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Tullow benefits from $850mln Africa Oil tie-up with Maersk

The Toronto listed oil firm is to receive US$350mln in cash, in respect of its past costs, and the Danish conglomerate is committing up to US$495mln in future spending on AOI’s behalf.

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Some US$405mln is earmarked for AOI's share of development costs for the Tullow operated Lokichar projects

-- Writes through with updated share price and more detail, analyst comment ---

Investors drilled into East African oil explorer Tullow Oil (LON:TLW) on news that shipping and oil giant Moeller-Maersk had taken stakes in some of its key projects in the region.

Tullow’s stock spurted 9.9p to 228.1p as Tullow’s partner, Africa Oil (TSE:AOI), said Maersk will buy half of its stakes in three onshore exploration licences in Kenya and another two in Ethiopia. Africa Oil (TSE:AOI) shares jumped more than 30%.

The oil and gas arm of Danish conglomerate Maersk is acquiring 50% of Africa Oil’s stake in the assets for US$350mln and will also commit to up to US$495mln of further work.

The move should reduce uncertainty around Tullow’s plans for a pipeline to export oil from its East African sites.

The industry is also likely to get a confidence boost from the move, having slashed investment and jobs as crude prices crash to less than $50 a barrel from more than $100 last year.

Mirabaud Securities analyst Richard Savage said: “The deal has positive implications for partner Tullow Oil, which holds an equal position in Africa Oil’s Kenya blocks.”

Despite the good news, crude prices fell amid concerns about a supply glut and weak Chinese demand. The price of a barrel of Brent crude was 0.3pc down at $47.28 and US light crude leaked 0.7pc to $43.97.

Some US$405mln is earmarked for a ‘carry’ on Africa Oil’s share of development costs for the Tullow Oil operated Lokichar projects, which are estimated to host as much as 1.2bn barrels of possible oil resources.

Maersk will cover US$15mln of AOI’s exploration expenses, and a separate US$75mln is pledged as a ‘carry’ on AOI’s share of other development costs, upon confirmation of resources.

Keith Hill, Africa Oil chief executive, highlights that the new partnership lets Africa Oil keep a significant stake in the projects without having to carry out additional equity funding prior to ‘first oil.

"We are delighted to have attracted a partner of the stature of Maersk Oil into our East Africa venture.

“We believe they bring significant technical, financial and infrastructure development capabilities at a critical time when the Lokichar Development and related pipeline projects are moving towards sanction.”

Hill says Africa Oil will have a stronger balance sheet as a result of the Maersk partnership, and that means it will be able to consider other new growth opportunities in what he calls “a highly attractive acquisition and divestiture market."

The deal sees Maersk take 25% of Block 10BB, Block 13T and 10BA in Kenya, while it also gets 25% of acreage in the Ethiopia Rift Basin and 15% of the South Omo project.

In Toronto, Africa Oil share rose 50 Canadian cents or 30% to trade at US$2.21 each.

Quick facts: Africa Oil Corp

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TSX-V:AOI
Market: TSX-V
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