Tanzania’s Kito Prospect Drilling in Doubt as JV dispute rages

The drilling of the Kito prospect in the Kilosa-Kilombero license in Tanzania earlier set for Q3 2016 is in doubt going by the latest corporate presentation by JV partner Otto Energy.

In March Block operator Swala Energy had said that all is set to drill at the Kilosa Kilombero license in Q3 2016 with the latest feasibility study showing the majority of roads and bridges are suitable to move a rig. The company had suggested the improvement of one river crossing near the site as well as road survey ahead of drilling to ensure all hazards and obstacles are identified.

The presentation dated 13th September by Otto Energy however shows that the drilling has been pushed to Q3 2017.

Otto Energy Work Plan

A dispute has been ongoing between the two Australian partners in the block on a host of issues including:

  • defaults in relation to non-payment by SOGTP of cash calls and associated interest accrued under the JOAs;
  • claims by Otto Tanzania for payment of interest accruing under the JOAs as a result of SOGTP’s defaults, amounting to approximately US$360,000; and
  • the removal of SOGTP as Operator of the Kilosa-Kilombero licence area following SOGTP’s failure to satisfy the joint venture partners that it is not insolvent.

The Kito-1 prospect was set to drill at the Kilosa Kilombero license in September 2016 with the contract awarded the Drill Support Team contract for the 2016 drilling campaign to the Tanzanian subsidiary of AWT International (Asia) Sdn Bhd, a Singapore-headquartered firm offering subsurface, subsea and surface facilities engineering services and contracting solutions to the oil and gas industry.

Another dispute has been ongoing since May 2016 when Swala Energy Limited said it has been served notice by lawyers acting on behalf of Otto Energy Limited that Otto has commenced a legal action against the Company, Swala Oil and Gas (Tanzania) plc (SOGTP) and current and certain former directors of the Company seeking to recover a gross amount of approximately US$1,000,000 plus alleged damages.

The four joint venture partners in the two blocks currently have a 25 percent interest each. Among the partners include the  Swala Energy (operator), Otto Energy, Tata Petrodyne, and MV Upstream a joint venture between Vegas Oil & Gas Limited, (Vegas) and Motor Oil Hellas SA (MOH).

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