Tullow gets boost in Maersk Oil Kenya deal

An oil rig at one of the exploration sites. Photo/FILE 

In Summary

• The government is targeting to start crude production in September but in a recent update on its operations, Tullow Oil said that it would make a consideration on whether to invest in oil production and setting up of associated infrastructure in 2017.
• The farm-out arrangement was approved by Kenyan authorities last month but both companies had not reached a financial settlement.
• Once Tullow and Africa Oil agree on when to start producing oil, Maersk will also be obligated to pay the Canadian company an additional Sh41.3 billion ($405 million) depending on “meeting certain thresholds of resource growth”.

By IMMACULATE KARAMBU
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Africa Oil Corporation, the partner of Tullow Oil Plc in Kenya has received Sh43.6 billion ($427 million) from Maersk Oil & Gas of Denmark in exchange for half of its stake in three exploration blocks located in the Lokichar basin.

The deal brings in Maersk as a partner in blocks 10BB, 13T and 10BA where it will own 25 per cent interest, scaling down Africa Oil’s stake to 25 per cent while Tullow retains a 50 per cent interest in the blocks.

The farm-out arrangement was approved by Kenyan authorities last month but both companies had not reached a financial settlement.

READ: Africa Oil gets nod to sell stake

Africa Oil says the funds will be utilised to further exploration activity in the country as it prepares to commence pumping crude.

Africa Oil will be eligible for an additional Sh7.7 billion ($75 million) from Maersk after it confirms the existing amount of crude in the three blocks, which is expected to take place this quarter.

Once Tullow and Africa Oil agree on when to start producing oil, Maersk will also be obligated to pay the Canadian company an additional Sh41.3 billion ($405 million) depending on “meeting certain thresholds of resource growth”.

START PRODUCTION SEPTEMBER

“We are very pleased to have completed the Kenyan portion of our farm out to Maersk. We feel Maersk will be an excellent partner in terms of technical and financial strength and experience critical to moving the development project forward,” said Africa Oil’s chief executive officer Keith Hill.

The government is targeting to start crude production in September but in a recent update on its operations, Tullow Oil said that it would make a consideration on whether to invest in oil production and setting up of associated infrastructure in 2017.

International oil prices have plummeted to about $30 a barrel due to oversupply and declining demand.

The steep drop in crude prices has also seen oil and gas companies endure funding challenges, resulting in farm out deals both as a way to raise additional capital and also offloading exploration risk.

Africa Oil is upbeat that the deal with Maersk will eliminate the need for funding from its shareholders.

“This transaction puts Africa Oil in the enviable position of not requiring any additional equity financing prior to first oil and will allow us to weather the current difficult oil price environment should it continue into 2016,” said Mr Hill.