British oil firm gets Sh5.2bn funding for Kenyan operations
An oil rig at Ngamia 1 where Tullow Oil Company said it had found oil deposits. British company Delonex has secured World Bank funding for its exploration activities in Kenya. Photo/File
What you need to know:
Part of the cash will finance Delonex’s operations in Kenya, according to disclosures made by the the International Finance Corporation (IFC) in a statement announcing the intended cash boost.
The funding for Delonex by the World Bank’s private lending arm is a strong indication that Kenya’s recently discovered oil deposits could be commercially viable.
British oil prospecting firm Delonex Energy, which opened its regional headquarters in Nairobi last month, is set to get $60 million (Sh5.2billion) funding from the International Finance Corporation (IFC).
Part of the cash will finance Delonex’s operations in Kenya, according to disclosures made by IFC in a statement announcing the intended cash boost.
The funding for Delonex by the World Bank’s private lending arm is a strong indication that Kenya’s recently discovered oil deposits could be commercially viable.
“The project will (also) seek to set a team on the ground, based in Kenya, in order to establish local presence, identify contractors, local content partners and create relationships with all stakeholders,” says the IFC’s disclosure note.
The IFC’s investment represents about a tenth of the Sh52 billion ($600 million) that Delonex Energy has set aside to invest in natural gas and petroleum prospecting in select markets in East and Central Africa.
The IFC has a 10 per cent stake in the firm. Other shareholders are expected to contribute the Sh46.8 billion balance.
Private equity firm Warburg Pincus is the largest shareholder with a 48 per cent stake, Delonex Co-Invest LP 40 per cent, and the firm’s management has a two per cent stake.
The IFC disclosure note on the deal says that Delonex has already begun looking at viable investments and is seeking firms to offer supporting services.
“The management team of Delonex is well advanced into pre-screening their first investments. Material equity stakes and operatorship will be targeted and partnerships will be built to access markets and mitigate risks,” says the IFC statement.
Delonex is seeking to buy out or buy into a company that has oil exploration blocks or engage directly with governments to acquire prospecting licences. Analysts said it is possible for Delonex to get “farm in” offers from firms that are already in the industry.
Heavy investment outlays and high skills requirement in the sector often pushes firms with exploration rights to accomodate partners through creation of additional shares or sale of their stakes.
“That is what Tullow did when it sold shares to CNOOC and Total,” said Eric Musau, a research analyst at Standard Investment Bank.
Tullow sold two-thirds of its interest in the Lake Albert basin blocks for $2.9 billion in 2011, to China National Offshore Oil Corporation (CNOOC) and French company Total.
At the time the said that the two new entrants had the ability to scale up production.
The IFC note also says that it expects Delonex to follow the same path of a smaller investor, which sets the stage for a larger firm to enter.
“Delonex will pave the way for the entry and broad participation of the large oil companies that bring with them the expertise and resources necessary to develop such new plays, thereby triggering economic activity for the region,” said the disclosure note.
The mining and oil sectors are a key source of foreign direct investment (FDI) for the region and the entry of Delonex is likely to drive growth of the sector, which grew by 37 per cent in 2012.
“Recent natural resource discoveries also contributed to the increase in FDI inflows to East Africa, from $4.6 billion (Sh399 billion) last year to $6.3 billion (Sh547 billion) in 2012.
This includes investment in recently discovered gas reserves in the United Republic of Tanzania and oil fields in Uganda,” says the World Investment Report 2013, Global Value Chains: Investment and Trade for Development.
Delonex is the latest international oil prospecting firms that have opened shop in Kenya.
US-based Anadarko Petroleum Corporation, Canada’s Africa Oil Corporation and UK’s Tullow Oil have acquired on-shore and off-shore exploration blocks at the Coast and in northern Kenya.
Commercial viability is yet to be established, though Tullow has been talking up its prospects after hitting a string of successful exploration wells.
