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Swala mulls over putting Kisumu oil block on sale

Tullow explores for oil in Turkana. Swala will take a second stab at selling its interest in Block 2B after a similar botched deal with Spanish CEPSA. PHOTO | FILE
Tullow explores for oil in Turkana. Swala will take a second stab at selling its interest in Block 2B after a similar botched deal with Spanish CEPSA. PHOTO | FILE 

A firm that owns an oil block in Kisumu says it is ready to sell its investment if it gets a good offer.

Swala Energy, an Australian oil and gas company, equally owns Block 12B in Nyanza with Tullow Oil of the UK, an investment it made in early 2012.

Swala chief executive David Mestres Ridge said they expect the firm’s interests in Kenya and Tanzania will attract interest from other oil and gas explorers.

“We are looking to farm down but in this market it is a fact that someone might want to bid. If they do then our obligation to shareholders is to assess whether the bid is ‘fair’ and reflects the risk/value of the portfolio,” Dr Ridge told the Business Daily.

The firm has hired London-based First Energy Capital LL as the transaction advisor for a potential sale of its interests in the region and expects the work to be completed in the next few months.

Swala added there is also possibility of a merger with another company or selling the entire company. The firm’s market capitalisation stood at Australian dollar 10.78 million (Sh812 million) in Wednesday’s trading.

Swala will take a second stab at selling an interest in Block 2B after the botched partial sale to Spanish CEPSA.

Mr Ridge said the proposal is part of its risk management and is not influenced by the falling price of oil which has spawned an unfavourable capital raising market for explorers.

Oil has slumped from over $100 (Sh9,000) a barrel to around $48 (Sh4,320) in a few months, forcing firms to dump activity in most markets, notably excluding East Africa.

Tullow, Houston-based ERHC Energy and Taipan Resources of Canada are the other explorers which have confirmed that they will continue with drilling this year.

“The issue is management of risk so that would be the same under any oil price scenario,” said Dr Ridge. Tullow’s local exploration is at the expense of French Guiana, Mauritania and Norway.

“The reduced exploration programme will predominantly focus on a number of high-impact, low-cost exploration opportunities in East Africa.

‘‘While this is a challenging time for our sector, Tullow is fortunate to benefit from world-class, low-cost and high-margin assets, strong and growing cash flows and a broad, diversified funding position,” said Tullow chief executive Aidan Heavy a week ago.

Last June Swala sold an 8.33 per cent interest in the block to CEPSA, while Tullow sold a 16.67 per cent stake giving the Spanish oil and gas firm a 25 per cent interest for an undisclosed amount.

In exchange CEPSA would inject Sh660 million for drilling a well and an equal amount should there be need for further drilling.

CEPSA decided against continuing with the joint exploration and Swala sought legal redress. The matter was later settled out of court in December.

Swala also sold a stake in its Tanzanian operations through an initial public offering on the Dar-es-Salaam Stock Exchange (DSE) in mid-2014.

Firms are largely continuing with exploration programmes in Kenya this year, offering a lifeline to the nascent industry that is also supporting local firms which offer support services.

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