Swala Energy seeks arbitration after CEPSA withdrawal from Kenya’s Block 12B

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Swala Energy Limited advises that its wholly-owned subsidiary, Swala Energy (Kenya) Limited, has referred to arbitration a dispute with CEPSA Kenya Limited (“CEPSA”) in connection with CEPSA’s withdrawal from Block 12B in Kenya.

CEPSA farmed in to Block 12B in Kenya and acquired a 25% equity interest. Upon electing to withdraw from the licence, CEPSA has indicated it would return its equity interest in accordance with the terms of the Joint Operating Agreement, returning 8.33% to Swala Kenya and 16.67% to Tullow Kenya B.V.

This would result in Swala Kenya holding a 33.33% equity interest and Tullow holding a 66.67% equity interest.

Swala Kenya maintains that CEPSA is obliged to return the entire 25% to Swala Kenya in accordance with the terms of the Farm-Out Agreement (“FOA”) made between Swala Kenya and CEPSA.

Accordingly, Swala Kenya maintains that CEPSA is in breach of its obligations under the FOA.

Under the terms of the deal, CEPSA was also reimburse the company for its past costs and carry Swala through two exploration wells up to a maximum of $7.5m for each one if CEPSA decides to participate.

CEPSA also agreed to pay all of Swala’s costs associated the 2D seismic survey up to a cap of $2.7m net to Swala’s working interest.

Compañía Española de Petróleos  (CEPSA) withdrew from the PSC after it was uncomfortable with the scheduled drilling by Swala Energy which announced it will be drilling its first exploratory well in Kenya’s block 12B in 2015.

Swala said the decision followed positive data from the 2D seismic acquired in the block that was completed in the month of June covering 350 kilometers.

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Author: Samuel Kamau Mbote