekoil on Seawave Invest Limited in its capacity as introducer of the Counterparties and lead adviser to the Company in relation to the Facility Agreement. In addition to the work of its in-house specialists, Lekoil also sought advice in relation to the Transaction from its retained UK legal counsel.
As such, while Lekoil seeks to establish, alongside its legal counsel and Nominated Adviser, the full facts of this matter, the Facility Agreement can no longer be considered to be legally binding or enforceable and it should therefore be assumed that none of the funding, as set out in the announcement of 2 January 2020, will be forthcoming. As set out in more detail below, an Investigation Committee has been constituted on the matter.
Lekoil confirms that its financial exposure associated with the Facility Agreement is limited to approx. US$600,000 (being the amounts paid in good faith as initial arrangement fees to Seawave, and the Company's associated legal fees) and can also confirm that there have been no monies paid by Lekoil to the Counterparties. Any further fees due pursuant to the Transaction (which, for the avoidance of doubt, will not be paid) would only have been payable upon drawdown of funds.
Whilst Lekoil will take all reasonable actions to recover the fees paid to Seawave, there can be no guarantee that such attempts will be successful.
Lekoil continues to generate positive cash flow at the operational level and will seek alternative funding for the future development of OPL 310 as a priority, including reactivating other existing funding discussions. The drilling of an appraisal well within OPL 310 is still expected to occur within the tenure of the license which expires on the 2 August 2022. As previously announced on 30 August 2019, Lekoil is required to pay Optimum Petroleum Development Company Limited ("Optimum") sunk costs and consent fees by February 2020 - a payment estimated at c. US$10 million. LEKOIL is also required to show its ability by February 2020 to raise 42.86 per cent. of the drilling costs for one appraisal well, which is estimated to be c.US$28 million. Failure to make this payment on time may result in Lekoil and Optimum jointly seeking, and agreeing on, a willing buyer to whom the transfer of Lekoil's 17.14% participating interest in OPL 310, as well as all the financial obligations related to OPL 310, can be made.
The Company further confirms that no capital commitments have been made based on anticipated drawdowns, and that the Company will cover the cost of the site survey (estimated at c. US$4 million) on OPL 310 as announced on 10 January 2020 from a mixture of existing cash resources and income from operations at Otakikpo.
As at 31 December 2019, the Company had cash at the bank of approx. US$2.7 million, which takes into account the US$600,000 already paid in relation to the Transaction. No material further payments have been made in relation to the Transaction subsequent to that date, and the Company expects to receive the cash proceeds from an oil lifting which was expected to occur in December 2019 and has now been scheduled to be included as part of the liftings for January 2020, further bolstering its cash resources.
At the time of announcing the Facility Agreement, Lekoil also entered into arrangements to compensate and further incentivise its CEO, Lekan Akinyanmi. All such arrangements have been cancelled with immediate effect and the Company can confirm that no payments have been made to Mr Akinyanmi or any other Lekoil employee, director or representative in relation to the Transaction.
The Board has appointed Mark Simmonds and Tony Hawkins, who are Independent Non-Executive Directors of the Company, to investigate the origination and execution of the Facility Agreement, what steps can be taken to retrieve any monies already paid in association with the Transaction and the Company's wider corporate governance practices.
The Company notes that Mr Simmonds and Mr Hawkins were appointed to the Board after the signature of the Facility Agreement and did not have any connection with the origination or execution of the Transaction, making them suitable, in the wider Board's opinion, to lead a fully independent review. They will be assisted by third party forensic investigators and legal counsel, as appropriate.
Further announcements with regard to this matter will be made as and when required.
Restoration of Trading
The Company's shares were suspended from trading on AIM at 7.37 a.m. on Jan 13 pending clarification on the situation. Accordingly, the release of this announcement facilitates lifting of the suspension, and trading on AIM of the Company's shares is expected to recommence from 7.30 a.m. on Jan 13.