Energy Summary for Sept. 17, 2014
2014-09-17 19:51 ET - Market Summary
by Stockwatch Business Reporter
Keith Hill's Africa Oil Corp. (AOI) added six to $6.06 on 344,600 shares, regaining some of the 22 cents it lost yesterday after releasing an updated resource report for blocks 10BB and 13T in Kenya's South Lokichar basin. It holds these blocks 50-50 with Tullow Oil. Total gross 2C (best estimate) contingent resources are 616 million barrels of oil, up from around 370 million in last year's report, and total gross 3C (high estimate) contingent resources are 1.3 billion barrels, up from around 850 million. The increases are mainly because Africa Oil and Tullow discovered four fields in between reports to bring the total to seven. When they discovered the sixth and seventh fields at the beginning of the year, Tullow estimated that resources would be around 600 million barrels, so 616 million is in line. Investors seem to have wanted more. President and chief executive officer Hill certainly did. He told a conference call yesterday that Africa Oil's internal estimates are "significantly higher," but resource evaluator Gaffney Cline said not enough work has been done to justify higher numbers, something Mr. Hill said will be fixed over the next six to 12 months. He also noted that the new report does not account for all of Africa Oil's reservoirs and does not include any prospective resources at undrilled prospects, such as Ekosowan in the southern part of South Lokichar or Kodos in the unexplored Central Kerio basin. The company plans to release a new report to address some of this in the first quarter of next year. It has started drilling the Ekosowan-1 well and the Kodos-1 well on the above-mentioned prospects, and expects results in late October or early November. The Kodos-1 well, said Mr. Hill, is particularly exciting because it is a potential "basin-opener" targeting a basin that looks just like South Lokichar. The company has not had much luck opening basins so far. Previous wells targeting the Turkana and Anza basins in Kenya and the Chew Bahir basin in Ethiopia were dry or low in oil (although Africa Oil says a recent gas discovery at Anza could prove quite profitable). High hopes are riding on Kodos-1 in the Central Kerio basin, which is just east of South Lokichar and is geologically similar.
Africa Oil plans to put together a draft development plan for South Lokichar and submit it to the government in the second half of next year. Its current finances will only carry it to the middle of next year. Mr. Hill usually shrugs this off by claiming that his phone is ringing non-stop with eager candidates for a farm-out or asset buy, but this time, he focused more on a financing. He said if this is necessary, he would like to open a basin and raise money on the back of good news. As noted above, the next big basin-opener is Kodos-1, with results expected in about a month and a half.
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