Marathon Enters Emerging Kenya Play with Farmout Agreement

Houston-based Marathon Oil Corporation will enter an emerging onshore oil play in Kenya through a farmout agreement with Africa Oil Corp.

The agreement will give Marathon a position in two onshore exploration blocks covering over 11 million gross acres in northwest Kenya. The transaction will include a 50 percent working interest in Block 9 and a 15 percent working interest in Block 12A.

As part of the agreement, Marathon will pay Africa Oil a $35 million entry payment which includes prior expenditures. Additionally, Marathon will fund Africa Oil's working interest share of joint venture expenditures in these blocks anticipated to be spent over the next three years up to a maximum of $43.5 million.

Besides giving Marathon entry into an emerging onshore play that offers potential across a vast acreage position, the transaction fits with Marathon's liquid-rich strategic focus, said Annell R. Bay, Marathon Oil's vice president of global exploration.

Block 9 covers approximately 7.5 million gross acres along the prospective Cretaceous Rift Trend. Africa Oil will operate the exploration phase, with Marathon having the right to become operator if a commercial discovery is made.

Block 12A covers approximately 3.8 million gross acres. and is contiguous with Block 10BB to the north, which contains the recently announced Ngamia-1 oil discovery. Tullow is operator of the block with 65 percent working interest; Africa Oil holds 20 percent working interest.

The companies plan to drill an exploration well on Block 9 in the second quarter of next year. A 2-D seismic survey of Block 12A will begin in this year's third quarter.

The transaction is a good move on Marathon's part to get in still relatively early, though Block 9 and Block 12A are very frontier blocks, with the only hydrocarbons shown so far to be gas, said Global Hunter Securities Senior Analyst John Malone in a July 23 research note.

In 2010, CNOOC made the Bhogal gas discovery in Block 9. CNOOC later relinquished its stake in the block, leaving Africa Corp. as the 100 percent interest holder.

Tullow Oil has raised its stake in Block 12A to 65 percent, a move that is seen as encouraging, although the block is not on Tullow's near-term drilling list, Malone noted.

Marathon and Africa Oil expect to close the agreement in the third quarter, with an effective date of June 30, 2012.

Both companies have also agreed to jointly pursue exploration activities on an additional exploration area in Ethiopia, subject to host country government approvals.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at


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