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$240 mil raised for kenya, tanzania oil search

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    UK firm raises Sh20bn for Kenya, Tanzania oil search

    Posted Sunday, April 1 2012 at 19:14

    Kenya’s profile as a potential oil producer rose sharply in the past two years, attracting billions of shillings in new investments just weeks before last week’s discovery of the mineral in Turkana.

    Citigroup analysts, who have been tracking fundraising activities of international oil hunters, say investor interest in Kenya rose to a new high last month after UK firm Ophir Energy closed a $240 million (Sh20 billion) fundraising campaign at the London Stock Exchange just weeks before Tullow Oil made public its oil find in Turkana.

    The money is earmarked for exploration activities in Kenya, Tanzania and Gabon. It is estimated that a third of the Ophir Energy funds are earmarked for Kenya, which could get even more following recent developments in the local oil exploration scene.

    Also read Contracts shed light on sharing of Turkana oil

    In a filing to the LSE that is also posted on its website, Ophir Energy Plc says it sold 30.5 million new shares whose proceeds will go into exploration activities in the three African countries.

    The shares are set to start trading at the LSE this morning. Citigroup analysts say that the oil find in Turkana’s Ngamia-1 well has significantly raised the profile of exploration companies in Kenya hitting investors with bullish sentiments in home markets.

    Shares of Tullow Oil rose by nearly seven per cent on Monday following the announcement of the oil discovery while that of Africa Oil was 54 per cent up.

    Tullow is the operator of Block 10BB in which the oil was discovered and where it has equal shares with its partner Africa Oil.

    Ophir’s latest effort brings to $518 million (Sh43 billion) the total amount of money that investors have raised for oil exploration activities in Kenya since January – underlining the looming avalanche of big money into that segment of the economy.

    Nick Cooper, Ophir’s chief executive, says that a ‘significant’ portion of the money raised from the company’s latest effort is earmarked for Kenya where drilling is expected to begin next year.

    Ophir entered East Africa’s exploration scene with last year’s purchase of blocks previously owned by Dominion Petroleum in Kenya and in Tanzania.

    “The company’s East African position has been strengthened with the acquisition of Dominion Petroleum Limited in February 2012 that added both Kenyan and Tanzanian licences to the Ophir portfolio,” said Mr Cooper in a statement posted on the company’s website.

    Citigroup’s report published just days after Tullow announced it soil find in Turkana, shows the interest with which investment banks have followed the exploration business and the high expectations in Kenya’s prospects of finding oil in the past two years.

    Citigroup analysts say increasing prospects of finding oil in Kenya has in the past couple of years sparked a flurry of activities in the exploration blocks market, leaving in its wake a fertile ground for international buyers and sellers.

    Since February 2010, Tullow, the UK company that struck oil in Turkana, has been the major player in Kenya’s exploration market having acquired blocks from three companies.

    At the time of its entry, the UK firm was basically going against the grain – buying exploration blocks from exiting foreign players and government-owned National Oil Corporation of Kenya (Nock).

    In September 2010, Tullow spent $33 million for a 50 per cent stake in Africa Oil and acquired a significant stake in Centric Energy for an undisclosed amount.

    In May last year, Tullow spent an additional $15 million to buy participating interest in exploration blocks owned by Pancontinental.

    Analysts say Tullow’s arrival in Kenya and its image as a company with the knack for finding oil has partly contributed to the intensity of activity in East Africa’s exploration market.

    “The company seems to have an almost magic touch of discovering oil and gas,” Bill Page, a partner at Deloitte, says in an analysis of the East African exploration market for clients.

    Mr Page notes in a report published before last week’s announcement of the Turkana discovery that even if Kenya fails to find its own oil, it is well positioned to benefit from heavy extraction activity in neighbouring countries.

    Mr Page reckons that given their reputation as East Africa’s sharpest entrepreneurs, Kenyans are unlikely to be left out of the rush for oil in the region.

    “The discoveries in Uganda and Tanzania will certainly create opportunities for Kenyan businesses,” says Mr Page.

    That question, however, appears to have been answered by the Turkana oil find – putting Kenya on an equal footing with its neighbours on oil wealth.

    Wanjiku Manyara, the chief executive of the Petroleum Institute of East Africa, expects the oil find in Turkana to intensify exploration activity in Kenya and attract billions of shillings more into the sector.

    “We expect that exploration activities will increase and intensify as will the government’s promotion of exploration blocks,” she said.
    But concern is also rising that the rapid growth in number and value of exploration deals is exposing Kenya to the risk of signing bad deals or even losing billions of shillings to petroleum industry’s international corruption networks.
    “I know a lot of deals have been signed in the past four years. Many of the companies that have won rights over the exploration blocks are not the ones that explore or drill the wells,” said an industry expert who cannot be named because he is working for some of the foreign firms.

    The Ngamia-1 well is located 25 kilometres from Lokichar, off the Kapenguria-Lodwar Road.

    Drawing from information given by the oil explorers, Citigroup says that “the successful exploration campaign (in Turkana) has highlighted the potential of the underexplored rift basins.”

    “There are a number of similar basins in the area (Turkana), notably the East African Rift Basin stretching across Kenya and Ethiopia. It is also tertiary in age, and has many similar attributes,” it says.

    The bank advises its clients that Tullow and Africa Oil hold a dominant position in the play, with six blocks in both Kenya and Ethiopia.

    The bank says there has been a significant pick-up in activity across the region with an increasing number of farm-ins (denoting joint ventures) such as the one between Tullow and Africa Oil, takeovers such as that of Lion Energy and Black Marlin, and licensing rounds.
    “These farm-ins have brought better financed companies into the region leading to an acceleration in activity,” says Citigroup.

    Tullow is expected to relocate a second rig to Kenya from Uganda.

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