An oil rig in Turkana. Swala Energy is seeking arbitration to get back stake sold to UAE firm CEPSA in a block co-owned with Tullow Oil. CEPSA exited the joint venture in July. FILE PHOTO | NATION MEDIA GROUP
What you need to know:
Swala said it sought the legal remedy to settle the dispute over a 25 per cent stake in Block 12B sold to CEPSA after the joint partner declined to participate in the exploration.
CEPSA first farmed into Block 12B when it bought a combined 25 per cent stake from Swala and Tullow Oil, which jointly held interest in the block.
Petroleum analysts said based on estimates, the farm-out agreement had resulted in the value of the licensing tripling.
Oil firm Swala Energy is fighting to get back stake sold to UAE-owned CEPSA in a block the Kisumu explorer jointly owns with Tullow Oil. Swala said it will go for arbitration to have the share returned.
The oil and gas explorer said it sought the legal remedy to settle the dispute over a 25 per cent stake in Block 12B sold to CEPSA after the joint partner declined to participate in the exploration.
In a statement Swala said the Spanish CEPSA should surrender its interest in the block according to the agreement. Late last week, the firm withdrew its shares from Australian Stock Exchange trading ahead of the news.
“Swala Kenya maintains that CEPSA is obliged to return the entire 25 per cent to Swala Kenya in accordance with the terms of the Farm-Out Agreement (FOA) made between Swala Kenya and CEPSA. Accordingly, Swala Kenya maintains that CEPSA is in breach of its obligations under the FOA,” said Swala.
CEPSA first farmed into Block 12B when it bought a combined 25 per cent stake from Swala and Tullow Oil, which jointly held interest in the block.
CEPSA, owned by Abu Dhabi’s sovereign wealth fund, bought 8.33 per cent stake from Swala and 16.67 per cent stake from Tullow in March for an undisclosed amount.
Swala, however, said that CEPSA had agreed to inject Sh660 million for the drilling of an oil well and an equal amount for a second well. The first well is expected to spud in 2015.
In July CEPSA announced it was exiting the joint venture.
Swala said it wants CEPSA to return the shares in the ratio in which they were acquired, which will see the two remaining firms claw back their shareholding in the block.
“This would result in Swala Kenya holding a 33.33 per cent equity interest and Tullow holding a 66.67 per cent equity interest,” said Swala.
Petroleum analysts said based on estimates, the farm-out agreement had resulted in the value of the licensing tripling.
Valuation
“However, given that we value CEPSA’s funding of its share of the work programme at over $35 million (Sh3.1 billion) for a 25 per cent working interest, this deal carries an implicit valuation for the licence of at least $17,700 (Sh1.5 million) per km2, the highest valuation on a per km2 basis achieved in the region to date,” said a report by London-based Old Park Lane Capital.
Prior to CEPSA’s entry, analysts at the brokerage firm estimated the value of the license to be $3,894 (Sh346,566) per square kilometre.
Oil explorers have been selling stakes to larger companies with stronger technical abilities to meet timelines as set by their Production Sharing Contracts.
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