Monday, April 15, 2013
Company's quest: Find oil in Ethiopia, get it to market
A study commissioned by an Ethiopian company that hopes to be the first to bring oil to market there suggests two basins hold more than 2 billion barrels of oil.
But getting at that crude could be as challenging as getting a look at the Hebrew religious relic, which Ethiopian Orthodox Christians believe is in one of their churches. And as with the Ark, the location and even the existence of marketable Ethiopian oil are elusive.
Tewodros Ashenafi, CEO of SouthWest Energy, headquartered near the capital of Addis Ababa, sees promise in the Gambella and Jijiga basins.
In a study for SouthWest, British consulting firm Senergy estimated the regions could hold 1.6 billion to 2.9 billion barrels of oil.
"Anywhere there are camels, there is oil," said Ashenafi, noting that East African neighbors including Egypt and Kenya already have profited from bountiful underground resources. "We are at the frontier in Ethiopia - the industry is still in the early stages."
SouthWest Energy, established in 2005, has mineral rights for 46,000 acres and plans to drill three exploration wells in the Jijiga basin this year and in 2014. Ashenafi and other executive team members, corporate and private investors and SouthWest's board of trustees - all of whom have international business résumés - have staked their own money in the project, as SouthWest Energy aims to be the first to bring oil to market in Ethiopia,
The company has raised $50 million for its initial efforts and hopes to secure $100 million more, seeking investors in Houston and other international oil centers.
But competition for investors is fierce, and even if a company finds oil, it will have to figure out a way to get it to market because Ethiopia has no pipelines.
One of the challenges in proposals like SouthWest's is persuading would-be investors that the project will be economic, said Robert Hamill, a partner with Mayer Brown specializing in international corporate finance.
"We have seen exciting discoveries in the middle of Africa, but one has to think about the logistics of selling the oil into the international market," Hamill said.
Oil was discovered in Ethiopia in the late 1800s but never has been produced in commercial quantities. Only two of 50 exploration wells have struck oil.
"The report confirms what we have always believed; our blocks have strong oil potential," Ashenafi said. "Our work now turns to the next phase of exploration, to further refine the seismic data set and look toward our well program, which we hope to commence later this year."
While Ethiopia does not have pipeline infrastructure for carrying oil to neighboring Djibouti, which has the closest port, its 90 million inhabitants create a domestic demand of 50,000 barrels a day, Ashenafi said.
He also suggested that oil could be shipped by rail, and that pipelines to Djibouti could be established as the industry matures in Ethiopia.
Hamill said small companies like SouthWest are most likely to begin the search for Ethiopian oil in earnest, because venture capitalists that invest in such projects tend to be more tolerant of the higher risk than the international oil companies.