AFRICA is moving back on the radar of ASX-listed explorers, who are tapping into strong demand from UK investors for big-risk, big-reward oil plays.
A number of corporate moves signal a shift back towards Africa, reversing a trend that began in 2006 when the Chinguetti project turned sour for partners Woodside, Roc Oil and Hardman Resources.
Woodside and Roc Oil began to withdraw from Africa, with the latter’s exit also influenced by the global financial crisis and the death of Roc’s founder and driving force, John Doran.
Hardman had other quality assets that have become part of the Tullow Oil success story in Africa.
The revival of ASX-listed explorers in Africa is being led by FAR, which last week announced a friendly, all-share takeover bid for Kenya-focused Flow Energy, and Pancontinental Oil & Gas.
There’s even an Africa-focused IPO in the wings, with talk that Pura Vida Energy, a vehicle for Damon Neaves (ex-Tap) and David Ormerod (ex-Karoon Gas) will go public shortly with a float raising about $7 million.
FAR is one of the original band of ASX companies in Africa. It’s been exploring there since 2005 but activity has quickened over the past 18 months.
FAR has the broadest spread of acreage of any ASX-listed company off the coast of west Africa. With the proposed takeover of unlisted Flow Energy, FAR will rival Pancon as the ASX-listed leader in terms of acreage in offshore Africa.
FAR executive chairman Michael Evans said that while oil exploration in Africa was generally much higher risk than offshore Australia, it was strongly supported by UK investors.
"Africa is a true frontier, a lot riskier, but the rewards are far more substantial for junior explorers,” Evans said.
"There is a lot of UK money that follows African oil exploration. Most of these funds are raised through AIM, although we have shown that ASX- listed companies can tap into that demand.”
FAR raised $34 million late last year via a placement and share purchase plan in the lead up to drilling the Kora-1 wildcat in July, which was the first deepwater well in the Senegal/Guinea Bissau region.
The well was unsuccessful but FAR’s costs were limited to around $US9 million. The company retains a cash balance of $25 million, which will help fund the combined FAR/Flow entity.
Evans said it was possible to gain entry into African frontiers at low cost when FAR entered the fray some six years ago, however this was no longer the case.
"It can be difficult for small companies to be let in the door by governments, but FAR and Flow have both pursued that strategy and been successful,” he said.
“We have acquired positions at attractive entry prices and the name of the game now is upgrading those and then finding the capital to drill from the right partners.
“If you get in early in these areas it doesn’t take much to get traction. When the big companies start coming in, that can lead to a sudden re-rating.”
Flow’s major assets are Kenyan offshore permits Block L-6 (60% and operator) and Block L-9 (30%, operated by Dominion Petroleum).
The blocks are in the middle of a new East African offshore oil and gas province that is now attracting attention from BG, Total and Apache. Total announced last week a package of farm-ins to five blocks in a deal that has been valued at $250 million.
Evans said FAR looked at Kenya over a year ago. “We were not keen on it then because it was considered to be gassy and markets were not developed. But recent exploration results in Tanzania have turned that thinking on its head, suggesting regional potential for both oil and gas in large enough accumulations to exploit.”
Pancon was also an early mover offshore Kenya. It is a 40% joint venture partner with Flow in Block L-6, and holds 15% in each of Blocks L-8, L-10A and L-10B.
Apache recently bought a 50% stake in Block L-8 from Origin and took over as operator. Origin retains a 25% interest. Apache is looking for a rig to drill the multi-billion-barrel Mbawa oil prospect in 800 metres of water. Pancon is free-carried through this well by Tullow, which farmed into Pancon’s original 25% stake.
Blocks L10A and L10B were won in a competitive tender earlier this year. Pancon was part of a consortium led by BG and including Premier Oil Investments and Cove Energy.
Pancon has also recently had success off the coast of Namibia, where the government in July awarded a 17,000 square kilometre permit.
The region is attracting fresh exploration interest because it is seen as a possible “mirror” of Brazil’s Santos Basin on the opposite side of the mid-Atlantic ridge. A number of wells will be drilled in 2012 in neighbouring permits.
While FAR and Pancon have recently emerged as leaders in terms of African acreage positions, there is increasing investment and activity by a number of other companies, including Tap Oil, Rialto Energy and Tangiers Petroleum in offshore blocks and Beach Energy in onshore Tanzania.
Tap and Rialto are partners in the Accra block off the coast of Ghana. Tap is operator with 36% while Rialto is acquiring an 18% interest from CMI. Tap is planning to drill a well in 2012 to test an oil prospect on trend from the 1.8 billion barrel Jubilee oil discovery in neighbouring Cote d’Ivoire in 2007.
Cashed-up Rialto is also due to begin a three-well drilling campaign at its own block (CI-202) in Cote d’Ivoire in early 2012. The campaign is designed to appraise a number of previous discoveries in shallow water, with a combined contingent resource of 50 million barrels of liquid and almost 400 BcF of gas.
Drill results from these wells will be part of a much larger flow of news from ASX-listed companies in Africa through 2012.
FAR Price at posting:
2.7¢ Sentiment: None Disclosure: Held
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