Tullow to operate more East African blocks

Sept. 13, 2010
Tullow Oil PLC will greatly expand its position in East Africa rift basins by taking farmouts in Kenya and Ethiopia from Africa Oil Corp., Vancouver, BC.

Tullow Oil PLC will greatly expand its position in East Africa rift basins by taking farmouts in Kenya and Ethiopia from Africa Oil Corp., Vancouver, BC.

Tullow will become operator with 50% interest in blocks 10BB and 10A in Kenya and the South Omo block in Ethiopia.

Tullow will pay $10 million, or 50% of Africa Oil's past costs in the blocks, and fund Africa Oil's working interest share of future joint venture spending on the blocks to a $23.75 million cap. The cap is expected to cover upcoming seismic on the three blocks plus the majority of costs for at least two exploratory wells. Africa Oil will pay its working interest share thereafter.

Tullow also will acquire 50% of Africa Oil's interest in and become operator of the 12A and 13% exploration blocks in Kenya. Tullow will be responsible for paying Africa Oil its pro-rata share of back costs, including acquisition costs, and its respective share of future joint venture outlays.

In order to provide the necessary interest to Tullow, Africa Oil amended its existing farmout agreement with Lion Energy Corp. The amendment provides that Lion will reduce its interest in Block 10BB to 10% from 20% and will retain no interest in Block 10A, where it was to have 25%.

As consideration, Africa Oil agreed to pay Lion $2.5 million and 2.5 million Africa Oil common shares. Africa Oil agreed to eliminate future expenditure promotes in Block 10BB and on the company's projects in Puntland (Somalia).

The resulting blocks interests are: Kenya Block 10BB Tullow 50%, Africa Oil 40%, and Lion 10%; Kenya Block 10A Tullow 50%, Africa Oil 30%, and EAX (Black Marlin) 20%; and Ethiopia South Omo Tullow 50%, Africa Oil 30%, and Agriterra, formerly White Nile, 20%.

Africa Oil President and CEO, Keith Hill, stated, praised the technical and operating expertise Tullow has gained at the Uganda Lake Albert graben project.

"The transaction also means that any resultant discoveries will be operated by one of the main partners in the proposed pipeline project to export crude from this highly prospective developing region. With our recent $25 million capital raise and the Tullow deal, we have a very strong balance sheet which will allow us to continue to pursue opportunities in the region."

Africa Oil is shooting seismic on Kenya Block 10BB and will move the crew to Block 10A on completion. Drilling of the first exploratory wells on the blocks is expected to take place during the first half of 2011. Africa Oil is also shooting seismic on its Ogaden basin blocks in Ethiopia and continues evaluating a potential gas discovery on Block 9 in Kenya.

Drilling plans in Puntland, Somalia, continue to progress, but it is likely that the first well on these blocks will be delayed until 2011, Africa Oil said.

The above transactions are subject to host government approvals, waiver of any preemption rights by Africa Oil's partners, and applicable regulatory requirements.

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