US oil explorer Erin Energy mulls selling Kenyan stake to cut losses

American-owned Erin Energy is looking to sell stakes in its Kenya exploration blocks after losing more than Sh1 billion in the past two years of local operations, filings with the New York Stock Exchange (NYSE) show.

The company has seen the price of its shares on the NYSE fall by over 60 per cent since the beginning of last year, battered by losses from several of its ventures in Africa. In the last one month alone, the share has fallen by nearly 22 per cent.

“The company is considering the possibility of farming-out a portion of its rights to both offshore blocks to potential partners,” said the firm in the latest quarterly filing.

In the nine months ended September 30, the filings show that the company made a loss of Sh731 million ($7.162 million) up from a loss of Sh274 million ($2.689 million) in the same period last year.

The company owns stakes in Blocks L1B located in Lagdera near the Somalia border, L16 which is onshore near Mombasa, L27 and L28 both of which are offshore. A lot of the losses the firm incurred have to do with spending on exploration yet production is yet to begin. It spent Sh143 million (or $1.4 million) during the third quarter in exploration in Kenya alone.

Expenses spent in Kenya

“During the three months ended September 30, the company incurred Sh541 million ($5.3 million) of exploration expenses, including [$1.4 million] spent in Kenya,” said the company in the report.

Many oil companies exploring in Kenya have been forced to sell stakes to continue operations following the fall in the price of the commodity in the international market. Mid last year, oil was selling for over $110 per barrel but has since fallen to vacillate between $40 and $60.

Erin Energy says it entered into four production sharing contracts with the Kenyan government covering onshore exploration blocks L1B and L16, and offshore exploration blocks L27 and L28.

“The company is the operator of all blocks with the government having the right to participate up to 20 per cent, either directly or through an appointee, in any area subsequent to declaration of a commercial discovery,” it says in the report.

In August, the firm received approval for an 18-month extension of the initial exploration period for blocks L27 and L28, which will now last through February 2017. Upon completion of the work programme, the company has the right to apply for up to two additional two-year exploration periods.

SOURCE: BUSINESS DAILY