Sala-1 Discovery in East Africa Accelerates Rift Basin Consolidation


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TSX.V:TPN
06/24/2014 [ACCESSWIRE]

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 prospect.

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 exploration leads.

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 pre-drilling.

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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