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Should Tunisia Now Be on Energy Investors' Watch List?


To help us look at the developing situation in the region, we spoke with oil industry veteran John Nelson.

James Stafford: What about Ethiopia and Eritrea? Eritrea seems open for business now after preferring to focus on its mineral resources for so long--and thanks to the new technology on the scene--and it's got Red Sea territory that is virtually unexplored.

John Nelson: Eritrea has been slow to open up to oil and gas exploration despite a fairly high level of interest. New laws and policy changes move slowly in many parts of Africa. Eritrea has been explored in the past and there are known oil seeps there. No major discoveries have been made yet.

James Stafford: How do you view prospects in Ethiopia, as a possible extension of finds in Kenya?

John Nelson: Ethiopia has a variety of play types throughout the country that are soon to be drilled. Africa Oil is currently drilling in SW Ethiopia along the Tertiary rift trend that extends north of Kenya. They may make the first significant oil discovery for Ethiopia in that area.

James Stafford: How close are we to commercial viability in Kenya, and what do you think the next year to year and a half will show?

John Nelson: Tullow and Africa Oil are close to determining commerciality. The recent testing suggests the rates and accumulations may be sufficient. Some additional drilling success in some of the other sub-basins on their acreage in blocks 10BA and 10BB as well as in Ethiopia will help initiate further development decisions. There is a lot of drilling and testing to be done over the next couple years. I am pretty sure the results will lead to major infrastructure plans for the area. It will take time--years--due to the remoteness and current lack of infrastructure in the area as well as political involvement of neighboring countries.

James Stafford: So what can we expect by the end of the year from Africa Hydrocarbons? What do potential investors need to know?

John Nelson: We anticipate drilling our first well in April and should know the results in May. In over 27 years, I haven't seen many wells with this kind of risk-reward-a $7 million well that is geologically so similar to a proven field only 25 km away where one well produced more than 20 million barrels.

We have worked up the target with 2-D and 3-D seismic that are remarkably clear, and that give us what we call in the business a "play chance" that is much much higher than your typical International exploration well. Usually with a target this size you are looking at a 10%-15% chance of success-we have heard our chances rated by third parties between 28% and into the low 30% chance of success. This is actually a geometric difference in probabilities-really an order of magnitude.

With success on our first well, w e would look to start production from Bouhajla North, and follow in that area by preparing to penetrate the reservoir again with new wells. We would also establish a reserve and resource calculation to highlight the size of the produceable reservoir in that area.

Concurrently we would develop an inventory of prospects all over our acreage which we would develop with additional seismic programs.
Real success just on our first well would turn us from an explorer into an intermediate producer immediately.

James Stafford: What happens if you hit-what kind of NPV do we get compared to current market cap.

John Nelson: Well James, if we don't hit we are backstopped by cash in the treasury as well as our land position and additional targets which we would then set our sights on.

But with a discovery similar to a Sidi el Kilani well, our NPV10 based on our 47.5% working interest would be close to $100MM, which is about 10 times the current market capitalization of the company of $9 million - we will know within 8 weeks.

James Stafford: Thanks for taking the time to speak with us John.

This article was written by James Stafford of

No positions in stocks mentioned.
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