Swala has completed a farm out agreement for a 25% working interest in Block 12B in Kenya with Spanish integrated oil and gas company, CEPSA. With all Kenyan government approvals for the deal also in place, we are confident that the completion of a farm out agreement with a major international player such as CEPSA is a very positive move for Swala.
The farm out was first announced on 10 March 2014 although CEPSA requested confidentially until the completion of the deal. At the time the agreement was subject to the consent of the Kenyan Government and Competition Authority of Kenya. These consents have now been given and the farm out agreement is finalised and unconditional.
CEPSA (Compañía Española de Petróleos, S.A.U.) is a Spanish integrated energy company which is now 100% owned by the Abu Dhabi government’s IPIC (International Petroleum Investment Company).
Under the terms of the farm out, Swala will retain a 25% net working interest in Block 12B, CEPSA will also hold a 25% net working interest and Tullow Oil will retain the remaining 50% interest and operatorship of the joint venture.
Under the terms of the deal, CEPSA will reimburse the company for its past costs and carry Swala through two exploration wells up to a maximum of $7.5m for each one if CEPSA decides to participate. As announced on 23 April 2014, a 2D seismic programme over parts of Block 12B has already began and CEPSA has agreed to pay all of Swala’s costs associated the survey up to a cap of $2.7m net to Swala’s working interest.
Prior to the announcement of this deal, we had ascribed a valuation of $3,894 per km2 for Block 12B based on historical acquisitions and farm-in deals in the region. However, given that we value CEPSA’s funding of its share of the work programme at over $35m for a 25% working interest, this deal carries an implicit valuation for the licence of at least $17,700 per km2 , the highest valuation on a ‘per km2 ‘basis achieved in the region to date.
CEPSA gained entry to Kenya with the acquisition of 55% of Block 11A in February and this farm in agreement for Block 12B with Swala demonstrates CEPSA’s escalation of activities in the region. This deal will conserve Swala’s cash and enable the company to focus its attention on its operated assets in Tanzania in addition to growing its wider portfolio in East Africa.