Markets & Finance

TransCentury to reap profit from Tullow Oil plans

Oil Rig px

A Tullow exploration site in Turkana. The UK firm is one of the major clients of Civicon, a firm in which TransCentury is majority shareholder. Photo/File

Listed investment company TransCentury’s share price has got a boost from UK exploration firm Tullow Oil’s announcement of a planned increase in prospecting activity this year.

TransCentury is the majority shareholder of Civicon, an engineering and logistics company that counts Tullow Oil among its major clients.

Tullow Oil’s exploration plans in the region are expected to directly benefit TransCentury through growth in Civicon’s profitability.

“TransCentury rose on foreign investor buying on a day that Tullow and Africa Oil provided an operational update on their Turkana County operations,” noted Standard Investment Bank in a research note released on Friday.

“TransCentury owns a 62 per cent stake in Civicon, whose key clients include Tullow and Lake Turkana Wind Power Project.

The Lake Turkana project involves construction of up to 300 turbines to create what is billed as the biggest wind power project in Africa, with a capacity to produce up to 300 megawatts of electricity.

Monday the stock closed at Sh24 each, 1.1 per cent higher than Thursday’s closing price before the Tullow statement which was released on Friday.

“Following the discovery of a major new oil basin in Kenya with the first two exploration wells, up to 11 further exploration and appraisal wells are planned in Kenya and Ethiopia in 2013 as detailed in the exploration drilling schedule,” said Tullow Oil in the Friday statement.

Standard Investment Bank said that increased drilling is expected to grow Civicon’s revenue.

Tullow Oil has begun drilling the wells, eight in Kenya and three in neighbouring Ethiopia.

Analysts said that it costs between $50 million (Sh4.3 billion) and $100 million (Sh8.6 billion) to drill a well. Most of the money goes to costs of actual drilling, but opportunities abound in haulage and constructing access roads.

“The sites may not be well serviced by a road and when doing exploration you still need to transport equipment,” said Eric Musau, a research analyst at Standard Investment Bank.

For example, in July 2012 Civicon was awarded a Sh3.2 billion tender to construct transmission lines and access roads by Lake Turkana Wind Power Project.

Mr Musau said chances that firms such as Civicon will get business are made higher by Tullow Oil’s operating model that involves contracting local businesses to make part of its supply chain.

Civicon was purchased in November 2011 and has begun adding to TransCentury’s revenues.

The investment company also owns 68.3 per cent of East African Cables.

The purchase of Civicon saw TransCentury’s engineering division grow its sales to Sh2 billion in the first half of last year from 2011’s Sh400 million.

Half-year sales stood at Sh7 billion up 55 per cent from Sh4.5 billion a year earlier while net profit stood at Sh326 million, a six-fold increase from Sh53.85 million over a similar period in 2011. The firm said that servicing oil and gas will be a key area for future growth.

“Going forward we are seeing increased activity from our oil and gas, mining and power clients across the region, particularly in eastern Africa following the significant discoveries of oil and gas, increasingly driving demand for our engineering services and power infrastructure products”, says the TransCentury’s half-year results.

Commercial viability has not been proven but energy experts say that as more wells are sunk there will be confirmation on whether Kenya will become an oil exporting county.

A presentation by Petroleum Focus director George Wachira says that the results from six wells will determine how big the reservoir is and more important it is commercially viable.

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