east africa the next big oil play

News from East Africa Nairobi, Oil conference:
May 19, 2011 By: Fred Dillay Category: Energy & Capital


I am reporting today from the basement of the Hilton Nairobi after spending the last two days at the second annual East Africa Oil Conference.

The information was good. The oxtail they severed for lunch was bad.

The conference was packed full of the best oilmen on earth. There wasn?t an empty seat.

There were managers, drillers, seismologists ? every one of them betting ?the next big thing? will be in East Africa.

And it wasn?t just the Chinese; there were Indians, Saudis, South Africans, and many others.

Many big exploration and service companies were represented: Total, Anadarko (APC 74.58 ↑4.10%), Sasol (SSL 51.79 ↓-1.26%), Tullow, Apache (APA 123.00 ↑0.12%), Cairn, and International SOS ? the company that gets people out of hard places when things go wrong ? to name a few.

One of the security guys was telling me how they were able to do seismic work in Puntland?

The answer: You get permission from the elders.

Elephant Hunting

All of these companies were elephant hunting in the East African Rift, or just offshore the continent?s east coast.

Everyone wanted to nail the next big find, but no one wanted to be the first to spend $100 million dollars on an exploratory well?

The first speaker was the Permanente Secretary of Energy for Kenya. He explained there are 36 blocks that have been leased, with 32 exploratory wells drilled and 75,000 square kilometers of seismic data collected.

That said, the oil infrastructure was poor with only one 900 km pipeline and an oil refinery that was built in 1963, the year of independence. He said the refinery would be updated by 2013.

As it is, they can?t keep up with demand.

Like everywhere else on earth, demand is growing. In Kenya, it is growing 10% a year.

Last Frontier

Africa is the last oil frontier.

East Africa has been searched before, but it is always the last place companies go ? and the first one abandoned after oil prices fall.

Unlike the United States, it has 10% of the world?s oil ? but only uses 3% so it can be an exporter.

Africa as a whole has as much oil as Russia, or an estimated 120 billion barrels. Furthermore, it is cheaper to drill there than in the Arctic. Plus it has shale.

It is expected that Africa will produce 12.6 billion barrels a day by 2015.

~~SIGNUP_EAC~~

Bombay High

But it is East Africa that was left unexplored. The list of hydrocarbon finds is short and sparse.

In 1936, heavy oil was found in Madagascar. In 1956, Oman found their big fields. In 1961, the Pande was discovered in Mozambique. In 1974, the Bombay High was discovered in India.

But then, East Africa was abandoned by explorers until Tullow hit the Kingfisher well in 2006. There was a minor oil boom after that, but then the great recession hit and oil fell to $33 a barrel?

The money dried up and the wildcatters packed their bags and went home.

Well, now oil is back around $100 and the rush is on for sure.

The money guys tell me that the blocks are getting expensive. And people aren?t as eager for partners as they were a year ago.

Things are starting to get exciting.

I have a couple of small oil companies on the ground here. I listened to their CEOs speak yesterday. There is a lot of upside.

I?ll tell you more about it next week?

Looks like I?m running late for my plane.

Sincerely,



Christian DeHaemer
Editor, Energy and Capital

News From the East Africa Oil Conference in Hilton Nairobi originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.v