Is It Too Soon To Call East Africa The Next Middle East?

By Frank Mutulu AFKI Original Published: February 10, 2014, 1:53 pm
Photo: AfricanArguments.org

U.S., Canadian, British and Australian oil explorers have been busy penning deals at a pace that resembles poker night.

Filings made to regulators in New York, London and Toronto involve contracts to extract potentially billions of barrels of oils and gas buried all over East Africa, from war-torn Somalia down to former Portuguese colony of Mozambique.

While most media attention was focused on the late Nelson Mandela towards the end of 2013, oil exploration firms were busy raising capital to fund further exploration of petroleum reserves in East, Central and Southern Africa.

Camac Energy, a Houston, Texas-based explorer listed on the New York Stock Exchange, raised $270 million to fund seismic surveys and drilling in East and West Africa.

“With more drilling being undertaken, Kenya is poised to be a major oil exporting country. Estimates indicate that Kenya may have over 3.5 billion barrels of yet-to-find volumes,” the company said in a statement.

The U.S. firm is already active in Nigeria where its Oyo Field is pumping 2,000 barrels a day. This is set to increase seven-fold to 14,000 barrels per day.

EHRC Energy, another oil and gas company from the Lone Star state, is selling an equity stake to an undisclosed firm that is expected to pump in close to $40 million dollars for seismic studies and drilling of an oil well in Kenya.

Filings made with the Securities and Exchange Commission say that the firm needs at least $10 million to carry out a seismic survey and another $30 million to drill wells.

The beehive of activity is also happening along the Indian Ocean.

Analysts say that the pickup in deal making by small firms is an indication that exploration firms have enough evidence the region is onto something.

Petroleum analysts say that the firms have made finds needed to spur interest from the large oil companies that usually come in once there is a probable chance of finding oil.

Excited pundits have described East Africa as the next Middle East but petroleum analysts are a bit cautious to use that reference yet.

“Capital raisings for East Africa are going to be very good for the region but it is too early to call it the next Middle East,” said Barney Gray, an analyst at London-based Old Park Lane Capital Plc, in an AFKInsider interview.

Security remains a concern, especially in war-torn Somalia and in South Sudan, which is already pumping oil in spite of a tensions.

While companies remain cognizant of the security threats, the risks are not strong enough to thwart investment.

“Nevertheless, the prospects for these countries have been strongly demonstrated by the fact that oil companies are investing heavily in Kenya and jostling for acreage in Somalia,” said Gray. “There is no doubt that there is huge potential in this part of the Horn of Africa. Only major drilling campaigns will confirm this though.”

So great is the potential that for the second year in a row oil firms, financiers, non-governmental organizations and government agencies will be trooping to London for the Somalia Oil and Gas Summit expected to take place in June.

The potential for gas is even larger, with exploration already happening from the coast of Somalia in the north to Mozambique

“The probability of a find in the Eastern coast of Africa is high. That is part of the attraction,” said Johnson Nderi, corporate finance and advisory manager at ABC Capital, in an AFKInsider interview. ABC a subsidiary of ABC Bank based in Nairobi.

There are job opportunities for locals, from catering to high-paid work such as assembling wells.

TransCentury, a firm that is listed on the Nairobi Securities Exchange has been a beneficiary of the drilling activities in the region.

It has been on a list of cherry stocks to invest in for 2014 due to the possibility that the firm will continue earning millions of dollars from Tullow Oil, a U.K.-based firm that contracted it to build infrastructure around the wells.

Tullow and partner Africa Oil of Canada announced that drilling had shown the Lokichar Basin, located in the unforgiving wilderness of Northern Kenya, could have as much as a billion barrels of oils.

More drilling, soil and cost analyses have to be done to ascertain if drilling is commercially viable.

But this has not stopped Tullow. The company knows it could be a heartbeat away from striking oil. Tullow has announced more drilling over the next two years.

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