Oil Exploration Firm Bags Sh700m in Deal With Canadian Company


The two firms will mutually agree to either foot the cost of drilling a first exploration well or bring in other investors

By Macharia Kamau

Somalilandsun – A Canadian firm exploring for oil in North Eastern Kenya has bagged a Sh745 million ($8.6 million) deal. Simba Energy, a Toronto Stock Exchange listed firm, announced on Thursday that it is in exclusive discussions with a major Canadian oil and gas firm for a partnership in the exploration of oil in Block 2A in North Eastern Kenya.

The company is set to receive Sh172 million to recover costs spent in exploration works so far and a further Sh567 million that will be invested in the exploration works including the undertaking of a seismic survey. In return, Simba will give up a 40 per cent interest in the public sharing contract for Block 2A. State approval Simba, however, did not name the firm that it is in negotiations with, only saying it is based in the Canadian city of Calgary in Alberta province.

The farmout deal is subject to approvals by the Government and receipt of acceptance for filing by the TSX Venture Exchange. It expects a definitive agreement to be signed in the first quarter of 2014. “Simba Energy Inc is pleased to announce that it has signed an exclusive letter of intent with a private group based in Calgary, Alberta to farmout up to 40 per cent of Simba’s interest in the Production Sharing Contract (PSC) for Block 2A, onshore Kenya, for a total commitment of $8.6 million (Sh745 million,” said the company in a statement on January 8. “The principal commercial terms of the farmout are… $2 million for cost recovery will be placed in trust immediately upon signing of the definitive agreement.”

“These funds will be released to Simba once the farmout agreement is approved by the Kenya Government. This payment for cost recovery will entitle the Group to a 10 per cent interest in the PSC.”

“Simba will be carried through the funding and completion of $6.6 million in exploration work to include a minimum of 421 line kilometres of 2D seismic that is to be carried out in 2014. In total, the Group will earn a 40 per cent interest in Simba’s Kenya PSC upon payment of the $2 million (Sh172 million) and completion of the $6.6 million (Sh574 million) work programme.”

Simba Energy is among the many junior oil explorers with acreage in Kenya that have been getting attention from major explorers following good shows of oil resources after a Tullow Oil discovery announced in March last year.

The statement by Simba came after the exploration phase, including the completion and interpretation of seismic results. The two companies would mutually agree to either foot the cost of drilling a first exploration well with each party responsible for its own share of costs or bring in other investors on mutually acceptable terms.”

This letter of intent provides a fully funded and accelerated exploration programme through to selecting drill targets and allows Simba to recover $2 million (Sh172 million) in costs upon completion of the definitive agreement and host Government approval,” said Simba Chief Executive Robert Dinning.

“This block is highly prospective given the exploration work completed to date by the company and exploration activities underway by companies such as Tullow, Africa Oil, Marathon, Afren and Taipan on the adjacent blocks to 2A in the Anza basin.