Australian explorer pulls out of second Lamu oil block

What you need to know:

In a June 1 update to the Australian Stock Exchange, the firm said it would, however, continue exploration through Block L6.
Many explorers are finding the going tough due to high drilling costs amidst low oil prices; experts say rigs cost minimum Sh2 billion.
Despite the exits from the two blocks, Pancontinental said it was looking for investments that would grow its portfolio in Africa. But it did not give an indication of any particular prospect it was considering.

Pancontinental Oil and Gas has pulled out of another Lamu block where oil has already been discovered offshore, citing escalating costs of doing business.

This is the second pullout in less than two months that the Australian-owned company is exiting after ditching the adjoining block L10B in April.

It comes at a time that exploration financing is getting tight, with investors increasingly backing the less costly onshore activity.

“Pancontinental Oil & Gas and its L10A joint venture partner PTTEP of Thailand have issued operator BG Kenya L10A Ltd with notices of withdrawal from Block L10A in the Lamu Basin offshore Kenya,” said CEO Barry Rushworth in a statement.

In a June 1 update to the Australian Stock Exchange, the firm said it would, however, continue exploration through Block L6.

“Pancontinental remains in a unique position, with its remaining asset portfolio in Namibia (EL0037 with Tullow Oil) and Kenya (Block L6 with FAR Ltd, Milio International) fully funded for the next phase of exploration commitments,” Mr Rushworth said in the statement.

Many explorers are finding the going tough due to high drilling costs amidst low oil prices; experts say rigs cost minimum Sh2 billion.

“The company is committed to the prudent deployment of its resources and as such it has decided to withdraw from the L10A project, given the project’s cost and potential benefit profile with respect to the company,” said Mr Rushworth.

Pancontinental held 18.75 per cent of the bloc while Thailand-based PTEP held 31.25 per cent, making a combined stake of 50 per cent. BG Group, which was recently acquired by Royal Dutch Shell for Sh6.8 trillion ($70 billion), owns the rest of the stake in the block.

The deal awaits the approval of the Ministry of Energy.

“Subject to ministerial consent, Pancontinental’s 18.75 per cent interest and PTTEP’s 31.25 per cent interest will be transferred to the operator BG who will then be the only remaining participant and hold 100 per cent of the L10A licence,” said Mr Rushworth.

Despite the exits from the two blocks, Pancontinental said it was looking for investments that would grow its portfolio in Africa. But it did not give an indication of any particular prospect it was considering.

“Pancontinental will advance and look to grow its African portfolio in the near term, consistent with its continued belief in the high prospectivity of parts of the continent and their future high potential to produce commercial oil and gas.”

When it pulled out of Block L10B in April, Pancontinental had also cited the need to manage its cash prudently as the reason for parting ways with BG Group.

“The company considers that the withdrawal is in the interest of prudent financial management, whilst maintaining a manageable and prospective exploration portfolio,” Mr Rushworth had said.

The two exits leave BG Group as the sole owner and operator of both Blocks L10A and L10B.