Despite falling oil prices, investors betting on the longer-term—and a price rebound—should be eyeing exploration and development in Kenya’s massive eastern Lokichar and Anza basins, where the big winners will be those who dig in for the long-term game.
While the recent slump in oil prices could hamper exploration on a global level, Kenya and its recent finds may be more immune than other areas. In fact, exploration and production companies are cutting costs in other areas in order to shift focus to Kenya, which is poised to become the key East African oil and gas hub.
Kenya appears resilient to faltering oil prices, and stocks in Kenya (NSEASI) are up 9.4% since oil prices began falling earlier this summer—in sharp contrast to the 42% plunge in Brent crude. To top it off, the International Monetary Fund is forecasting 6.2% GDP growth in Kenya.
Tullow Oil (TLW) announced in mid-November that it was implementing a plan to significantly reduce its overall exploration spending and capital costs in light of falling oil prices. But its Kenyan operations will be spared from the chopping block, according to Tullow’s CEO Aidan Heavey. “Our overall exploration spending will be significantly reduced and will focus primarily on East Africa where we have major basin-opening potential,” he said.
Other optimistic explorers such as Taipan Resources, Inc. (TSX VENTURE:TPN) (OTCQX:TAIPF) and Houston-based ERHC have like minds and are moving full-speed ahead. Both have announced plans to persist with promising exploratory drilling plans in Lokichar and Anza—despite the falling oil prices.
Lokichar and Anza are two of three basins that make up the East African Rift System. The Anza basin is the largest of the African rift basins—roughly 10 times the size of Uganda’s Albertine basin and Kenya’s Lokichar basin.
Taipan--through its wholly owned subsidiary Lion Petroleum, and in conjunction with Premier Oil--has just announced plans to begin new drilling in the Anza basin with the Badada-1 well in Block 2B, and is on track to spud the well on 28 December. Greatwall Drilling Company has already been contracted to provide the land rig, and Norwell Engineering will manage the drilling operations. Drilling is set to start before the end of the year and the well will take around 70 days to drill at an estimated gross cost of $20-$25 million.
Taipan has maintained a strong momentum in Kenya and there are high hopes for the Badada-1 well, the company’s first in the Anza Basin.
Why all the optimism for Badada-1? That is simple: Badada-1 is testing a Tertiary Rift play, which is analogous to the massive discoveries by Tullow in Kenya’s Lokichar basin and by Heritage Oil in Uganda’s Albertine basin.
These discoveries put Kenya and Uganda on the global oil map, and they keep coming, further unlocking the potential of the Tertiary Rift sequence.
Badada-1 is expected to be a continuation of this, with the well designed to test the Tertiary at depths ranging from 1,500-3,500 meters. An independent auditor, Sproule International Limited, estimates gross mean unrisked prospective resources of 251 million barrels of oil equivalent where Taipan is drilling in the Anza basin.
We’re less than three months away from finding out, and if Badada-1 hits black gold, Taipan will test the upside potential in Block 2B with multiple follow-on prospects that are also analogous to other major discoveries in the Lokichar Basin.
Although Kenya may have been a bit late to the oil exploration business—not striking its first oil until 2012—it has since more than proven its worth as the next up-and-coming hydrocarbon province, with commercial production slated to begin in 2016.
There have been major successes in both the Lokichar basin and Uganda’s Albertine region. Right now, it’s all about the much larger Anza Basin, where explorers are eyeing the potential for finds even greater than those in Lokichar in 2012, when Tullow and Africa Oil turned Kenya into the East African superstar overnight with the discovery of 200 meters of net oil pay from their very first well.
The success did not stop there, either. Soon after, Tullow completed 11 wildcat appraisal drillings in the basin, nine which proved successful, bringing the total estimated Pmean resources in this area to over 600 mmbbo. Tullow now has plans to add five more basin opening wells in 2015.
The bottom line is that there are massive untapped basins here with the potential for many billions of barrels of oil. The potential comes into clearer focus when one considers that Taipan’s Block 2B alone is almost a third the size of the giant North Sea oil fields.
On the backs of this impressive discovery success and massive potential, Kenya has seen an influx of exploration and development companies, and has become one of the hottest oil venues in the world—a status that slumping oil prices do not seem to be threatening. And for the long-term, strategic investors, Kenya is certainly shaping up to be the smart play.
By. James Burgess of Oilprice.com
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