The Tarach-1 well which commenced drilling on April 14th 2016 in Block 11A could have cost the two joint venture partners Compania Espanola de Petroleos (CEPSA) operator* and ERHC over $25 million going by exploration and drilling expenses filed by ERHC to the United States Securities And Exchange Commission.
ERHC which completed a farm-out to CEPSA in February 2014 says capitalized drilling costs in Block 11A hit $2.27 million while exploration expenses during the three months to June were up to $2.275 million.
Going by the farm-out agreement the carry obligation was not to exceed twenty million five hundred thousand United States Dollars (US$20,500,000) after which the farmor would be responsible for 45% of any further exploration costs.
Going by the exploration costs this would mean that this amount would have been exhausted if the well cost more than $18 million. Calculating by the $2.27 million that ERHC paid in drilling costs this would mean that the expenses exceeded the carry by about $5 million driving the total costs to over $25 million.
Whereas the results of the well are yet to be announced a source told OilNews Kenya in June that the results were ‘disappointing’ meaning that CEPSA (farmee) could opt out with the agreement having focused on the Spanish explorer’s continued participation where ‘significant hydrocarbons’ were encountered.
“Provided that the Farmee decides at its own discretion, following its analysis and evaluation of the Exploratory Well or the 3D Acquisition, that sufficient hydrocarbons exist to justify:
(a) the declaration of a commercial project pursuant to the Contract; and
(b) the drilling of an appraisal well (the “Appraisal Well”),
The Farmee shall pay one hundred percent (100%) of the costs, expenses, expenditure and liabilities incurred by the Parties for such Appraisal Well,” reads part of the agreement.
This could throw ERHC back to the market to the market to initiate another farm-out efforts that have ongoing in partnership with Deloitte as advisor.