Ownership of oil exploration blocks begins to change hands

The ownership of exploration blocks in the region is changing hands after a lull in activity caused by the collapse of global crude oil prices.

The upstream sector, which was shrouded in uncertainty attributed to the oil price decline from over $100 in mid-2014 to less than $60 barrel this year, was seeing reduced capital expenditure with buyers hunting for cheap bargains.

The National Oil Corporation of Kenya (NOCK) now plans to buy shares worth $1.2 billion on behalf of the government, in the South Lokichar basin, in the northwest of the country, where oil has been discovered.

Octant Energy Corporation and Maersk Oil and Gas are among the firms making deals for acquisition and farm-in (partial buying of shares) of blocks.

NOCK intends to acquire a stake in the South Lokichar basin’s blocks 10BB and 13T in Turkana County where Tullow Oil Plc and Africa Oil Corporation have discovered 600 million barrels of crude oil. Production is realistically expected to start around 2020.

Tullow Kenya said its production sharing contract will allow the government to participate as a paying partner once the field development plan is approved.

Tullow plans to submit the field development plan of flow pipelines, storage tanks and other facilities for government approval from March 2016. The approval will allow the companies to move to crude oil production.

“The government may participate either directly or through an appointee such as NOCK,” Tullow said.

“We are waiting for the completion of the South Lokichar field development plan to know how much it will cost us to partake. We anticipate our portion may cost around $1.2 billion,” NOCK CEO Sumayya Hassan-Athmani said.

Assignment of equity will be subject to NOCK reimbursing other partners their share of capital expenditure, funding future work, and becoming a party to South Lokichar’s joint operating agreement.

Ms Athmani said the exact equity to be taken by the state corporation is yet to be decided.

Octant Energy of Canada plans to buy blocks 1, L17 and L18 in Kenya, and some acreage in Tanga, Tanzania from Afren Plc, which has been experiencing cash flow problems. The transaction is subject to approval by the respective governments.

Afren owns 80 per cent of onshore Block 1 in northeastern Kenya, 100 per cent of Blocks L17 and L18 along Kenya’s coastline, and 74 per cent of the Tanga acreage that straddles onshore and offshore Tanzania.

“The portfolio Octant has secured is pivotal to future development in Kenya and Tanzania as they move towards energy security and domestic growth,” said Octant’s CEO Richard Schmitt.

Octant appears set to be a major player in the industry as the firm has signed an agreement to acquire, through an equity swap, $1.25 million worth of Imara Energy Corporation, which owns Kenya’s onshore oil and gas exploration Block L2 in the Lamu Basin.

READ: Canada’s Octant buys Afren Oil Kenya, Tanzania assets

“Outstanding share purchase warrants and stock options of Imara shall be exercised, or ‘rolled over’ into Octant options and shall be exercisable into Octant shares for a period of 180 days from closing of transaction,” said Mr Schmitt. Octant will issue 16.3 million shares to Swara at a consideration of $0.10.

Marathon Oil Corporation has also signed an agreement for the sale of exploration acreage to a buyer who is yet to be disclosed.

“The company signed an agreement in the third quarter to sell its Ethiopia and Kenya exploration acreage, representing an exit from East Africa,” the company said in its latest financial statement.

Africa Oil has also agreed to sell 25 per cent of its stake in exploration blocks in northern Kenya and southern Ethiopia to Maersk Oil of Denmark in a deal worth $845 million, subject to the host government granting approval.

Toronto Stock Exchange-listed Africa Oil is reducing its interest in acreage 10BB, 13T and 10BA in northern Kenya as well as its Rift Basin and South Omo blocks in Ethiopia in order to recover expenses.

Africa Oil CEO Keith Hill said Maersk has its eyes on the Lokichar field and related pipeline projects.

Maersk Oil will pay $350 million upfront for past costs, and carry up to $75 million of Africa Oil’s share of development expenditures on confirmation of resources and $15 million worth of exploration expenditures.

Maersk CEO Jakob Thomasen said the firm is revamping its exploration business while balancing the risk profile through stakes in new acreage and fields with proven discoveries.

“We can take aantage of opportunities arising in current market conditions,” he said.

Once Kenya approves the final investment decision, Maersk will also carry up to $405 million worth of Africa Oil’s working interest share of development expenditures for Lokichar Development Project.