Swala Oil & Gas Hints 12 month License Extension in Tanzania’s Kilosa Kilombero

Swala Oil & Gas (Tanzania) plc has announced that it has received a 12 month extension from the Ministry of Energy and Mines at the Kilosa Kilombero license although with a caveat that the contractors provide financial guarantees covering the minimum well commitment before it extended the Production Sharing Agreement (“PSA”).

These guarantees, required under the terms of the 2012 Production Sharing Agreement, cover minimum commitment obligations of US$6 million and can be drawn down as the drilling programme progresses. These conditions had to be satisfied by the 20th of February, when the licence´s first extension term was to expire. The Joint Venture is obliged to provide these guarantees in accordance with the working interests as set out in the table below:

Swala’s 25% working interest costs are covered by Tata Petrodyne Limited under the terms of the Farmout Agreement dated October 2015.

“The guarantees are, essentially, ‘ringfenced’ drilling costs and covered by ourfarm-out agreement. The Company shall inform the market as the conditions under which the PSA extension is awarded become clearer,” Swala CEO Dr. David Mestres Ridge said.

The requirement from the Tanzania government could be as a result of squabbles by the joint venture partners with Otto Energy accusing the operator relieved off its role after defaulting in various cash calls. Swala has already exited its Kenyan block 12B with a recent analysis by OilNews Kenya indicating that the company was either unable to secure any funding to continue its activities or realize its assets thus very likely unable to contribute to the fulfill the commitments as per the agreement with the operator.

Swala Oil & Gas (Tanzania) plc adds that plans to drill the Kito-1 prospect in the Kilosa-Kilombero valley in 2017 are still ongoing and the company has been working with the Tanzanian Petroleum Development Corporation to secure all necessary permits and consents to progress the drilling programme.

To this regards the Australian explorer says it carried out a joint programme to inform on the planned drilling programme and update the local communities around the drilling area, an initiative that was well received.

“TPDC and Swala have worked hard over the past months to ensure that Kito-1 could be drilled in 2017 and both companies remain committed to ensuring its success. In these circumstances TPDC has decided to require tangible commitment from the Joint Venture and will clearly take account also of the remedy of existing defaults before deciding on the PSA extension,” Dr David adds.

Although the operator is yet to provide new timelines as to when the drilling of Kito would commence a corporate presentation by JV partner Otto Energy in September 2016 indicated it was likely to be pushed to Q4 of 2017 from Q3 of 2016.