Africa Oil Corp (AOIFF)

[howestreetbull]

Stockwatch Energy Summary for Oct. 23, 2014
Energy Summary for Oct. 23, 2014


2014-10-23 20:36 ET - Market Summary


by Stockwatch Business Reporter
Africa Oil Corp. (AOI), a Lundin company, lost 75 cents to $3.65 on 1.04 million shares, after it and joint venturer Tullow Oil released disappointing results from wells in Kenya. This followed months of touting the sure-to-be-fantastic results of one of these wells, the Kodos-1 "basin-opener." This well was the first in the Central Kerio basin. Kerio is right beside and geologically similar to the South Lokichar basin, where Africa Oil and Tullow have made eight discoveries and outlined over 600 million barrels of discovered oil. Africa Oil had high hopes for Kerio and described it as Lokichar's "sister basin" or "twin basin." Today, it said Kodos-1 found hydrocarbon shows, but seems to be in an "unfavourable" area of the reservoir, close to the basin-bounding fault. Tullow added that the well will be plugged and abandoned. They will try another well, Emir-1, in the North Kerio subbasin. This one will be farther away from the fault. Though the companies did not mention this today, they have run into this fault-proximity problem before. The Emong-1 wildcat and the Twiga-2 appraisal well in the South Lokichar basin were both drilled close to the fault and encountered thin, badly developed reservoirs or poor-quality sands. Emong-1 was plugged and abandoned. Twiga-2 got a sidetrack, Twiga-2A, the results of which were released today: Tests showed free-flowing rates of up to 3,270 barrels of oil a day, the highest ever seen in Kenya. A pump could apparently push this past 10,000. The Ngamia-4 appraisal well was also a success. None of that, however, distracted from the setbacks. Besides Kodos-1, two other wells -- the Ekosowan-1 exploration well in the southern part of the South Lokichar basin, and the Sala-2 appraisal well at a gas discovery in the Anza basin -- were also disappointments. Ekosowan-1 found oil shows, but it too was drilled too close to the fault. Sala-2 found nothing.

Africa Oil's mixed results mainly highlight the need for more work. At its current burn rate, however, it will run out of money in mid-2015. President and chief executive officer Keith Hill said in a conference call this morning that he is not worried. An industry farm-out would be best, but if he has to approach the market, he will probably do so after the first quarter of 2015, when he figures the market will be healthier and (ideally) Africa Oil will have drilled some successful basin-openers. He added that the company's major shareholders (the Lundins, among others) have already said they will participate.