Australian explorer Swala Energy has sold a 25 per cent interest in its oil block located in Kenya's Nyanza province for $36.6 million (Sh3.16 billion) to an undisclosed investor in a farm out transaction.
The company sold the stake in Block 12B to an international oil and gas company to raise money for funding seismic surveys and drilling of two oil wells on the block.
“This will allow the company to focus its energies and resources on existing operated assets and the continued growth of the company’s portfolio,” said Swala chief executive David Ridge.
The sale will see Swala’s interest in the block reduce to 25 per cent. UK’s Tullow Oil holds the other 50 per cent interest in the block.
Mr Ridge said the farm-out was the most cost-effective and least dilutive way to strengthen the company’s balance sheet since the new investors will pay for all past costs, seismic surveys, drilling of two wells and other costs in future.
The explorer did not indicate the value of past costs but put the value of expected work to be at Sh1.53 billion or US$17.7 million. Analysts, however, say the deal is a bargain for Swala.
“On a per kilometre square basis, this deal represents the best farm-out achieved onshore East Africa and is strong testament to the prospectivity of the play in which Tullow and Africa Oil have recently made five discoveries from five wells nearby,” said a note on Swala by Argonaut Research.
Simba Energy of Canada sold 40 per cent of its tertiary rift block for Sh746 million in February to an undisclosed investor.
EHRC Energy, a Texas-based firm, said it had sold a 55 per cent stake to Spain-based CEPSA in a deal that will see it get an initial US$2 million (Sh174 million), with more cash expected through financing of drilling of wells.
Swala said the new investor would release funds for drilling if ongoing seismic surveys show that Block 12B had strong prospects.
Data from seismic survey, which will show the best spots for drilling, is expected to be out by end September.
The deal will be completed after approval from the government when the identity of the new investor will be revealed. Swala also operates in Tanzania.
By John Gachiri