Foreign firms sign Sh3bn buyout deals for oil blocks in a month

Mr Mwendia Nyaga: Companies develop jointly. FILE 

By John Gachiri, jgachiri@ke.nationmedia.com

In Summary

• The deals reported are either complete or are only waiting approval from the government and regulators in the countries where they are listed.
• Simba Energy, EHRC Energy, Taipan Resources and Swala Energy have all announced farm-out deals in the past one month.
• Petroleum analysts say that prospecting firms sell to larger firms to cash out as well as bring in better skilled partners to do the drilling.

Foreign-based exploration firms have signed deals worth at least Sh3.3 billion for buyouts of Kenyan oil blocks over the past one month signaling heightened activity in the sector as the prospecting companies seek more capital to finance their operations.

Fillings by companies that have publicly announced sale (farm-out) deals show that since December 2013, the foreign-based oil and gas prospectors have ceded stakes worth at least $38.1 million (Sh3.3 billion).

The deals reported are either complete or are only waiting approval from the government and regulators in the countries where they are listed.

“The farm outs are positive as they indicate improved confidence and prospects in the Kenyan oil and gas basins,” said industry analyst George Wachira who is director of Petroleum Focus Consultants.

Simba Energy, EHRC Energy, Taipan Resources and Swala Energy have all announced farm-out deals in the past one month.

The sales, which have mainly involved exploration blocks located in northern Kenya where Tullow Oil has discovered commercially viable crude deposits, have seen the prospectors ceding equity stakes to other companies in exchange for participating interests in the blocks.

Canada’s Simba Energy has announced that it plans to sell a 40 per cent stake interest in its Block 2A to an undisclosed compatriot firm for $8.6 million or Sh746 million.

Before that EHRC Energy, a Texas-based firm, said that it will sell a stake to an undisclosed firm in a deal that will see it get an initial $2 million (Sh174 million) with more cash expected thereafter through financing of drilling of wells.

Canada’s Taipan Resources sold a 55 per cent stake to UK-based Premier Oil for $29.5 million or Sh2.5 billion in December 2013 for interest in its Block 2B. Experts say that the recent increase in selling and buying of stakes by prospecting firms indicates that they are optimistic of striking oil.

READ: Canadian oil firm deal values Kenya operation at Sh2bn

Petroleum analysts also say that prospecting firms sell to larger firms to cash out as well as bring in better skilled partners to do the drilling, which makes the case that there are potentially huge crude deposits stronger.

Should deposits prove to be commercially viable, more joint ventures are expected even at the later stages due to the complexity involved and the need to share risk.

“Even companies like ExxonMobil and Shell develop jointly. Rarely will you find them developing oil fields of their own,” said Oil & Energy Services chief executive Mwendia Nyaga, adding that selling equity stakes is the most feasible way of raising money since commercial banks and other financiers hardly lend for exploration due to the high risk involved.

More activity is expected even in blocks that have not been highlighted as much as those in northern Kenya where Tullow is operating. Rift Energy, another Texas-based company that is prospecting for oil and gas in the coastal region, has said that it is selling a stake in its Block L19.

“We are in discussions with multiple companies who have an interest in farming in our Block L19,” says an investor presentation by the firm.