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Eni has stepped up exploration activities in the Lamu Basin in
Kenya with the Mlima-1 well, which is targeting a four-way dip
closure believed to host well-developed Cretaceous-aged turbidite
sandstone reservoirs. The Saipem 1200 drillship has been on
location within Block 11B since late December 2021 and is expected
to complete drilling operations in February.
Although the well is located along the East African Passive
Margin which is gas dominated as it shares similarities with the
Rovuma Basin, the chances of an oil discovery are assumed to be
higher as Mlima-1 is located only 175 km east of the first and only
oil discovery in the region (Sunbird-1). Mlima-1 has the potential
to be the first commercial oil discovery in a region where
exploration activities to date have almost exclusively resulted in
gas discoveries.
The Block 11B PSC was awarded in 2009 and contains profit
sharing linked to average daily production and additional profit
tax linked to oil price. The impact of these fiscal tools can be
seen in the NPV sensitivity chart below (Figure 1) where the price
linked additional profits tax constrains the NPV above $75 when
compared to the gain between the $55 and $75 $/bbl scenarios. While
production rate linked profit sharing has administrative benefits
and returns more to the government early in the lifecycle, it is
less progressive than profit rate linked profit sharing so doesn't
protect the interests of companies when times are hard. This can be
seen in the chart where there is minimal deflection of the NPV
curves approaching $0 NPV. Perhaps this is in part why, with the
government wanting to attract inward investment, the more
progressive profit ratio linked profit sharing mechanism was later
introduced in the 2015 model contract.
Figure 1: Mlima prospect evaluation
According to local sources, best case recoverable resources of
the prospect are estimated to be in the 700 million barrels of oil
range. Analysis of the Mlima prospect suggests a minimum economic
field size of around 250 MMbbls at $75/bbl and a potential NPV of
around $2.5 billion for a discovery at the upper end of the
estimate. The fiscal regime in the region suggests that with a
break-even price below 50$/bbl Eni is likely targeting a discovery
equal to at least 600 MMbbls. If successful, Mlima-1 wildcat will
disclose a new East African basin for oil production. The Kenyan
Ministry of Petroleum is expecting to announce the results of
drilling in the Lamu Basin in the next 1-2 months.
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