State comments that saw oil firm’s shares plunge

By Macharia Kamau and Morris Aron

The Kiraitu Murungi who dangled a bottle with black liquid when oil deposits were found in Turkana and the Murungi who announced that the natural gas discovered at the Coast though one, portrayed a different picture.

This was when Pancontinental Oil & Gas went public about offshore gas finds at the Coast ahead of the ministry of energy. Diverse interests in the local energy industry came to the fore. The interests were later to be confirmed when oil and gas companies made calls for a new formula for proceeds sharing.

Communication of these interests and the political interests among the Energy ministry officials and investor on the other side played in the open.

The announcement by Pancontinental was profit oriented that saw a significant impact on the company’s share price, which saw it trade at its highest point this year.  The good fortunes did not last long.  Kiraitu’s anger of losing out politically by not being the first to reveal and subsequent announcement that the find was not economically viable saw Pancontinental shares crash by more than 50 per cent barely days after.

The company, listed on the Australian Stock Exchange, saw its share price plunge from 23.5 Australian cents to 13 Australian cents, one of the lowest in six months.   This negated the impact that the impact of the initial announcement that saw the share price rise 90 per cent to 22 cents from 11.5 cents in the days leading to the announcement on September 11.

Quantities available

 Pancontinental, which has a 15 per cent stake in the L8 block operated by American firm Apache, had said the drilling had encountered some natural gas but noted further analysis and drilling were necessary to establish the exact amount of quantities available.

  The minister termed the finding encouraging but ‘not sufficient to be commercial’ an exact replica of what Pancontinental had announced.  In addition to dimming the shares of the firm, the announcement also cut on the nostalgia among Kenyans, about the country’s prospects in terms of energy dependence in the future.

 Analysts note that the reaction by the Pancontinental’s stock to the sentiments by the Minister may have been repulsive to global energy firms that have started shifting attention to Kenya and the larger East Africa.

 Though with high potential to posses hydrocarbon, the State’s contradictory view to the industry has not gone well with the investors.  Edward Gitahi, investment manager PineBridge Investments notes that learning from the development, firms need to make regular announcements so as to keep investors abreast of what they are doing as well as keep funding for their activities flowing. 

Gitahi added that exploration is a high-risk business and hence the need for companies to keep their shareholders informed of their activities at every stage.

 So they have to show progress and success for continued funding,” said Gitahi.   “It is also a high risk business as for instance, a company can invest $40 million in drilling a well that turns out empty. This is unlike other businesses along the oil value chain that will develop an oil field whose viability has already been ascertained.  The explorers thus need to keep the shareholders informed at all times. There is a discernible pattern in the share prices of firms that have been exploring locally as well as internationally.

  In March when Tullow made the announcement that it had struck oil in Turkana, the company’s shares rose to £15.70, the second highest it has been throughout the whole of this year, up from £14.73.  Pancontinental’s share price rose to its highest this year when it made the announcement that the consortium prospecting for oil at the Coast had encountered some gas.

 The same time saw the firm’s stock heavily traded, moving at between 60 million and even upwards of 100 million shares daily in the week of the announcement. This is compared to the previous daily levels of about 10 million shares moved in the weeks before the announcement.