The Reporter (Addis Ababa)

30 August 2014

Ethiopia: Africa Oil to Pull Out of Oil Exploration Blocks in Ogaden

Africa Oil, the Canadian oil company, which is prospecting for oil in different parts of Ethiopia, is to pull out of two exploration blocks in the Ogaden basin, eastern Ethiopia.

In an operational update released on Thursday Africa Oil stated that it informed the Ethiopian government and its partners that it intends to withdraw from Blocks 7 and 8 in the Somali region. A well recently drilled in Block 8 (El Kuran-3) demonstrated oil and gas flow. However, the company decided to pull out of the two exploration blocks in spite of the positive exploration result.

"Although the El Kuran-3 well did demonstrate some oil and gas potential, the company does not feel it is warranted to continue efforts at this time due to concerns over reservoir quality and commerciality," the company said.

Africa Oil has a 30 percent working interest on Block 7 and 8 found in the Ogaden basin. The British oil firm, New Age (African Global Energy), owns 40 percent while and the Dubai based East Exploration Limited (EAX), owns a 30 percent stake on the block.

Early this year, New Age, the operator in the blocks, drilled El Kuran-3 well, to a total depth of 3,528 metres. The well undergone logging and evaluation prior to taking a decision on the way forward on the well. "There have been numerous oil and gas shows in the well which is a follow up to a discovery made by Tenneco [a company which spun of its oil and gas properties in 1988] in the 1970's. There appears to be a significant amount of oil and gas in several intervals and the primary issues are the quality of the reservoir and potential commerciality given the remote location," the report said. The total acreage of the two blocks is 21,767 sq.km.

Africa Oil has three projects in Ethiopia consisting of blocks 7 and 8 in the Ogaden basin, the Adigala Block close to the border with Somalia and Djibouti and the South Omo Block which lies in the Omo Rift Valley of south-western Ethiopia.

The Ogaden Basin blocks are relatively underexplored with limited well and seismic data to constrain the petroleum system proved by the Calub and Hilala fields to the east. The Adigala block is a wildcat opportunity with no wells in the area. An analogue petroleum system is predicted based on nearby outcrop data and field surveys. The South Omo Block is within the Tertiary age East African Rift, just north of Lake Turkana, Kenya and within the same petroleum system as the company's Kenya Block 10BB and Tullow's Uganda discoveries.

Africa Oil acquired a new oil exploration block in southern Ethiopia rift system in February 2013 from the Ethiopian Ministry of Mines. The block is a large area covering 42,000 sq.km of land in the great East Africa rift valley.

In March, the company completed a farm out transaction with a US oil company, Marathon Oil, whereby Marathon acquired a 50 percent interest in the Rift Basin Area leaving the company with a 50 percent working interest. In accordance with the farm out agreement, Marathon was obligated to pay the company 3 million dollars in consideration of past exploration expenditures, and has agreed to fund the company's working interest share of future joint venture expenditures to a maximum of 15 million dollars.

Africa Oil continues to advance plans to commence a 2D seismic program in the Rift Basin Area Block which is expected to start later this year. The company has put up a tender inviting international companies that will shoot the seismic survey.

Africa Oil has a 30 percent working interest on the South Omo Block. Tullow Oil has a 50 percent stake and Marathon Oil has 20 percent. Tullow Oil, the operator, drilled four wild cat well in the South Omo Block with no commercial oil discovery.

Africa Oil said due to the extensive drilling and seismic program, no additional work commitments will be required. "The partnership plans to evaluate the four wells drilled to date to determine if additional drilling is warranted and, if so, which portion of the block is considered most prospective."

In the Adigala block Africa Oil has 10 percent stake while New Age and Genel Energy, a UK firm, have 50 and 40 percent respectively. According to Africa Oil, the parties to the block agreed to enter the final exploration period, which expires in July 2015 and carries a 500 kilometer 2D seismic work commitment. The company and its partner have committed to a 1,000 kilometer 2D seismic program which will commence in December this year.

Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya and Ethiopia as well as Puntland (Somalia) through its 45 percent equity interest in Horn Petroleum Corporation. Africa Oil's East African holdings are within a world-class exploration play fairway with a total gross land package in this prolific region in excess of 215,000 sk.km.

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