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Afren Expands in Africa as Shell Examines Region

Afren Plc, a U.K. oil and gas explorer focused on West Africa, will expand in the eastern side of the continent, an area where Exxon Mobil Corp. and Royal Dutch Shell Plc are paying more attention.

Afren this week agreed to buy Black Marlin Energy Holdings Ltd. for about $100 million in new shares to secure 12 licenses in Ethiopia, Kenya, Madagascar and Seychelles with potential resources of about 1.2 billion barrels of oil equivalent, said Chief Executive Officer Osman Shahenshah.

“It will be difficult to do this deal in six months time, there is so much interest in East Africa,” Shahenshah said today in phone interview. “We have entered just in time at a reasonable valuation. Prices will go up quite considerably.” Exxon and Shell “are looking at things there.”

The explorer is the latest arrival to East Africa after BG Group Plc last week bought a stakes in Ophir Energy Plc’s three blocks in Tanzania. Tullow Oil Plc, Dominion Petroleum Ltd., Aminex Plc, Statoil ASA, and Australia’s Beach Energy Ltd. are exploring for oil and gas in the region. In March, Statoil sold a stake in its Tanzanian block to Exxon.

Afren “builds out the Pan African model and provides a tranche of drilling opportunities to grow the company beyond 2012,” Richard Griffith, a London-based analyst at Evolution Securities Ltd., wrote yesterday in a report.

The U.K. company will offer Black Marlin shareholders 0.3647 of its shares for each share they own, it said in a statement June 2. Afren will use about 76.8 million of its new shares to fund the transaction.

‘Moving Quickly’

“By moving quickly we are able to acquire something that is extremely attractive,” Shahenshah said. Black Marlin management team has “been approached for farm-in opportunities from a number of companies.”

Wendel Broere, a spokesman at The Hague-based Shell, couldn’t immediately comment on the company’s exploration interests in East Africa.

“East Africa is interesting. We’ve looked at some opportunities there,” Chariot Oil & Gas Ltd. CEO Paul Welch said June 1. “But East Africa from what we’ve seen is going to be very gas prone. There are very immature exploration areas.”

Anadarko Petroleum Corp. in February said it found gas in the Windjammer exploration well drilling in deep water near Mozambique, the first major discovery off Africa’s east coast. It was made about 30 miles (48 kilometers) east of the coastline in the frontier Rovuma Basin.

Potential for Extension

“There is the potential of this play fairway extending around the coast up past Tanzania and to Kenya,” Peter Hitchens, an analyst at Panmure Gordon & Co. in London, said in a report May 14. “It is interesting to note that Anadarko has acquired offshore acreage in Southern Kenya, indicating that the company believes this new play type could extend further up the coast.”

Windjammer field may hold about four trillion cubic feet of recoverable gas reserves, according to Hitchens. The East African nations may develop a local gas-consuming market, which can make other discoveries economically viable, he wrote.

“Clearly there is gas in East Africa” which possibly could be sold to the local market depending on the site of the discoveries, Shahenshan said.

Nigerian Plans

The London-based explorer plans to almost triple oil production to about 60,000 barrels a day by the middle of next year, up from about 21,000 barrels a day now.

“We will be producing a lot of cash and we also are looking at some very serious acquisitions in Nigeria,” Shahenshah said. “There are some opportunities with the majors,” which “could be larger” than the assets Afren agreed to buy last year.

Afren acquired a stake in the OML 115 field, which is located next to its Ebok and Okwok developments, and an interest in the OPL 310 field last year off Nigeria.

Next year, Afren expects to generate at least $600 million in cash. The East African exploration program will require about $95 million in investment through 2012.

“The program in Nigeria is fully on track,” Shahenshah said.

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