Swala, Tata partner in oil search in Tanzania

Swala Oil and Gas (Tanzania) Plc has reached an agreement with Tata Petrodyne Limited (TPL), a subsidiary of the multinational Tata Sons Limited, under which TPL shall farm into the Pangani and Kilosa-Kilombero licences in Tanzania.

According to a statement issued, the agreement allows Swala to remain committed to these licences and to secure funding for future exploration activities in a way that minimises the risk to its current shareholders.

Swala Oil and Gas Chief Executive Officer, Dr David Mestres Ridge said that the company is delighted to announce Swala Tanzania’s agreement with a company of TPL’s standing and reputation.

“This farm-out allows the Company to fund its commitment obligations in a way that materially reduces the risk exposure to our shareholders without the need to raise additional share capital at this time,” he said.

In the oil and gas industry, a farm-out agreement is an agreement entered into by the owner of one or more licences (who ‘farms out’) and another company that wishes to acquire a percentage of ownership of that licence in exchange for providing services (and ‘farms in’).

A farm-out agreement differs from a conventional transaction between two oil and gas lessees, because the primary consideration is the rendering of services, rather than the simple exchange of money.

Dr Ridge said Swala will now focus on securing the necessary consents and governmental approvals to allow the newly formed joint venture to progress the drilling programmes on both licences and they look forward to updating the market with guidance on when these will begin.

Tata Sons Limited is the promoter of the major operating Tata companies and holds significant shareholdings in these companies, commonly referred to as the Tata Group.

The Tata Group has a market capitalisation of approximately 110 billion US Dollars and represents over 8 per cent of the total market capitalisation of the Bombay Stock Exchange.

The terms of the agreement with TPL will include on receipt of governmental approvals for the transfer of interest TPL will pay Swala the sum of 5.7 million US Dollars for a 25 per cent equity interest in the Kilosa-Kilombero licence and a 25 per cent equity interest in the Pangani licence as consideration towards the past costs incurred on the licences.

Others are TPL will free carry Swala through the costs of the initial well on the Kilosa-Kilombero licence, up to a maximum of 2.5 million US Dollars (Swala estimates the gross cost of the well to be 10.0 million US Dollars), TPL will free carry Swala through the costs of the initial well on the Pangani licence, up to a maximum of 2.125 million US Dollars (Swala estimates the gross cost of the well to be 8.5 million US Dollars).

Another is TPL will pay Swala up to a further 1.0 million US Dollars towards the cost of a second well following a commercial discovery in the initial well on the Kilosa-Kilombero licence. Costs incurred above this sum shall be shared by the partners in proportion to their equity.

Swala estimates that it is now fully-carried for the remainder of its commitment obligations on both licences. Swala was advised in this transaction by First Energy Capital (“FirstEnergy”) and TPL was advised by Rand Merchant Bank.
Source: Daily News, reported from Dar es Salaam, Tanzania
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