Africa Oil and its partner Tullow's impressive record of finds in Kenya has exceeded expectations.
Busy year ahead for Africa Oil after striking Lokichar basin finds
LONDON // Africa Oil’s landmark finds in the Lokichar basin with partner Tullow Oil last year grabbed headlines and secured the Canadian company’s place in the scramble for East Africa’s oil resources.
The Africa-focused explorer’s gross best estimate for its total resources to date is 368 million barrels of oil equivalent (mboe), with a potential upside of an additional 851 mboe in the Lokichar basin alone.
Buoyed by its impressive oil discoveries, Africa Oil is planning a busy year ahead. According to the company’s chief executive, Keith Hill, Africa Oil has a first-mover advantage in Kenya and the surrounding countries as it secured licences for a large number of exploration blocks ahead of its competitors. It has more than 250,000 square kilometres for exploration in Kenya, Ethiopia and the Puntland State of Somalia.
So far, Africa Oil and its partners have drilled four exploration wells in the Lokichar basin – Etuko-1, Twiga South, Ekales and Ngamia – and found oil at all four. Much of its blocks are yet to be explored and so the company has decided to increase its exploration programme. “There’s still an awful lot of potential just in [the Lokichar] basin. By the end of next year we will know what we have,” says Mr Hill.
Africa Oil estimates that it will have accessed 60 to 70 per cent of the South Lokichar basin by the end of next year. “A well will be announced every single month for the foreseeable future,” he adds.
The company closed US$450 million in funding last month from institutions and fund managers across Europe and North Africa that will be used to finance its plans. According to the chief executive, it could have accessed as much as $937m had the company wanted to. “It has been easy to get investors to invest,” he says.
Africa Oil is keen to open up new basins. By the end of next year, it will know whether 522 mboe (net risked best estimate) or 5,696 mboe (de-risked best estimate) lies beneath the ground in its exploration blocks.
It plans to drill basin openers at Sala and Shimela in the first half of next year and at South Kerio, Gardim and West Turkana in the latter part of the year. Africa Oil’s most promising new basin is Turkana, where as much as 6,340 mboe may be found. Other basins, such as Kaisut and South Kerio, are expected to yield much less.
In addition to working out how much oil lies in its exploration blocks, Africa Oil is eager to move into the production phase. “We have been an exploration company in the past. Now we can start production in around four or five years,” says Mr Hill. The company currently has five active rigs and is in the process if moving two additional lightweight rigs to the Lokichar basin. It plans to drill at least 20 wells in 2014.
However, being the first producer of oil comes with some complications.
Firstly, Africa Oil will need to work out how it can transport its oil to market. Kenya and Uganda have agreed in principle to build a joint export pipeline but agreements are yet to be signed and financing yet to be sourced.
This is a manageable risk, however, says Mr Hill. The company will be involved in the multi-government oil transmission project if it is successful. Should the project stall, Africa Oil will build its own pipeline.
The company’s impressive record of finds in Kenya has exceeded expectations. All eyes will be on its ability to discover similarly large finds next year. Its stock is currently trading at US$8.60 a share but holds an average target price of $11.46 a share across 24 analysts’ estimates.
Africa Oil has partnered the international oil company Tullow for all but one of its blocks in Kenya. While Africa Oil is not looking for potential partners at present, it is keen to link up with an industrial player in 18 months. By that stage, the scale of Africa Oil’s resources should be apparent.
“I’m not worried about finding oil,” says Mr Hill. “I’m more worried about balancing stakeholders.”