Markets & Finance

Kisumu oil block estimated to hold 22m barrels

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Oil exploration in East Africa. Swala Energy is targeting to drill 22 million barrels of oil from its Nyanza block. PHOTO | FILE |

Australian oil and gas explorer Swala Energy has said its Nyanza block could have as much as 22 million barrels of oil.

The estimates are from seismic work on Block 12B carried out by Tullow Oil, its partner in the block, in the last quarter of 2014, an operations update by Swala said.

“The prospect Ahero-A is estimated to have the potential to contain up to 22 million barrels of 2C (best estimates) Resources. Additional technical work is ongoing to further refine the joint venture’s understanding of the licence’s potential,” noted the update.

Swala and Tullow have 50:50 interest in the block. Swala said there was a chance the first well on the block could be drilled this year.

Analysts say while the estimate may be “fairly small” it is premature to make conclusions on whether the area could have commercially viable deposits.

Oil & Energy Services chief executive Mwendia Nyaga said more work has to be done to find out the exact amount.

“Until they are able to find how much is out there they cannot evaluate the cost of developing,” Mr Nyaga told the Business Daily.

Swala plans to sell part of its interest to finance the drilling of the well estimated to cost between Sh1.8 billion and Sh2.29 billion.

READ: Swala mulls over putting Kisumu oil block on sale

The explorer was to raise the funds from the global market, but falling oil prices in the international market has created a tough environment and the firm will now sell part of its interest on the block to finance drilling.

“The company’s original intention was to raise additional capital ahead of the 2015 drilling campaign. With the change in market sentiment and the expected weakness in oil prices during 2015, the company commenced a farm-down process in December 2014 to reduce its exposure to costs during 2015,” said Swala in a statement.

Swala has since hired London-based First Energy Capital LL as the transaction advisor on the proposed sale and expects the firm to find a buyer in the next few months.

ERHC, Tullow and Taipan Resources are the other firms going ahead with exploration despite a gloomy outlook. Oil prices are at below $55 a barrel, under the $90 mark analysts cite as the minimum market price required to make the local extraction commercially viable.