Africa Oil Corp Opens up New Basin with Gas Discovery
Vancouver, BC / June 24, 2014 / This morning Africa Oil Corp. (TSX:AOI) announced a gas
discovery at the Anza Basin Sala-1 well located on Block 9 in Kenya.
This is the first major basin opening discovery in the Anza Basin and
is expected to result in significant further appraisal and exploration
wells to be drilled on trend with Sala-1.
The Sala-1 discovery encountered three zones of interest
over a 1,000 metre gross interval, with the upper interval testing at 6
million cubic feet per day of dry gas. The well also encountered oil
shows with potential for oil down-dip on the structure. Africa Oil Corp
is the operator of Block 9 with a 50% interest, with Marathon Oil
(NYSE:MRO) owning the remaining 50% interest in Block 9.
Africa Oil is now considering three different appraisal
wells on Block 9 including two at Sala and one at the Bogal structure
that has gross best estimate prospective resources of 1.8 trillion cubic
feet of gas (300 million barrels of oil equivalent). Africa Oil stated
that the company has two optional slots on the Great Wall drilling rig
that was used to drill Sala-1. This suggests that two appraisal wells
could be drilled in the second half of 2014.
Africa Oil CEO Keith Hill stated, "We are very excited
about the opening a new basin and the possibilities of bringing
significant value to the Company by our Block 9 discovery. Not only is
there a great need for power in Kenya, there is also the potential for
downdip oil and for additional prospects on trend."
Rift basins such as the Anza Basin have delivered some of
the most consistent exploration results in recent years. In Uganda,
Heritage Oil (LON:HOIL) drilled 6 exploration wells with 100% success in
the Lake Albert Rift Basin, which is now estimated to have 1.7 billion
barrels of recoverable oil resources. In Kenya, Tullow (LON:TLW) and
Africa Oil have drilled wells with an 88% success rate in the Lokichar
rift basin with estimates now exceeding 1 billion barrels of oil. With
potential for this type of resource in the Anza Basin, further drilling later this year to define the resource on Block 9 is a key milestone prior to a takeout of Africa Oil.
CanaccordGenuity analyst Christopher Brown recently
commented: "Based on the company's Q1 results, we estimate that Africa
Oil will require additional financing within four to five quarters
(assuming similar burn rates throughout 2014). At that point, we believe
the company (and potential buyers) will have a better understanding of
commerciality and reserve potential. As such, we suspect a purchase
offer may present itself before funding becomes an issue."
The Sala-1 discovery also increases the attractiveness of
Taipan Resources (TSX-V:TPN), a company with a market cap of only $44
million that holds almost all of the remaining prospective acreage in
the same Anza Basin where Sala-1 was discovered.
Taipan Resources is the fourth largest acreage holder in
Kenya and the largest holder of prospective acreage in the Anza Basin
after Africa Oil Corp. and Marathon Oil. Taipan also has a two well
fully funded drilling program targeting over $1 billion of resources net
to the company.
Premier Oil (LON:PMO) is spending $30.5 million "carrying" Taipan on Block 2B this year to drill the Anza Basin Badada prospect
after agreeing to a farm-in deal in 2013, and Afren (LON:AFR) is
spending a similar amount on Taipan's other block to drill the Khorof
Sproule International has also independently assessed that
on Taipan's operated Block 2B (Anza Basin) alone, there is mean gross
unrisked prospective resources of 1.6 billion barrels based on 19
Management of Taipan has always maintained that Taipan has
the "sweet spot" of the Anza Basin with the thickest portion of the
oil-prone Tertiary on Block 2B. The Sala discovery opens up the Anza
Basin and makes the value proposition of Taipan too attractive for
larger companies to ignore.
With 19 exploration leads Block 2B would give a larger,
cash rich oil company years of drilling inventory in the hottest onshore
rift basin exploration region in the world. Mid-sized exploration
companies can't afford to wait for Taipan to make a discovery and will
take the opportunity to make a cheap acquisition with two high impact
oil wells fully carried and funded.
At the recent Premier Oil investor day, Andrew Lodge Exploration Director of Premier commented on the Anza Basin and Block 2B:
"The trick to this is to attempt to identify the Tertiary
Rift Basins within the Anza Basin which are analagous to Uganda and the
Lokichar discoveries. We think we've found that through farming into
Taipan's acreage. We took a 55% interest. We have just done some
prospective seismic survey, verified the main prospect and will drill
that prospect, Badada this year. The ultimate resource potential in the
block is over 1 billion barrels but the key to this, the key unlocker
will be the Badada well…."
Taipan is fully funded for the Badada and Khorof wells
with an unrisked NPV net to Taipan of over $1 billion. This equates to
over $6 per share on a fully diluted basis. Taipan is currently trading
at $0.47 per share.
The risked value of Taipan's two well fully funded
drilling program is $1.64 per share on a fully diluted basis. This means
that an acquirer could justify paying up to $1.64 per share
At $0.47 per share Taipan is an attractive risk/reward
proposition for a mid-sized exploration company. The Sala-1 discovery
opens up the Anza Basin and could make a takeover of Taipan imminent.
SOURCE: Resource Reports
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