Farm-outs increase as oil companies seek funds for drilling BOOKMARKPRINTRATING By DAVID MUGWE Special Correspondent
Posted Saturday, March 15 2014 at 12:26 IN SUMMARY
Over the past three months, three exploration firms have announced the sale or indicated their intention to seek a buyer of part of their interests in at least five blocks to raise funds for further exploration work. SHARE THIS STORY Increased oil and gas exploration in East Africa has triggered off a new round of farm-outs as international firms holding licences seek funds for surveying and drilling.
Over the past three months, three exploration firms have announced the sale or indicated their intention to seek a buyer of part of their interests in at least five blocks to raise funds for further exploration work.
Australian Securities Exchange (ASX) listed Swala Energy, last week announced that it had sold a 25 per cent stake in block 12B in western Kenya.
The sale, to a party that has requested confidentiality until the deal is approved by the government and Competition Authority of Kenya, could be worth more than $17.7 million.
“The Board believes the farmout is the most cost-effective and least dilutive way to strengthen the company’s balance sheet in anticipation of the forthcoming activity both on block 12B and in our other assets,” said David Mestres Ridge, chief executive officer, Swala Energy.
If the sale is approved, Swala will hold a 25 per cent net working interest in the block, the new firm will hold 25 per cent, while Tullow Oil, the operator of the block, will hold the remaining 50 per cent.
Pay past costs
As a result of the deal the new firm will pay Swala Energy’s past costs, including those associated with a seismic survey up to $2.7 million, drilling of a first exploration well up to $7.5 million subject to positive results and drilling of a second exploration well subject to positive results on the first well among others.
Last week’s announcement came barely a month after two other ASX-listed oil and gas explorers announced that they had obtained approval from the Ministry of Energy in Kenya to sell a stake of block L6 on the Kenyan coast.
It also came a month after a London Stock Exchange listed explorer disclosed that it was considering a part sale of its assets off the coast of Kenya after it sold a large stake of assets off the coast of Tanzania.
Pancontinental Oil and Gas and FAR Energy mid-February said that they had obtained government approval to sell a 60 per cent stake of the onshore part of the block to Dubai headquartered Milio International for about $30 million.
READ: East Africa oil, gas mergers to hit new high
The announcement also comes two weeks after Pancontinental disclosed that it was in talks with Kenya’s government and another “potential co-venturer” on block L8 whose production sharing contract expired after New York Stock Exchange listed Apache Corporation exited.
As a result, Milio will hold a 60 per cent interest in the onshore part of the block, FAR which is also considering a sale of part of its offshore stake will retain a 24 per cent interest, while Pancontinental and Afrex Ltd a subsidiary of Pancontinental will hold the remaining 16 per cent.
The farm-in agreement with Milio E&P Ltd and Milio International provides funding for drilling and testing of a high impact onshore exploration well in block L6 expected to spud in H1 2015.
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