Mr. Keith Hill reports
TULLOW OIL AND AFRICA OIL TO JOINTLY EXPLORE NEW EAST AFRICAN RIFT TREND
Africa Oil Corp. has signed a definitive farm-out agreement with Tullow Oil PLC, whereby Tullow will acquire a 50-per-cent interest in, and operatorship of, three of Africa Oil's East African exploration blocks, comprising two exploration blocks in Kenya and one exploration block in Ethiopia. In order to provide the necessary interest to Tullow, Africa Oil has also amended its existing farm-out agreement with Lion Energy Corp. Under the terms of the Tullow farm-out agreement, Tullow will acquire a 50-per-cent interest in, and operatorship of, blocks 10BB and 10A, in Kenya, and the South Omo block, in Ethiopia. In consideration for the assignment of these interests, Tullow will pay to Africa Oil approximately $10-million (U.S.), representing 50 per cent of Africa Oil's past costs in the blocks, subject to a postclosing audit. Tullow will also finance Africa Oil's working interest share of future joint venture expenditures in these blocks until the cap of $23.75-million (U.S.) is reached. This cap is expected to cover the upcoming seismic program in each of the three blocks, as well as the majority of costs for at least two wells on these areas. Once the expenditure cap has been met, Africa Oil will be responsible for its working interest share of future costs.
Additionally, Tullow has also entered into an agreement to acquire 50 per cent of Africa Oil's interest in, and operatorship of, two additional exploration blocks in Kenya, 12A and 13T, recently acquired by Africa Oil. Tullow will be responsible for paying Africa Oil its pro rata share of back costs, including acquisition costs, and its respective share of future joint venture expenditures.
The amendment of the Lion farm-out agreement provides that Lion will reduce its interest in block 10BB to 10 per cent (originally 20 per cent) and will not retain any interest in block 10A (originally 25 per cent). As consideration, Africa Oil has agreed to pay Lion $2.5-million (U.S.) in cash and to issue to Lion 2.5 million common shares of Africa Oil. Africa Oil has also agreed to the elimination of future expenditure promotes in block 10BB and on the company's projects in Puntland (Somalia).
The resultant interest in the three blocks upon closing of the Tullow farm-out agreement and the Lion amending agreement can be seen in the table.
Block 10BB (Kenya) Tullow 50 per cent Africa Oil 40 per cent Lion 10 per centBlock 10A (Kenya) Tullow 50 per cent Africa Oil 30 per cent EAX (Black Marlin) 20 per centSouth Omo (Ethiopia) Tullow 50 per cent Africa Oil 30 per cent Agriterra (formerly White Nile) 20 per cent
Africa Oil president and chief executive officer Keith Hill stated: "We are very excited about our partnership with Tullow on the East African rift basin. They have arguably been the most successful exploration company in Africa, if not the world, over the past decade, and we see great synergies with the use of the technical and operational expertise they have gained in their nearby Uganda Lake Albert Graben project. The transaction also means that any resultant discoveries will be operated by one of the main partners in the proposed pipeline project to export crude from this highly prospective developing region. With our recent $25-million capital raise and the Tullow deal, we have a very strong balance sheet, which will allow us to continue to pursue opportunities in the region."
Africa Oil is currently acquiring seismic in block 10BB in Kenya and will move the crew to block 10A upon completion. Drilling of the first exploration wells on these blocks is expected to take place during the first half of 2011. The company is also acquiring seismic on its blocks in the Ogaden basin in Ethiopia and continues evaluation of a potential gas discovery in block 9 in Kenya. Drilling plans in Puntland, Somalia, continue to progress, but it is likely that the first well on these blocks will be delayed until 2011.