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By A CORRESPONDENT - The EastAfrican
19 February 2007
Lundin Petroleum AB of Sweden — through its subsidiary, Lundin East Africa — will commence oil exploration in Ethiopia before the end of the year.
Exploration manager James Phillips told The EastAfrican during a stopover in Nairobi that all the necessary agreements had been signed with Ethiopian authorities.
Keen to sign as many exploration contracts as possible within the shortest time, the Ethiopian government has cut the red tape involved in signing such agreements.
A production sharing contract (PSC) with the Swedish company was signed last year after less than six months of negotiations with the Ministry of Energy and Mines for two onshore blocks in the Ogaden Basin.
The agreement covers Blocks 2 and 6, which spans over 24,000 square kilometres and is located just west of the Calub and Hilala oil and gas discoveries.
Lundin Petroleum holds 100 per cent of the contract area for the duration of the exploration period, but Ethiopian has an option to participate with up to a 10 per cent interest following any commercial discovery.
The company said that, to date, no wells have been drilled in Blocks 2 or 6, but indications of light oil, gas and condensate have been documented in well tests and surface seeps to the south and east of the blocks.
Although medium in size, Lundin Petroleum is considered in the exploration field as an aggressive independent oil and gas exploration and production company, with a well balanced portfolio of world-class assets in Albania, Congo-Brazzaville, Ethiopia, France, Indonesia, Ireland, the Netherlands, Norway, Russia, Sudan, Tunisia, the UK, Venezuela and Vietnam.
Last year, the company had proven and probable reserves of 146.1 million barrels of oil equivalent.
Speaking to The EastAfrican on the sidelines of an international mineral conference in Cape Town in South Africa, Ethiopia’s Minister of Mines and Energy Alemayehu Tagenu said the number of companies engaged in the sector was steadily rising.
Joint geological and geophysical research studies have been launched in southern Ethiopia, while Pexco — one of the international companies operating in the country — is engaged in petroleum exploration and development activities in the Ogaden basin.
He disclosed that the South West Energy Company and the Afar Explorer — a US-based company — are also engaged in petroleum exploration and mining activities in Dagahabur locality of the Ogaden area and northern Afar respectively.
Negotiations have recently been completed between the Ethiopian government and Petronas, another international company, for the development of Calub and Hilala natural gas deposits.
During his visit to Nairobi, Mr Phillips said Ethiopia and the surrounding area known as the Horn of Africa are an important region for their future exploration efforts. He also stated that the Ethiopian government is well organised and runs an efficient ministry that is “open for business.”
In East Africa, Uganda and Tanzania both have their own procedures for foreign companies to obtain exploration licences, and this has allowed the countries to attract significant risk capital in oil and gas exploration.
In Kenya, a significant high level agreement with China’s CNOOC has resulted in the stalling of any tangible exploration activity after the government granted the Chinese explorations licences. All the Chinese can report to date is the opening of an office in Nairobi. Another major setback for Kenyan oil exploration was the recent experience of Woodside Petroleum of Australia, which hit a dry well offshore from Lamu after spending over $25 million. The company has since suspended its activities as it contemplates sinking a second well.
Although there are many sceptics who have stated that Kenya does not have any significant oil deposits, industry experts are in agreement that there is not enough exploration done in Kenya.
In fact, after gifting CNOOC 37 per cent of Kenya’s onshore exploration acreage, with only a commitment to “study” the data, oil discoveries and potential production with associated revenues seems to be even further out of reach in the short-term.
According to sources in the Kenya’s Ministry of Energy, Kenya currently has over 10 applications, which have been pending for over a year, with qualified companies unable to successfully negotiate a contract with the government. Previously, production sharing contract negotiations in Kenya were concluded within months.
Oil exploration industry experts are now expressing concern that if Kenya does not sign new contracts within the next few months, it will take the country another generation to attract serious oil exploration capital into the country.