Africa Oil sees interest from foreign investors in East African oil exploration

Investment into Africa’s burgeoning oil and gas sector is expected to rise in coming years as big oil companies and foreign investors from the US, Europe and Far East finance existing and new projects in the continent.

According to Keith Hill, CEO of Canadian oil and gas exploration company Africa Oil Corp, foreign investors are excited by the “growth in Africa”.

“They are seeing the positive developments in Africa and I think you are going to see more capital coming into Africa.”

Africa Oil Corp has assets in Kenya, Ethiopia and Somalia through its 45% equity interest in Horn Petroleum Corporation. Africa Oil and London-based exploration firm Tullow Oil jointly own assets in Kenya’s northern Turkana region, including Ngamia-1, Kenya’s first oil discovery.

“I was a bit astonished how much money was being offered to us; you know more than double what we needed was being offered. I think that is a real endorsement that people are willing to invest in Africa. The money is coming from all over too: it’s coming from the Far East, it’s coming from Europe, it’s coming from North America. I think people are seeing Africa as one of the primary growth vehicles of the future and they are willing to invest in it,” Hill said.

Hill told How we made in Africa that Africa Oil was offered US$930m by investors when seeking funding while it only wanted to raise $450m.

“That is a great endorsement not only on our company but also on Kenya and the faith in exploration in East Africa,” he said. “We have had approaches from many big oil companies wanting to get into our projects, including companies from the US, from Europe and from the Far East.”

He noted that while “China is very big in Africa” and has been investing in the continent, other parts of the world are now also becoming competitive in Africa.
Despite the interest from oil companies and other foreign investors, Africa Oil and Tullow are not interested in bringing in partners just yet.

“We think it is too early to bring in a partner now. I think both Tullow and ourselves think we need to go out and drill more wells. We need to establish what we have, what the resources are. Then at some point, either jointly or separately we will go out and look for a bigger strategic partner to help us in the development.”

Drilling new wells

Over the next 18 months the two oil companies intend to drill more wells, appraise the discoveries they have, evaluate how big the oil resource is and kick-start the process “down the development path” such as building a pipeline.

“Right now we frankly just don’t know how much oil is there and we don’t know a lot of the characteristics of it,” said Hill, adding that after this period Africa Oil intends to “bring in a bigger industry partner” such as a multinational oil company to fund development.

“But we still want to stay in the country; we still want to be part of the production and the development project going forward.”

Hill said the two firms will also be drilling new prospects in the Lokichar Basin in Turkana, where it has had four discoveries.

“Now that we have proven the petroleum system in the Lokichar Basin they are lower risk than pure wildcat wells. They are more like in the 30%-40% chance of success and we will drill about eight or nine of those.”

In total, Africa Oil and Tullow Oil intend to drill 25 wells by the end of 2014, ranging from the riskier wildcat wells to the lower risk exploration wells within the proven Lokichar Basin area.

Two thirds of the wells will be in the Lokichar Basin in Kenya while the rest will be in other parts of Kenya and Ethiopia.

More basins, more barrels of oil

According to third party estimates, Africa Oil has about 1.5bn barrels of risked resource.

“Basically they have looked at all of our 20bn barrels of unrisked prospective resource, they have done their own determination of what they think the risk factors are and statistically, if they are right, if we drill all of these out, we will have 1.5bn barrels net to us total, not counting our partner’s share.

“The real question is, can we open up any of these new basins. If we start adding these new basins we can start talking about two, four or five, seven, 10bn barrel-type discoveries.”

Hill explained that not all 12 sub-basins that will be drilled are likely to be successful.

“It’s also very unlikely that only one of them is going to be successful and even more unlikely that we were smart enough to drill the only good basin first. It’s very likely that two or three more basins will prove successful but the way the oil business is, you can analyse, you can think about the science as much as you want but eventually you have to drill the wells and the wells are going to tell which of those basins are good and which aren’t.”

According to Hill, the two firms have had a good success rate in Turkana, striking oil in four of the six wells they drilled. However, that might not be the case as they embark on drilling more wells.

“Our success rate is very high but we will drill some dry holes, I can pretty well guarantee that.”