Oil explorer Zarara plans to drill Lamu block within a year

Oil explorer Zarara Oil & Gas plans to begin drilling an exploratory well in its offshore oil block in Lamu within the next one year after securing an extension of its licence.

Zarara, a fully-owned subsidiary of Midway Resources International (MRI), said in disclosures filed with the London Stock Exchange it has been given an 18-month licence extension that will run to June 2017 for blocks L4 and L13.

Zarara will be prospecting for natural gas in Lamu and if successful, it will seek to use the resource in power generation.

“The extensions will enable Zarara to complete its preparation and drilling of Pate-2 well on the natural gas discovery in Lamu County,” the company said in a statement.

“Zarara’s drilling strategy is to fully appraise the Pate natural gas discovery and then, in partnership with leading electrical power generation partners, undertake a phased development of up to 1,000MW of electricity generation capacity nearby at Port Lamu, the proposed southern terminal of the Lamu Port South Sudan Ethiopia Transport (Lappset) project.”

Zarara is the main operator on the two blocks with a 75 per cent stake, while Swiss Oil Holdings controls 15 per cent with the remaining 10 per cent being the carried interest by the government.

The government has been reluctant to renew licences of explorers lagging behind in work on oil blocks, prompting them to seek alternative sources of funding to carry out work despite the industry’s gloomy outlook over low crude prices.

The production sharing contracts (PSC) signed with the government usually stipulate a period of between two and three years within which firms must carry out exploration on oil blocks.

Capacity to explore

Zarara was therefore at risk of losing the licence for the blocks if it did not demonstrated that it is capable of carrying out the exploratory work.

In February 2014 the Ministry of Energy refused to renew the exploration licence of Canadian oil firm Vanoil Energy, saying the company did not have the capacity to explore for oil in its northern Kenya blocks.

Australian oil and gas company Pancontinental Oil’s licence for a block near Lamu was also cancelled in late 2013 on the same grounds, but the firm successfully negotiated for a one-year extension.

Tullow Oil and its partner Africa Oil have been the most successful in discovering oil in Kenya in the Turkana region, while there have also been high expectations of discovery of good deposits in the blocks around Lamu.

Oil prices have fallen almost 68 per cent since June 2014, due to a global surplus and falling demand from large markets such as China.

The downturn in prices has forced upstream explorers especially in Africa to scale down their activity, while some have farmed out their block holdings to raise capital for continued operations and also recoup some of their earlier investments.