Falling global oil prices begin to take toll on search work in Kenya
What you need to know:
- Companies re-adjust their budgets in the face of continued decline.
- Firm looking for resources in western Kenya plans merger or withdrawal.
Swala Energy, an Australian firm prospecting for oil and gas in western Kenya, could exit without drilling a single well in the block as the impact of falling global crude prices takes a toll on its operations.
The firm said it had appointed UK’s FirstEnergy as a financial adviser in preparation for a merger or complete sale of the company.
This comes as falling global crude prices continue to impact negatively on the upstream oil and gas sector, with some exploration firms having already announced plans to reduce their budgets.
“Accordingly, Swala board of directors has appointed FirstEnergy to manage a process with the view of reviewing the company’s options to maximise the long-term value of the company’s potential including a potential merger or sale of the company,” reads a statement sent to the Australian Securities Exchange.
CUTTING GLOBAL BUDGET
The announcement comes barely a week after Tullow Oil Plc, which has made discoveries in northern Kenya, said it was cutting its global exploration budget by a third “to adapt to current market conditions.”
Swala Energy is licensed to explore block 12B where it holds an equal stake with Tullow Oil. It also has operations in Tanzania and Zambia.
In October, the firm announced that it would drill the first well in the block during the second half of this year, following successful acquisition of data, which revealed 10 leads indicating a possible presence of oil or gas. The new development could further delay exploration activities in western Kenya.
The World Bank had in the Global Economic Prospects report released earlier this month warned that declining crude oil prices could discourage investment in exploration and development, specifically for new undertakings.
The Australian company is also considering a similar action — a farm-down on its assets in the three countries it operates.
Swala recently shelved a plan to raise Sh378 million that was partly meant to finance its exploration programme in the country due to what it termed as an unfavourable market brought about by the decline in prices of crude oil currently below $50 a barrel.
Block 12B lies within the Nyanza Rift Basin, which is part of the East African Rift System where other discoveries of oil and gas have been made, making it a prime target for acquisition.
“The completion of our seismic survey programmes and the clear indication from them of a large number of significant leads and prospects within our licences make this an opportune time to review the company’s options to maximise value from its portfolio ahead of the planned 2015 drilling campaign,” Chief Executive David Mestres Ridge said.
