Has Africa Oil and Tullow discovered a sleeping giant?

What has been gaining attention in the companies latest news releases is the ramped up focus on “unconventional oil”-reserves in regards to oil shale that can be added to production given the use of “fracking”.

Since this is a more complex and expensive way of producing oil, the companies have up until now not focused on it at all…

Then why start mentioning it now? What has changed? Why is it considered a potential value increase now?

First we can say that the following two developments have taken place:

1. China going to invest billions of dollars in Kenyas infrastructure

    – They probably have big plans that stretch far into the future given the            investment amounts.

    – Should be an increased probability of chinese Oil Majors moving in.

2. Plans for a pipeline in Eastern Africa has been gaining momentum as of          late.

Conclusion: With infrastructure and a pipeline in place, oil majors would probably view extensive basins of oil shale as a valued asset. This in turn would mean that Africa Oil and Tullow would be able to add some amount in a “Take Over Price Tag”… Because surely they do not intend to push these resources into production with already multiple conventional oil basins left to drill?

It can be noted that so far, the only broker seen commenting on the Oil Shale is Nordea, who at this moment assigned it with a value of zero.

In contrast, Tullow´s and Africa Oil´s latest communication seem to view it as something of value.

Regardless, it can be seen as a pleasant bonus if an Oil Major does end up having to pay for it.

Below is an image from Africa Oil´s July presentation where they depict the different sources of unconventional oil:

Oil shale

Oil shale

Following are remarks about the latest company reports that also covers the unconventional oil:

Friday, May 16, 2014
By Geoff Percival:
“Tullow Oil’s latest African oil find could lead to the Irish-founded explorer embarking on a round of so-called ‘unconventional’ exploration, or ‘fracking’, in Kenya. 
Africa Oil — one of Tullow’s main operational partners in Kenya — yesterday reported the discovery of 62 metres of net oil pay at the Twiga-2 side-track well in the north of the country.
The additional find comes after a decision to side-track the main Twiga-2 well after limited reservoir quality was initially discovered.
Tullow’s exploration director, Angus McCoss said the newly discovered material oil-bearing sandstone reservoirs confirm the resource’s potential and gives “valuable insights” for the locations of future development wells.
He added that “the presence of a thick extensive oil shale gives us new options to study the basin’s substantial unconventional oil potential”. 
That could see Tullow start fracking in Kenya.
Fracking — or hydraulic fracturing — is the onshore extraction of oil or gas where water, sand and chemicals are pumped into rock at high pressures.
The technique has drawn criticism over potentially negative effects on water and air quality.”
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