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Kenya: Oil Strike Sets Off Prospecting Stampede

Kenya: Oil Strike Sets Off Prospecting Stampede

It is now official. Kenya, the strongest economy in East Africa, has struck oil. It is still too early to be able to say how big the discovery is and when the first barrel of crude will be produced, but excitement is running high not only within Kenya but also among major oil companies. Wanjohi Kabukuru reports from Nairobi.

President Mwai Kibaki was deep in his official speech during a routine address when he interrupted the flow and beamed: “We have good news for Kenyans. The good news is that we have struck oil from Ngamia-1 well in Turkana.” There was a burst of applause. Oil, no matter that is has often been called ‘the curse of Africa’, is still the Holy Grail for all nations that don’t yet have it – promising an endless stream of riches.

The Ngamia (‘camel’ in Kiswahili) well is in Turkana – an arid stretch of land in the north of the country, home to some of the hardiest people in the world. What implications this discovery will have on their lives and livelihoods is impossible to predict but, at present at least, a mood of great optimism has swept the region.

The company at the heart of this discovery is the UK-listed, formerly Irish, company Tullow Oil. In Africa over several years, Tullow has boldly ventured where other oil companies have feared to tread and its adventurous forays are now paying rich dividends. Tullow has been behind the emergence of two of Africa’s newest oil producers – Ghana and Uganda – and it can now add Kenya as another feather in its cap.

“We have no idea how many barrels are there,” Tim O’Hanlon, vice-president of Tullow Oil, told African Business, “but our hopes and wishes are for two billion barrels.” He added:

“Kenya has waited for a long time for this day. A number of sensitive environmental and community issues which have emerged will be resolved amicably as we are here for the long haul and we need to manage the project carefully.”

 “We have been very cautious about this,” said Kenya’s Energy Minister, Kiraitu Murungi. “We have drilled 31 other dry wells in Isiolo and Lamu without success but now we can authoritatively say we have oil.”

Buoyed by its Uganda success and aware of Kenya’s concordant geological features to those of Uganda, Tullow quickly bought a 50% operational stake in Blocks 10BB and 10A in a deal with the Canadian firm Africa Oil. Tullow didn’t stop there; it acquired another 50% stake in Centric Energy’s Block 10BA in north western Kenya in February 2011. Tullow Kenya BV paid $9.3m, increasing its prospecting blocks to six in Kenya, measuring 67,000 sq km spread across Turkana, Baringo, Malindi, Marsabit and Kisumu counties.

“We are extremely pleased that the first well in the drilling programme has resulted in an oil discovery,” Keith Hill, President and CEO of Africa Oil, says. “These results will significantly de-risk nearby prospects and give encouragement for the remainder of the Tertiary Rift basin. We look forward to an aggressive drilling programme in the next 18 months, which will also test the potential of our other rift basin plays in Kenya, Ethiopia and Somalia.”

Fortune for Turkana?

According to O’Hanlon, Tullow is not resting on its laurels but will be drilling in Block 10A, and expects to reach a depth of 4,500 metres within the second quarter of 2012.

The Turkana oil find has not only excited many in Kenya but has also prompted the Kenya government to move fast and draft new amendments to its laws which will offer oil explorers tax breaks in the form of value-added tax exemptions.

Although news of the discovery has sent positive vibrations throughout the country, the Turkana community, on whose land the oil has been discovered, is beginning to dream, perhaps unrealistically, of a great fortune. This remote, sparsely populated area has seen very little development since independence more than half a century ago and, in places, it has been described as ‘prehistoric’.

“If the oil is commercially viable, I expect the government to come up with a framework to guard against exploitation of the local communities before the production of oil commences,” said Josephat Nanok, MP for Turkana South. “There should be consultation not only by leaders but also involving the communities themselves – especially since land in Turkana is community land. The framework would not be only for Turkana but across the country where mineral discoveries have been made.”

Aware of the concerns raised, the Kenyan government and Tullow have moved quickly to assure the public of a win-win arrangement for investors, communities and even the government. “Generally the structure of all the agreements with petroleum-exploring firms is the same. We are going to make everything public in the coming weeks,” said Patrick Nyoike, permanent secretary in Kenya’s energy ministry.

O’Hanlon said that long before prospecting began, a revenue-sharing agreement had been signed. According to Martin Mbogo, Tullow Oil’s Kenya country manager, Tullow has already constructed two schools – Lokichieda and Nalemkais primary schools – and has also rolled out water and health projects in the greater Turkana County as part of its CSR developments.

Massive oil deposits?

The announcement of the discovery could be the start of something very big. Tullow and Africa Oil are not the only oil companies involved in the race for Kenya’s 46 exploration blocks. Apache Corporation, Anadarko, BG Group, Centric, Cove Energy, Camac, First Australian Resources (FAR) Limited, Origin Energy, Pancontinental, Premier Oil, Simba Energy and Total among others have raised their game in Kenya.

Two weeks before news of the oil discovery was made public, the UK-based Lion Petroleum, which has interests in Africa, declared that its partner, Afren Plc, had started the acquisition of 1,800 km 2D seismic surveys in Block 1 in Moyale near the Kenya-Somalia border. According to Lion Petroleum, seismic activity has not taken place in Block 1 for the last 22 years. The area occupies some 7.1m acres in the Mandera Lugh basin, which extends into the Ogadenia basin, as it is known in Ethiopia.

According to Lion Petroleum, there is evidence of massive oil deposits all across Kenya’s prospecting zones, with clear evidence of a working petroleum system in the basin and Block 1 presenting a very exciting exploration opportunity.

The new focus on the region as a major virgin oil frontier has raised the stakes immensely. A consortium of three UK oil companies: BG Group, Cove Energy, Premier Oil and Australian firm Pan Continental Oil and Gas signed new Production Sharing Contracts (PSC) with the Kenya government to fast track exploration in Kenya’s offshore oil blocks L10A and L10B in the southern part of the Lamu Basin.

By mid this year, they are expected to complete 2D and 3D marine seismic surveys in the blocks, whose combined coverage area measures more than 10,400 sq km with water depth ranges between 200m and 1,900m.

Following closely on Tullow Oil’s footsteps, French oil giant Total has already bought in a 40% stake in five oil exploration blocks in the Lamu basin through its local subsidiary Total E&P Kenya BV. Total and a consortium of other oil exploration companies, Anadarko of the US and Cove Energy have stakes in blocks covering more than 30,500 sq km.

A day after the oil discovery news hit the streets, the Vancouver, British Columbia, based Canadian oil and gas company Simba Energy announced that it had contracted Sproule Associates to evaluate Simba Energy’s 100% interest in Kenya’s Block 2A which covers some 7,801 sq km in Northeast Kenya.

According to Simba Energy’s report, the block has great potential for oil and gas. “The 11 wells dug in the Anza Basin have encountered oil and gas shows.”

Three days after the Kenyan oil announcement, the Australian fossil fuel company FAR announced that it was raising $15m to fund its offshore oil and gas exploration near Lamu, where it has a 60% stake in Block L6 which covers some 3,100 sq km. The remaining 40% of Block L6 is held by Pancontinental.

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