Published On  Nov 13,  2011






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Ministry to Sign Exploration Agreement with South West

Ministry of Mines awaits approval from Council of Ministers to sign Petroleum Production Sharing|




The Ministry of Mines (MoM) is to sign a Petroleum Production Sharing Agreement with South West Energy (SWE), an Ethiopian company registered in Hong Kong, on concession of Gambella Basin located southwest of Ethiopia.

Confirming that the ministry has finalized negotiation with the company, Sinknesh Ejigu, minister of Mines told Fortune that it will be presented to the Council of Ministers for final approval.

 “After we get go ahead from the council, we will officially sign an agreement,” she told Fortune.

SWE applied to the ministry to undertaking exploration works on the Basin which covers 17,500sqm in August 2010.  Since no one has applied for the concession, the Petroleum Licensing and Administration Department of the Ministry evaluated the offer of SWE thorough a committee which also negotiated the terms. The Ministry has the right to make a direct agreement with companies if there is only one interested party.

Gambella Basin, which is a south eastern extension of Melut Basin, located in South Sudan, is the only leftover concession out of those which were under the Malysian based Petronas Carigali. Petronas abandoned its exploration works in Ethiopia in 2009 after it had spent 350 million dollars.  

The concessions were auctioned off by the Ministry save for the Gambella Basin. They were all acquired by Petro Trans, a Hong Kong based Chinese company, beating five companies including SWE.  SWE’s attempt to deal with Petronas for the transfer of its concessions before the latter abandoned its activities was not successful as it was not accepted by the government.

It is after all this trial that the company applied for the only left over concession for which the Petronas had collected seismic data and drilled two wells which resulted nothing. It was the only concession that was not put on offer as not one applied for it until South West, which also has exploration licence in Somalia Regional State. It has collected seismic data on a 907km long and conducted a 1083m up hole serving study on 19 wells, at the end of the month.

Decision to enter into an agreement with SWE was made after the committee evaluated the company’s financial ability, negotiated on royalty payments, production share, training fees, and signing and production bonuses for the past three months.

In Ethiopia a signing bonus of between 250,000 dollars and three million for each contract, 20,000 dollar a year for training fees for the duration of exploration period and 100,000 dollar during development phase are applicable, according to a study conducted by Wood Mackenzie published in 2010.

There are a number of international companies, which have entered into agreement  of Petroleum Production Sharing Agreement (PPSA) lasting up to 25 years, undertaking petroleum exploration.

These include Pexico Exploration, a Malaysia based company, and Africa Oil East Africa, registered in Netherlands, have entered a PPSA and are undertaking petroleum exploration in south western and northern parts Ogaden Basin. Epsilon Energy Limited and Falcon Petroleum Limited are exploring blocks in Northern, western and central parts of Ethiopia respectively.


By Mahlet Mesfin
Fortune Staff Writer


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