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Monday 20 April 2015


Oil and gas exploration companies in Kenya are seeking partners and extensions on their contracts amid tight liquidity due to the fall in crude oil prices.

Industry analysts said many firms are looking for new partners to avoid cancellation of production sharing contracts (PSCs) as the fall in oil prices has made it difficult to get funds for exploration.

PSCs have timeframes for carrying out work programmes like seismic surveys to identify hydrocarbons deposits for drilling in an initial two-year exploration period either onshore or shallow offshore and three years deep offshore.

Adamantine Energy Ltd and Lion Petroleum Inc, for example, have written to the Ministry of Energy asking for more time to meet the terms of crude oil and natural gas exploration agreements while FAR Ltd of Australia has been given a one-year extension on the current production sharing contract to complete work in block L6 that straddles offshore and onshore Kenya.

Tower Resources Plc chief executive Graeme Thomson said Lion Petroleum Inc, the operator of onshore block 2B in north-eastern Kenya, had proposed additional time be sought after joint venture partners completed drilling the Badada-1 well, which was dry.

Adamantine Energy has applied to the Ministry of Energy for a 15-month extension to allow for acquisition, processing and evaluation of two dimension (2D) seismic data of block 11B in north-western Kenya.

Adamantine owns 50 per cent of acreage 11B, First Oil Plc 30 per cent stake and Bowleven Plc 20 per cent. First Oil in July 2013 agreed to fund up to $9 million of initial exploration work with a further commitment of additional $12.5 million in an agreement signed with Bowleven.

“The application for extension to the Kenyan authorities is to enable completion of the seismic programme,’’ said Bowleven’s chief executive Kevin Hart. He said logistical issues including security concerns delayed seismic operations.

FirstEnergy Capital LLP, which is managing the strategic review of Swala Energy Ltd, has received expressions of interest from credible parties who want to buy part of the firm’s interests in Kenya, Tanzania and Zambia. Swala is looking for a partner as an alternative way of raising funds for drilling.

Swala and Tullow Oil Plc, each owning 50 per cent of block 12B in western Kenya, are preparing to drill the Ahero prospect near Kisumu town.

FAR chairman Nic Limb said security issues led Milio Exploration and Production Ltd to defer the seismic survey of onshore part Block 6 until the second quarter of 2015 as well drilling is expected to start early next year.

Government extension

“The government awarded the joint venture a one-year extension to the current PSC in order to complete the work in a safe manner,’’ he said.

Milio acquired 60 per cent of the onshore portion of acreage L6 in February 2014 by agreeing to spend $30 million to survey and drill a well. FAR retained 24 per cent and Pancontinental Oil & Gas NL 16 per cent in the deal.

Offshore is 60 per cent owned by FAR and 40 per cent by Pancontinental. FAR has from last year been looking for an investor to buy part of its offshore stake near Block L10 A, which has a discovery well for hydrocarbons.

The Ministry of Energy has approved extension of the initial exploration period of onshore block L20, which is wholly owned by Dubai based Milio Exploration and Production, to September 2015 to allow for acquisition of new seismic data.

Milio has contracted London based Envoi Ltd to advise on securing a strategic partner for blocks L6 and L20. Milio wants a partner to fund 1,000 kilometres of 2D seismic data likely to cost $11 million and one well in the onshore part of L6, expected to cost about $14 million.

Meanwhile, ERHC Energy Inc is working with Deloitte Corporate Finance to sell part of its 35 per cent stake in block 11A in north-western Kenya, where CEPSA has a 55 per cent equity and National Oil Corporation of Kenya 10 per cent.

ERHC said drilling of the first exploration well is expected during the first quarter of 2016.

The East African

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