Markets & Finance
US firm plans oil search in Turkana despite fears over falling priceThursday December 04 2014
ERHC, a Houston-based oil and gas exploration firm, plans to drill for oil in its Turkana-based block in the next year despite mounting fears that falling prices may make raising funds difficult.
The firm said that it had completed seismic surveys on its Block 11A and together with its partner Cepsa, a Spanish company, plans to drill a well in the next 12 to 16 months.
The firm’s management however said that falling oil prices were creating a tough market for companies planning to raise money to finance further exploration.
“Global oil markets are, however, experiencing a downturn that has sharply constricted potential sources of funding for exploration companies and work generally,” said ERHC chief executive Peter Ntephe in a statement.
Global crude oil prices are at $69 (Sh6,210) per barrel, which is below the $90 dollar (Sh8,100) level that petroleum analysts have said is the minimum needed to make the Kenyan industry viable.
READ: Cheap crude dims Kenya oil exploration outlook
Other oil and gas exploration firms have already shelved capital raising plans, cut back on further exploration and prioritised spending.
Tullow Oil of the UK has said that in the face of the difficult environment it will prioritise developing its fields in Ghana, Kenya and Uganda.
“In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success,” said chief executive Aidan Heavey in mid-November.
Tullow also has interests in French Guiana and Norway. Swala Energy, an Australian oil and gas explorer with interest in Nyanza region, has shelved plans to raise $5 million (Sh378 million) Australian dollars due to what it said was an unfavourable market.
“... Given the changes being observed in current equity market conditions since the implementation of the Share Purchase Plan (SPP) and potential adverse effect on the company’s recent share price, the board determined it would not be in the best interests of shareholders to proceed with the issue of any new shares under the SPP,” Swala Energy chief executive David Mestres Ridge told shareholders in November.
The funds were to be used for further exploration in its Kenya and Tanzania blocks.
The fledgling oil and gas industry is expected to earn Kenya as much as Sh360 billion every year, according to analysis from the Institute of Economic Affairs (IEA).
Local firms have been positioning themselves to share in the investment that oil and gas firms are making as exploration gathers pace.
Listed investment firm Trans Century, Atlas Development which is set to list and KK Security are some firms that are making money by servicing the oil and gas firms.