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The East African : Nov 14th 2015
34 The EastAfrican BUSINESS NOVEMBER 14-20,2015 MININ G AN D E N E RGY Ownership of oil exploration blocks begins to change hands Companies face ≥educed capital expenditu≥e as buye≥s seek ba≥gains By KENNEDY SENELWA Special Correspondent T he ownership of exploration blocks in the region is chang- ing hands after a lull in activity caused by the collapse of global crude oil prices. The upstream sector, which was shrouded in uncertainty attributed to the oil price decline from over $100 in mid-2014 to less than $60 barrel this year, was seeing reduced capital expenditure with buyers hunting for cheap bargains. The National Oil Corporation of Kenya (NOCK) now plans to buy shares worth $1.2 billion on behalf of the government, in the South Lokichar basin, in the northwest of the country, where oil has been discovered . Octant Energy Corporation and Maersk Oil & Gas are among the firms making deals for acquisition and farm-in (partial buying of shares) of blocks. NOCK intends to acquire a stake in the South Lokichar basin’s blocks 10BB and 13T in Turkana County where Tullow Oil Plc and Africa Oil Corporation have discovered 600 million barrels of crude oil. Production is realistically expected to start around 2020. Tullow Kenya said its produc- tion sharing contract will allow the government to participate as a paying partner once the field development plan is approved. Tullow plans to submit the field development plan of flow pipelines, storage tanks and other facilities for government approval from March 2016. The approval will allow the companies to move to crude oil production. “The government may partici- pate either directly or through an appointee such as NOCK,” Tullow said. “We are waiting for the com- pletion of the South Lokichar field development plan to know how much it will cost us to partake. We anticipate our portion may cost around $1.2 billion,” NOCK CEO Sumayya HassanAthmani said. Assignment of equity will be subject to NOCK reimbursing other partners their share of capital expenditure, funding future work, and becoming a party to South Lokichar’s joint operating agreement. Ms Athmani said the exact eq- uity to be taken by the state corporation is yet to be decided. Octant Energy of Canada plans to buy blocks 1, L17 and L18 in Kenya, and some acre- We can take advantage of opportunities.” Maersk CEO Jakob Thomasen Turkana County governor Josephat Nanok, Tullow Kenya country manager Martin Mbogo and British High Commissioner to Kenya Christian Turner at a Tullow exploration site. Pic: File age in Tanga, Tanzania from Afren Plc, which has been experiencing cash flow problems. The transaction is subject to approval by the respective governments. Afren owns 80 per cent of on- shore Block 1 in Northeastern Kenya, 100 per cent of Blocks L17 and L18 along Kenya’s coastline, and 74 per cent of the Tanga acreage that straddles onshore and offshore Tanzania. “The portfolio Octant has se- cured is pivotal to future development in Kenya and Tanzania as they move towards energy security and domestic growth,” said Octant’s CEO Richard Schmitt. Octant appears set to be a ma- jor player in the industry as the firm has signed an agreement to acquire, through an equity swap, $1.25 million worth of Imara Energy Corporation, which owns Kenya’s onshore oil and gas exploration Block L2 in the Lamu Basin. “Outstanding share purchase warrants and stock options of Imara shall be exercised, or ‘rolled over’ into Octant options and shall be exercisable into Octant shares for a period of 180 days from closing of transaction,” said Mr Schmitt. Octant will issue 16.3 million shares to Swara at a consideration of $0.10. Marathon Oil Corporation has also signed an agreement for the sale of exploration acreage to a buyer who is yet to be disclosed. “The company signed an agreement in the third quarter to sell its Ethiopia and Kenya exploration acreage, representing an exit from East Africa,” the company said in its latest financial statement. Africa Oil has also agreed to sell 25 per cent of its stake in exploration blocks in northern Kenya and southern Ethiopia to Maersk Oil of Denmark in a deal worth $845 million, subject to the host government granting approval. Toronto Stock Exchange-list- ed Africa Oil is reducing its interest in acreage 10BB, 13T and 10BA in northern Kenya as well as its Rift Basin and South Omo blocks in Ethiopia in order to recover expenses. Africa Oil CEO Keith Hill said Maersk has its eyes on the Lokichar field and related pipeline IMPACT OF DROP The most obvious impact of the oil price collapse on company accounts is the increased risk of impairment of assets. Lower oil price forecasts mean that producers should expect lower future profits from an asset. Subsequently, this reduces the present value of the asset, and if the value currently carried on balance sheets cannot be recovered in full, this results in a write-off. projects. Maersk Oil will pay $350 mil- lion upfront for past costs, and carry up to $75 million of Africa Oil’s share of development expenditures on confirmation of resources and $15 million worth of exploration expenditures. Maersk CEO Jakob Thomasen said the firm is revamping its exploration business while balancing the risk profile through stakes in new acreage and fields with proven discoveries. “We can take advantage of op- portunities arising in current market conditions,” he said. Once Kenya approves the fi- nal investment decision, Maersk will also carry up to $405 million worth of Africa Oil’s working interest share of development expenditures for Lokichar Development Project. Powe≥ p≥oject d≥aws 20 fi≥ms By KABONA ESIARA The EastAfrican TWENTY FIRMS have been prequalified to bid for the construction of the regional Rusumo Falls Hydroelectric Project, which is expected to add 80MW to the Rwanda, Burundi and Tanzania power grids by 2019. The current electricity generation in the region cannot meet the increasing industrial and domestic demand, with governments using heavy diesel generators, thus pushing up power tariffs. The project has attracted six Chinese firms, and 14 from Turkey, France, South Africa, Australia, Germany and Israel, who have been invited to bid for contract packages (CP1) which involve installation and supply of electromechanical works and equipment. The CP2, involving civil works, has attracted four companies. “It is a good spectrum of contractors,” said project manager Johnson Lee Pattinson. Mr Pattinson said evalu- ation of the bid documents will take place next April. The $470 million dam is expected to be completed in three to four years. The three countries took a $340 million loan for construction from the World Bank, and $130 million came from the African Development Bank and other development partners. Tanzania needs 870MW of electricity, but currently only generates 105MW. Rwanda projects that its needs will rise to 563MW in the next two years. The country’s generation capacity is currently 165MW, and 46 per cent of it is from heavy fuel oils and diesel generation plants. To keep tariffs affordable, Rwanda heavily subsidises its power. Electricity tariffs in the country increased by 35 per cent for low voltage users, from 0.18 cents per kilowatt to 0.24 cents per kilowatt. The Rwanda Utilities Regulatory Authority says the subsidies have kept power affordable. Rwanda’s Mminister of In- frastructure James Musoni is optimistic that power tariffs will reduce when the expensive generation plants are phased out.
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