Africa Oil Corp signs farm-out agreement with Maersk

Maersk Drilling FlickrMaersk will spend up to US$850mn for the stake it has acquired from Africa Oil Corp. (Image source: Maersk Drilling/Flickr)Africa Oil Corp has entered into a farm-out agreement with Maersk Oil & Gas for its interests in blocks in Kenya and Ethiopia

Maersk Oil & Gas is a Danish oil and gas company owned by the Maersk Group. Under the agreement, Maersk will acquire 50 per cent of Africa Oil’s interests in Blocks 10BB, 13T and 10BA in Kenya and the Rift Basin and South Omo Blocks in Ethiopia in consideration for reimbursement of a portion of Africa Oil’s past costs and a future carry-on certain exploration and development costs.

Upon closing of the transaction, which has an effective date of 31 March 2015, Maersk will pay Africa Oil US$350mn as payment for approximately 50 per cent of past costs incurred by Africa Oil prior to March 2015. Maersk will also reimburse Africa Oil for its acquired working interest share of costs incurred between the effective date and the closing date of the transaction. Starting on the effective date, Maersk will also carry up to US$75mn of the company’s share of development expenditures upon confirmation of resources and US$15mn of the company’s share of exploration expenditures. In addition, upon final investment decision, Maersk will also carry up to US$405mn of Africa Oil’s working interest share of development expenditures for the Lokichar Development Project. The total carry amount will depend on the Lokichar Development Project meeting certain thresholds of resource growth, and the timing of first oil.

Speaking about the agreement with Maersk, Keith Hill, CEO of Africa Oil, said, “Their parent company’s standing as the world’s leading logistical and transportation company will provide benefits not only to the project but to the host countries as well. This transaction allows Africa Oil to keep a significant stake in the project with no additional equity financing expected prior to first oil.”

The transaction is subject to Kenyan and Ethiopian government and regulatory approvals. J.P. Morgan Securities is acting as exclusive financial advisor to Africa Oil Corp on the transaction.

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