Swala Energy drops Kisumu oil stake case against Cepsa

Australian oil and gas explorer Swala Energy has officially dropped its planned arbitration proceedings against UAE-owned Cepsa over a 25 per cent stake in Kenya’s block 12B.

This paves way for drilling of the first well in the block, which is situated in Kisumu, as the country steps up efforts to become an oil producing nation.

In a notice to the Australian Stock Exchange (ASX), Swala said it had reached an agreement with Cepsa, which is owned by Abu Dhabi’s sovereign wealth fund, to transfer back the disputed equity to Swala.

“We are pleased at the amicable resolution of the issues... which allows us to focus on operational development of the block ahead of a planned drilling campaign in 2015,” said Mr David Mestres Ridge, Swala’s chief executive officer, in a statement.

Swala was fighting to get back 25 per cent stake sold to Cepsa after the latter declined to continue participating in exploration activity on the block in July. Cepsa’s withdrawal took effect on September 1.

While the value of the sale remained undisclosed, a statement from Swala at the time indicated that Cepsa would meet costs incurred by Swala up to Sh1.3 billion ($15 million) as the first two wells on the block are drilled.

In September, Swala announced plans to go for arbitration to have its share returned. The other partner on the block is Tullow Oil Kenya, with a 50 per cent stake.

With the pact , Cepsa is expected to re-assign the entire 25 per cent stake to Swala, which will increase its interest to 50 per cent.

Block 12B is located in the Nyanza Rift — which is part of the East African Rift System where significant discoveries of oil, viable for commercial production, have been found.