Canadian oil firm deal values Kenya operation at Sh2bn

A Tullow Oil oil rig at the Ngamia-1 well on Block 10BB, in the Lokichar basin, Turkana County, Kenya. Photo/FILE 

By John Gachiri

In Summary

• Simba, which is listed on Canada’s TSX Venture Exchange, says in a disclosure statement that it is selling the stake in Block 2A for $8.6 million (Sh746 million) to a company based in Calgary, Canada.
• Proceeds from the sale will be used to recoup initial costs and fund a seismic survey, whose data will be used to guide drilling of wells.

Simba Energy, a Canadian oil and gas exploration firm, has agreed to sell a 40 per cent stake in its northern Kenya block in a transaction that values its current operations at Sh1.9 billion.

Simba, which is listed on Canada’s TSX Venture Exchange, says in a disclosure statement that it is selling the stake in Block 2A for $8.6 million (Sh746 million) to a company based in Calgary, Canada.

Proceeds from the sale will be used to recoup initial costs and fund a seismic survey, whose data will be used to guide drilling of wells.

“This letter of intent provides a fully-funded and accelerated exploration programme through to selecting drill targets and allows Simba to recover $2 million (Sh172 million) in costs upon completion of the definitive agreement and host government approval,” said the Simba Energy chief executive Robert Dinning in a statement.

Mr Dinning said that they expect that the deal should be completed by March to pave the way for a seismic survey and drilling thereafter.

“Upon completion and interpretation of seismic results, both parties mutually agree to either drill a first exploration well with each party responsible for its own share of costs, or, to farm out (sell) to other third parties on mutually acceptable terms,” said the firm in a statement.

Simba’s proposed sale comes on the heels of a similar announcement by EHRC Energy, an American firm also exploring for oil and gas in the same northern Kenya region.
Both deals are subject to regulatory approvals.

READ: US oil firm earns millions from sale of Turkana block

The location of the block in the Lokichar Basin where British explorer Tullow Oil said it had established commercially viable quantities of crude has worked to the advantage of Simba Energy.

“This block is highly prospective given the exploration work completed to date by the company and exploration activities underway by neighbouring energy companies, including Tullow, Africa Oil, Marathon, Afren and Taipan on the adjacent blocks to 2A in the Anza basin,” said Mr Dinning.

Industry analyst George Wachira, the director of Petroleum Focus Consultants, said the recent farm-out announcements are spurred by the need to bring on board deep-pocketed partners to minimise exploration risks for the license holders.

“Farm outs are usually done to raise capital for exploration and development by picking partners with a higher capital base,” Mr Wachira told the Business Daily.

Oil & Energy Services chief executive Mwendia Nyaga said the heightened activity is also a sign that the explorers have established that there are high chances of striking oil in their blocks.

jgachiri@ke.nationmedia.com