Canada-listed Africa Oil Corp. (AOIFF) Thursday said it has signed an agreement with U.K.-listed Tullow Oil (TLW.LN) whereby Tullow will buy a 50% interest in--and take over as operator--three East African exploration blocks.

Tullow will pay Africa Oil $10 million for half the interest in two exploration blocks in Kenya and one in Ethiopia. The price tag represents half the costs that Africa Oil incurred to date on the three exploration blocks. The deal is subject to regulatory approval.

Tullow has also agreed to fund Africa Oil's share of the exploration costs up to a cap of $23.75 million. Those funds are expected to cover a seismic program at each of the blocks and the lion's share of the costs of at least two wells on these areas.

In order to transfer the interests to Tullow, Africa Oil has amended its existing farmout agreement with Lion Energy Corp. (LEGYF). Africa Oil has agreed to pay Lion $2.5 million in cash and give 2.5 million common shares to Lion as compensation for Lion reducing its stake in Kenyan Block 10BB to 10% from 20% and selling out of its 25% stake in Block 10A.

Separately, Tullow has also entered into an agreement to operate and buy 50% of Africa Oil's interest in two additional exploration blocks in Kenya, 12A and 13T. Tullow will be responsible for its share of back costs, acquisition costs and future costs.

 
 BREAKDOWN OF INTEREST IN 3 EAST AFRICAN BLOCKS 
 
 Block 10BB (Kenya):  Tullow 50%, Africa Oil 40%, Lion 10% 
 Block 10A (Kenya):   Tullow 50%, Africa Oil 30%, EAX (Black Marlin) 20% 
 South Omo (Ethiopia):Tullow 50%, Africa Oil 30%, Agriterra (formerly White Nile) 20%

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com