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Big boys banging' on Africa Oil door

Vast potential: Africa Oil's frontier Lokichar basin acreage in East Africa Africa Oil Corp


Steve Marshall 05 September 2013 08:50 GMT

Africa Oil has been approached by both supermajors and national oil companies seeking a slice of the action in Kenya as it moves forward on an aggressive drilling programme to tap multi-billion barrel resource potential in the wider tertiary rift play onshore East Africa.

The Canadian explorer is set to drill a series of wells over the next six months targeting further prospectivity in virgin basins in the vicinity of its prolific South Lokichar basin play - where it is a 50:50 partner with UK-based Tullow Oil – that has so far yielded a rich crop of oil discoveries.

This week it revealed a massive 557% increase in gross contingent resources to 368 million barrels in the Kenyan part of the frontier basin where the pair have so far notched up three discoveries to date – Ngamia-1, Twiga South-1 and, most recently, Etuko-1 – with gross risked prospective resources now estimated at more than 1.2 billion barrels.

The company has now kicked off studies for development that could see the partners start early production next year, with a deal expected shortly between Uganda and Kenya to build an export pipeline to Lamu on the Kenyan coast.

At the same time, Africa Oil is chasing more than 100 undrilled prospects across its 250,000 square-kilometre acreage at the crossroads of Kenya, Ethiopia, Uganda and Sudan that is equivalent in size to the entire North Sea and with gross best estimate prospective resources of about 23 billion barrels.

Chief executive Keith Hill said his preferred option would be to bring onboard a well-funded strategic partner to carry the costs of development, possibly in co-operation with its existing partner.

“Depending on the outcome of upcoming exploration and appraisal work, I guess we would be looking to be left with an overall stake of between 20% and 35%, depending on how successful we are in our upcoming exploration programme,” he told Upstream on the sidelines of the Pareto Securities Oil & Offshore Conference in Oslo.

However, such a deal is not likely to take place for at least another 18 to 24 months as the partners want to carry out the current exploration campaign to more firmly establish the resource value of the play and move development planning forward so that an eventual transaction is based on realistic terms.

“We have had several supermajors and national oil companies approach us about coming into these blocks. I believe it is still too early, though if they make an extremely high offer in exchange for a minority stake, we would be willing to consider it,” Hill said.

The company is facing a costly upcoming exploration and appraisal campaign with 10 wells targeting new prospects in the Lokichar basin with prospective resources of around 3 billion barrels, including the ongoing Ekales-1 in Block13T and a further probe at Agete to be spudded shortly.

These will be followed by a spud in the fourth quarter at Amosing in Block 10BB and Ewoi in the vicinity of the Etuko find in the block’s eastern rift flank play in the first quarter of 2014, while the Etom cluster of prospects back in Block 13T will also be targeted in the first half of next year.

In addition, the partners aim to shoot 3D seismic over the Ngamia and Twiga discoveries, while Africa Oil is also targeting the Tultule prospect in Ethiopia’s South Omo block in partnership with both Tullow and Marathon Oil of the US.

The explorer expects to have six rigs operating from the fourth quarter in the intensive “high-impact” drilling effort that also includes four so-called “basin openers” at prospects in the Chew Bahir, South Kerio and Anza basins, as well as onshore targets on the western shore of Lake Turkana.

Africa Oil, backed by Sweden’s wealthy Lundin group, has a gross exploration budget this year of $567 million, though Hill expects a net spend of $209 million as it is being partly carried on drilling costs by partner Marathon in South Omo as well as two Kenyan tracts – blocks 9 and 12A.

However, with a quarterly burn rate of around $50 million to $60 million and an expected higher budget next year, he is keenly aware of the need for further financing to keep the wheels turning for exploitation of the play, though this is unlikely to come from an equity issue.

“Sometime in the next six months we will have to arrange additional financing, so we are looking at bonds, farm-out deals or bringing in a minority strategic partner. By the end of this year, we should find a solution to provide us with the required funding well into 2015,” Hill said.

He added his preference is for Africa Oil to remain involved for the long haul in development of the play rather than sell out completely.