Tullow Oil Plc (TLW), the U.K. explorer that found Kenya’s first crude a year ago, is about to find out whether the resources extend into neighboring Ethiopia, a nation dependent on agriculture that’s yet to discover any petroleum.
Tullow, Africa Oil Corp. (AOI) and Marathon Oil Corp. (MRO) plan to complete their Sabisa well in western Ethiopia’s South Omo Block this quarter.
“The first discovery would be big news,” said Martin Mbogo, Tullow’s manager for Kenya, where its Ngamia well struck oil in March. “That would be historical for Ethiopia.”
Tullow, a London-based explorer, is targeting East Africa’s Tertiary Rift, a geological fault that’s yielded oil in Uganda as well as Kenya. For the company, an Ethiopian find may prove a new oil province. For the country, evidence of crude could help the government curb energy imports and diversify an economy that relied on coffee for about a quarter of export earnings in 2011.
“We are importing every drop of oil and gas,” Ethiopian Mines Minister Sinknesh Ejigu said last week. “We want to change this game.”
Licenses won by Tullow and Africa Oil in Kenya and Ethiopia cover an area almost as large as the North Sea. Only 11 wells have been drilled there so far, compared with more than 2,400 wells in the sea. While gas has been found in eastern Ethiopia, the partners are focusing on the western Omo region in the hope it will prove the extension of the petroleum system from Kenya.
“The structure is almost identical to what we see at Ngamia,” Africa Oil Vice President of Business Development James Phillips said in an interview in Addis Ababa. “This is a huge well for Ethiopia. This is really a key well.”
The country needs energy to support economic growth. The East African nation still ranks 211th in terms of gross domestic product per capita, behind Mozambique and ahead of Togo, according to Central Intelligence Agency data.
“A hit at the well would effectively bookend the string- of-pearls play from Ngamia to Sabisa,” Brian Gallagher, a London-based analyst at Investec Bank Plc, wrote in a report this month. “Sabisa represents a trigger well with the potential to open up a new basin.”
The government has a right to 10 percent of the South Omo Block should the companies discover oil, Gallagher said. The Sabisa well is targeting about 140 million barrels of oil resources, he said, citing Tullow estimates.
Africa Oil’s Phillips, who served as chief operating officer until Sept. 9, declined to comment on the progress of the well, citing disclosure regulations.
The Omo region is a “strange” area, he said. “A place like Omo is frankly the end of the Earth. It hasn’t had any attention from oil and gas exploration ever.”
The project partners are in talks with Kenya and Ethiopia to allow their contractor, China’s BGP Inc., to conduct seismic studies in the border area covering the Omo River wetlands. The border is currently closed and it takes days to transport equipment on dirt roads to cross at the nearest checkpoint.
“It could be one of most prospective, interesting areas,” Phillips said. “It’s going to be a tricky area to work,” which is similar to the Mississippi River delta in Louisiana.
The Kenya-Ethiopia frontier basin may hold as much as 10 billion barrels of oil and gas resources, Nomura Holdings Inc. said in a January note. Tullow and Africa Oil plan to drill about 11 wells in the area this year, of which three will be in Ethiopia.
The area is “10 times bigger than Tullow’s Uganda acreage,” Nomura said. The South Omo block is “one of the golden blocks of the Tertiary Rift,” the brokerage said.
Tullow advanced by 1.2 percent to 1,233 pence as of 10:14 a.m. in London trading, while Africa Oil climbed by 0.9 percent to 47.40 kronor in Stockholm.