Leni Gas & Oil (LGO) has completed a Heads of Agreement with BP Espana including its subsidiaries to negotiate a crude oil sales agreement to offtake the company's current and future Spain production to BP's Castellon refinery in eastern Spain.

LGO and BP have been exploring the possibility of a crude oil offtake agreement for the delivery of all oil produced by the company’s wholly-owned subsidiary in Spain for consumption at the BP Castellón refinery located on the east coast of Spain.

The agreement sets out the non-binding obligations and parameters for a proposed crude oil sales agreement to offtake the majority of the company’s Spain crude production to BP Castellón and how the parties will work together with a view to consummating the proposal.

The proposed agreement will extend for a minimum duration of five years. This will include the currently producing Ayoluengo oilfield and future production from other development assets across the company’s petroleum production and exploration acreage in northern Spain, which covers an area of over 550sqkm.

Delivery schedule is expected to be increased in parallel with the development programs of LGO to increase production from all of the current and future production assets in Spain. The delivery pricing will be at a premium to current pricing and will be formula driven based primarily on spot commodity price index and the crude oil specification from the various producing assets.

Both companies are currently undertaking feasibility studies to engineer the facilities upgrades required to commence crude oil offtake in the fourth quarter of 2010.

David Lenigas, executive chairman of LGO, said: “We are delighted to have signed a heads of agreement with BP to negotiate a long term crude oil sales agreement to offtake our current and future production in Spain.

“This is further evidence of LGO’s progress with its Spain operations to expand the infrastructure for supporting high production volumes, and which has been recognized by one of the world’s largest oil and gas companies.”