Alberta Oilsands to benefit from Tullow’s surprise decision to explore in Namibia
Tullow Oil has decided to increase exploration efforts in Namibia. Tullow (LON: TLW) has signed a ‘farmout’ (i.e., the assignment of a hydrocarbon or mineral resource stake to a third party) USD$ 130 million deal with Pancontinental Oil and Gas (‘PCL’, ASX: PCL) to take on a 65% stake for block EL 0037 in the Walvis Basin. Pancontinental shall retain 30%. Tullow had typically shunned Namibian exploration projects but it has now made a commitment to perform seismic explore a 3,000 square kilometre area starting in 2014. Tullow is renowned as one of the world’s most successful exploration firms and it might succeed where – or rather close to where – others have failed. The ‘other’ in this case is HRT Participações SA (BR: HRTP3). At the end of last March, HRT started drilling at its well Wingat well in the Namibia’s Walvis Basin as part of Petroleum Exploration License (PEL) 23. HRT’s Namibian drilling campaign also includes two other wells: Murombe also in PEL 23 and Moosehead in PEL 24, the Orange Basin.
Studies conducted by the De Golyer & MacNaughton consultancy in PELs 22, 23, 24 and 28 indicated a potential resource volume of some 7.4 billion barrels, 5.1 billion of which oil and 2.3 billion equivalent (barrels) of gas. However, in August, HRT has concentrated activity around the Moosehead well in PEL 24 and the initial results are expected by the end of September or early October. Alberta Oilsands Inc (AOS: TSXV), owns an 85% net interest in two blocks adjacent to HRT in the Orange Basin, as part of its strategy to develop in wells located close to rich prospective resources, adding value to its concessions if successful. As it happens, AOS owns 85% of Leopard Investments, a local Namibian company that holds exploration licenses for blocks 2712A and 2812A adjacent to the HRT blocks in the Orange Basin, covering an area of some 2.7 million acres.
Tullow’s announcement has increased the potential prospects and value of AOS’s blocks. It would have been a prohibitively expensive proposition for AOS to explore Namibian prospects independently, raising investor risk, had decided to start its own exploration in Namibia. AOS’s strategy is essentially to ‘piggy-back’ on the success of the larger companies by securing highly strategic acreage adjacent to majors’ properties, allowing the latter to absorb the exploration expenses. Should Tullow be successful – and its decision to reverse its Namibia policy suggests it has good reason to expect success – AOS benefits directly as it could attract offers from Tullow or other oil majors already operating in the area.
Namibia, moreover, has the potential to be one of AOS’ best prospects. Offshore Namibia presents very similar geology to offshore Angola – the largest oil producer in Sub-Saharan Africa. Namibia has the advantage of being underexplored. Just 16 wells have been drilled in the past 20 years and in shallow areas at that. The potential for rich resources in deeper zones has attracted several majors: HRT, as well as BP, Repsol and now Tullow, all of which – along with others – will invest a billion dollars over the next months to prove significant discoveries. In addition, the fact that previously reluctant Tullow has announced that it would now start Namibian exploration has further raised the value perception of Namibian properties.
AOS has secured various opportunities in other parts of Africa and Namibia represents merely the latest, and by far not the only, source for its fortunes. AOS started operations in 2003 by revitalizing conventional and mature oil assets through alternative and innovative drilling techniques in Manitoba, Saskatchewan and Alberta. It was only later that AOS started to diversify into the development of bitumen and oil sands, investing some CAD$ 60 million since 2007 to develop a 500 million barrel oil sands resource and specializing in smaller ‘in situ’ projects using solvent co-injection steam-assisted gravity drainage (SLP-SAGD). SAGD process has facilitated the commercial development of horizontal CSS and many SAGD projects. AOS has also accumulated 21 million acres of African rift basin onshore and offshore oil developments, using minimal amounts of cash, in areas adjacent to such oil majors as Total, Tullow, HRT, Beach Energy and NAMCOR. AOS is also evaluating engaging in additional exploration in Chad, Ethiopia, Niger and Burundi, as well as offshore assets in the Republic of Congo, Angola and Gabon where more and more oil majors have landed to tap into the oil and gas deposits in Africa. In a sense, AOS’s strategy is to let the bigger players do the groundwork, keeping its own expenditure to what will be needed to secure the necessary licenses and permits.
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