Sirius Petroleum eyes 2014 production after Glencore deal

LONDON Fri May 3, 2013 1:41pm BST

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LONDON (Reuters) - A $65 million (42 million pounds) deal with global resources giant Glencore Xstrata has smoothed the way for Sirius Petroleum, a Nigeria-focused minnow, to become an oil producer by next year, said one of its directors.

Shares in Sirius, which has a market capitalisation of $50 million and is dwarfed by its new partner Glencore's $71 billion size, gained 19 percent on Friday on news of the deal.

Nigeria's oil industry has historically been dominated by the world's biggest oil companies such as Shell but in recent years political pressure from government for indigenous firms to operate marginal fields has opened up opportunities for smaller companies.

"We'll definitely start work on the field this year. We should be in production next year," non-executive director Olukayode Kuti said in an interview.

Smaller oil and gas firms with exploration or early development assets are struggling to source the funds to get their projects up and running in the current environment, with banks reluctant to lend and equity markets which have dried up.

Sirius said the $65 million deal with Glencore is structured as a pre-financing facility which will in return give Glencore access to the company's future oil production and exclusive rights to market that crude for three years.

"We are seeking to acquire new fields in Nigeria with the backing of Glencore," Kuti said, adding Sirius would use 60 million pounds ($93 million) worth of funding from an exercise of warrants to help fund future acquisitions.

Sirius faces increasing competition in Nigeria for the smaller, marginal fields which have been neglected by oil majors, however. Nigerian firms Seplat and Conoil and London-listed companies Afren, Heritage Oil and Eland are all vying for deals there.

Sirius has a 40 percent stake in Ororo, a shallow water field off the coast of Nigeria it co-owns with two indigenous companies and which was discovered by U.S. oil major Chevron in 1986.

A two well development programme could see Sirius start producing around 6,000 barrels of oil per day in 2014, said Kuti.

Separately Glencore Xstrata, now the world's fourth-largest diversified mining company after a tie-up deal completed, started trading in London on Friday.

($1 = 0.6447 British pounds)

(Editing by James Jukwey)

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