Maersk buys 50% of Africa Oil’s onshore assets
The Danish business buys 50% of Africa Oil’s stakes in onshore exploration licences
The licenses acquired by Maersk cover 100,000 km² and include eight oil discoveries covering the Lokichar basin in the Turkana region in northern Kenya. Four of the blocks are operated by Tullow Oil and the remaining one is operated by Africa Oil.
Maersk is to pay Africa Oil $350m to cover 50% of the past costs incurred before the effective date of 31 March. From that date, Maersk will also carry up to $75m of the company's share of development costs, with this latter amount expected also to be payable on closing.
Upon confirmation of resources it will also pay $15m of the company's share of exploration expenditures. At the point of the final investment decision, Maersk will also carry up to $405m of Africa Oil's share of the costs of developing the Lokichar project, the actual amount depending upon certain reserve growth thresholds being met and upon the timing of first oil.
The transaction is expected to escape capital gains tax which had been a major concern for Africa Oil’s management. The deal is subject to the Kenyan government and applicable regulatory approvals.
'We probably wouldn't have signed the deal if we didn't think the resources would go up'
“This transaction allows Africa Oil to keep a significant stake in the project with no additional equity financing expected prior to first oil. The resulting strength of Africa Oil’s balance sheet will allow it to consider additional growth opportunities in this highly attractive acquisition and divestiture market,” said the company’s chief executive Keith Hill on 9 November.
Later that day Hill said that a dozen companies had expressed interest in the licences and several offers were made. He also said that the Kenya government was very receptive to Maersk as a partner particularly as the company is not only “highly interested” in the possible participation in a future pipeline but is also interested in participating in port facilities and a terminal to export Kenya’s crude to the global markets.
Maersk Oil’s Jakob Thomasen says the company is committed to “pursuing profitable growth” by focusing on expanding within its core geographical areas. “In addition we are rebuilding the exploration business with new acreage positions and pre-development discoveries to balance the risk profile in our portfolio. This agreement with Africa Oil is an example of this”, he says.
Maersk already has interests in Africa; it is producing in Algeria and exploring in the deep water block 16 in Angola.
Shares in Tullow jumped 19% on news of the deal while Africa Oil’s shares soared 48% but eased back when Africa Oil made it clear that the $405m development carry only kicks in in the event of a resources upgrade.
But FirstEnergy Capital say that given the most recent results that Tullow and Africa Oil have achieved since the publication of the latest reserves report, they believe that the resources are already more than 600m barrels. “I would therefore be surprised if Africa Oil does not capture some of the carry. In any event, even assuming zero carry, Africa Oil would only need $500m debt to the take the project to first oil,” which given the quality of the asset is “very feasible”, says FirstEnergy Capital analyst Stephane Foucaud.
Hill said the company was “confident” of finding more resources with an upside of 1bn barrels if more discoveries are made in Kenya. “We probably wouldn’t have signed the deal if we didn’t think the resources would go up.”
Africa Oil will publish a resource update in Q1 2016, and through Q4/2015-Q1/2016 it expects a draft field development plan to be completed and the pipeline route to be finalised. The company in an operational update 11 November said discussions with the government regarding the draft field development for the discoveries in the South Lokichar basin continue positively, with targeted submission by year-end 2015. Preparation for the Front End Engineering Design (FEED) is also underway and is expected to commence in 2016.
Success at Amosing
Both Tullow and its partner Africa Oil also announced 11 November a positive result from the Amosing 5A exploratory/appraisal well on Block 10BB in the South Lokichar basin. The well encountered 15-28m of net oil pay in a downflank position and successfully proved a northern extension to the Amosing field.
The Marriott 46 rig is now drilling the Emesek-1 wildcat well, which will test the undrilled North Lokichar basin. Following Emesek-1, the rig will move on to the Etom 2 appraisal well in block 13T in the South Lokichar basin, and will then move to the Cheptuket well in Block 12A in Q1 2016 which will test a basin in the Kerio Valley.
Block 12A operator Tullow Oil has agreed to farm-down 25% of its 65% operated working interest in the block to UK’s Delonex Energy for a carry, subject to government consent. Africa Oil has a 20% interest in the block while Marathon Oil holds the remaining 15% interest. The east and central African-focused Delonex has been on an expansion drive after picking up its first license in Ethiopia in 2014 covering three blocks in the Abred-Ferfer area. It has also recently been awarded a second operating license in Mozambique’s fifth bidding round in Area P5-A onshore Palmeria.