Dominion Petroleum is building an impressive portfolio in East Africa, says Westhouse Securities

Dominion Petroleum (LON:DPL) is building an impressive portfolio in the East African margin, according to Westhouse Securities analyst Andrew Matharu.

Indeed East Africa has become a major hydrocarbon hotspot of late following a series of major gas discoveries in the region – made by Anadarko (NYSE:APC), Cove Energy (LON:COV), BG (LON:BG.) and Ophir (LON:OPHR).

Dominion's plan is to tie-up with a major partner so it can progress a drill programme of its own.

This morning Dominion unveiled a significant expansion in East Africa after it successfully concluded negotiations with the Kenyan government and it was awarded ‘Block L15’ in the Lamu Basin. 

Crucially the company believes that its newly expanded acreage could attract even more 'industry interest' and it can now adopt a partnering strategy for these assets. 

In a note to clients Westhouse analyst Matharu repeated his ‘accumulate’ recommendation with a 6.8 pence target. 

 “With recent exploration success in Tanzania and Mozambique, the next staging post on the high-impact East African drilling horizon is Kenya, which the industry will be hoping is oil prone due to the existence of Cretaceous geology extending into the Lamu basin,” Mathuru said.

Dominion expects to formally sign a production sharing contract (PSC) in Nairobi in the coming weeks, after that it will be the operator of Block L15 and it will have a 100 per cent stake in the block. 

A well was previously drilled on the area covered by Block L15, back in 1985, by Union Oil which encountered good oil shows in the Palaeogene and Upper Cretaceous intervals.

Dominion believes that its assets may be de-risked further in the next twelve months, thanks to nearby exploration drilling. 

The new asset, Block L15, lies immediately to the north of Block L8 where a consortium that includes Tullow Oil (LON:TLW) is expected to drill a well on the Mbawa prospect, estimated at 1 billion barrels, next year.

The proposed PSC will have an initial two year exploration period, with a minimum work commitment of US$2.85 million and the acquisition of 250 square kilometres of 3D seismic data.

Beyond this initial two year period Dominion can extend the PSC further by committing to drill a well on the block.

The company believes that the terms and the commitments for L15 compare very favourably to other countries in the region, relative to the block’s potential resource.

Chief executive Andrew Cochran said: "We are delighted to add Block L15 to Dominion's East Africa deepwater exploration portfolio, one of the most sought after addresses in the exploration industry these days. 

“The region is seeing both growing attention from, and accelerated activity by, major players with Kenya now due for deepwater drilling within the next year following last year's successes in Tanzania and Mozambique.

"Dominion's new award represents a material expansion of an already enviable deepwater East African portfolio. We can now focus our attentions on the business of exploring these blocks, realizing their true value and embarking on substantive discussions with potential partners to establish plans for drilling."

This morning Dominion also confirmed that it will no longer pursue a farm in deal with Mediterranean Oil & Gas. 

The initial farm in deal was agreed in late June but it depended on Dominion raising US$50 million.

However, last week the company’s investors shot down the proposal, as the funding failed to get the required support in a shareholder’s vote.  Dominion will now pay MOG a US$225,000 termination fee.

“The failure of shareholder approval for Dominion’s recent placing means the farm-out of Block-7, offshore Tanzania, on favourable terms is ever more important,” the Westhouse analyst added. 

Investors will have to wait until tomorrow morning to get a reading on the market’s reaction to Dominion’s latest acquisition in East Africa, after a problem at the stock exchange meant that trading was suspended for Dominion’s shares today.

This afternoon the London Stock Exchange said that the problem related to an isolated reference data issue that relates specifically to Dominion’s shares.

“The non-availability of trading is due to circumstances entirely outside the control of Dominion Petroleum Limited. The London Stock Exchange regrets any inconvenience this has caused,” the exchange said in a statement this afternoon.

The shares will resume trading as normal tomorrow.