- Kenya is putting together incentives that could help mobilize Foreign Direct Investments in upstream oil activities.
- The latest developments add to efforts by the government to support Tullow Oil in scouting for investors for Project Oil Kenya.
- India and China are some of the countries where the government is keen on in tapping from.
In May 2023, an announcement by British oil explorer Tullow Oil that it wants out of Kenya’s oil dream send shockwaves in the industry as its move threatened to derail the country’s journey of becoming a net oil exporter.
At that moment, Tullow Oil partner, a Canadian firm Africa Oil Corp had left the project on concerns over difficulties in finding an investor, who can support Kenya’s commercial oil export business.
The other partner TotalEnergies is fast shifting investment focus to oil producing fields in other markets. For Kenya to evacuate its crude, it has to construct a 824Km heated pipeline between Lokichar in Turkana and Lamu Port at the Indian Ocean coastline.
Tullow Oil stake in Kenya’s oil dream
With Africa Oil Corp and TotalEnergies drifting away, Tullow Oil was left with no option but to assume a 100 per cent equity, subject to the government of Kenya’s approvals. TotalEnergies and Africa Oil Corp, which held a 25 percent stake each, have withdrawn from blocks 10BA, 10BB and 13T. This has left Tullow Oil in search of a strategic partner.
Their exit has since been described by Tullow as “differing internal strategic reasons”. “We will continue working with the government and its host communities to make the region a significant energy-producing province,” Tullow said in a statement.
Also Read: Why African economies cannot stop using coal
Call or investments
In a renewed effort to keep keep Kenya’s oil dream alive, the country has since called on the private sector to support investments in oil and gas industry. Top on the list is the call to invest in Turkana oil project among those being fronted. The Ministry of Energy and Petroleum is keen on extending incentives to the private sector.
Energy Cabinet Secretary Davies Chirchir is calling on the Petroleum Institute of East Africa (PIEA) to come up with incentives that will attract Foreign Direct Investments in upstream activities. Kenya aims at harnessing existing oil and gas reserves within the country. Investments in oil sector will go hand in hand with efforts to develop the country’s renewable energy.
“How can PIEA partner with the Kenya Kwanza Administration to invest in the oil pipeline from Turkana to Lamu through a Public Private Partnership?,” the minister posed.
According to Chirchir, the government is keen to become a minority shareholder to facilitate private-sector-led administration and management of the project. Policymakers in government are keen on benefiting from the efficiencies provided by the private sector. “This will have benefits for the region and lower costs,” Chirchir said.
Kenya eyes China and India investors
The latest developments add to efforts by the government to support Tullow in looking for investors for Project Oil Kenya. India and China are some of the countries where the government is keen on in tapping from.
“We are working with Tullow to look for an investor to come in. We have been talking to the Chinese and there are prospects,” CS Chirchir said in a separate event.
According to the CS, Kenya is in talks with Chinese and Indian investors into putting capital in the project, even as it reviews the Final Investment Decision tabled by Tullow.
Two Indian companies, ONGC Videsh and Indian Oil Corp had initially shown interest but are said to have slowed down. Tullow was hoping to offload at least $3.4 billion in shareholding in the project.
The UK-headquartered firm has committed $15 million capital expenditure, money invested by a company to acquire or upgrade fixed, physical or non-consumable assets.
“There is much interest in government to support Tullow to reach Final Investment Decision. So, we are working together as opposed to Tullow going it alone” the CS said.
Final development plan
The ministry targets to make a decision on the Final Development Plan by end of September. To rollout the plan, the decision will go before the Cabinet, before a final vote by Parliament.
This information will help determine whether Kenya will choose to build a refinery or construct the 852Km Lokichar-Lamu pipeline. The purpose is to transport crude oil from Turkana to Lamu port for export.
Kenya is also looking at climate change aspects that come with the Environmental, Social and Governance. This is a key component that multi-nationals are now considering before pumping money into major projects.
Once approved, Tullow will have at least one year to get financial closure and proceed to a development phase, which will take a maximum of three years. This means is Kenya could go commercial before 2027.
The country had hoped to have its oil trading in the market by 2024. Six years ago, an early oil pilot project saw the export of 200,000 barrels of crude oil to test the market.
According to Tullow Project Oil, Kenya is a low-cost development project that has the potential to unlock material value. “Prospective strategic partners remain engaged and detailed farm-out discussions continue with a number of companies,” Tullow Kenya BV managing director Madhan Srinivasan notes.
Contingent resources
Tullow’s net Project 2C contingent resources will increase from 231 million barrels of oil equivalent per day, to 461 million barrels. This will take the group’s total contingent resources from 605 million barrels to 836 million barrels.
Net capex guidance for 2023 in Kenya will increase from $10 million to $14.7 million, less than five per cent of group capex. Kenya first announced oil find in Block 10BB and 13T in Turkana in March 2012.
Recently, UK consulting firm Gaffney Cline Associates conducted an audit for the oil firm. The audit aimed to assist in making decisions related to investment based on available resources. The audit results provided Tullow with a green light. It revealed that the Lokichar sub-basin holds estimated oil reserves of over four billion barrels. Experts project Kenya’s full production potential at 100,000 barrels per day by 2024.
However, reaching the full capacity will require investments in infrastructure including drilling and pipelines. This includes the construction of the pipeline to Lamu. The ministry puts daily volumes at 120,000 barrels of crude oil to the Lamu Port per day, once the pipeline is up and running.
According to Commissioner for petroleum James Ng’ang’a, Kenya’s future as a leading oil producer in Africa looks promising. The Ministry is actively mapping potential offshore and on-shore oil producing blocks.
As part of the government’s strategy to mitigate risks and ensure project continuity, they aim to bring on board a strategic partner. This move aims at attracting more resources, increase production, and reduce project costs significantly.
Despite delays caused by the Covid-19 pandemic, Kenya remains focused on entering the global crude market.
Offshore oil exploration
Away from the dry lands of Turkana, Kenya is also hopeful of getting investors into offshore oil exploration and other parts of the country. In 2021, there were 13 Hydro Carbon discoveries, with oil discoveries in Kenya’s Tertiary Rift Basin.
Additionally, gas discoveries were made in offshore Lamu Basin, Anza Basin (North Eastern Kenya) and Mbawa 1well, in Malindi. At Sunbird 1 well 9 in offshore basin in Lamu, both oil and gas discoveries were made.
Three blocks in offshore Lamu Basin and Anza Basin have since been surrendered to the government. Last year, the ministry commissioned an international company to commence offshore oil exploration in the Kenyan Coast. This was after seismic research revealed that the area has got potential oil wells.
ENI Kenya Business Venture (BV) formerly Agip entered into a contract for offshore oil drilling exploration in Lamu basin. It entailed drilling of an exploration well in Mlima Prospect area, in Block L11B. This is an ultra-deep water approximately 2,560 metres in depth located in the Lamu basin, 170Km from the Kenyan Coast. This is about 200Km from the Comarco operating base in Mombasa.
Eni Kenya B.V. is licensed in Kenya to carry out exploration activities offshore Lamu basin. The company is a partner to the joint venture in offshore blocksL11, L11B and L12 (Blocks) together with TotalEnergies, E and P Kenya B.V. and Qatar Petrolum International Upstream LLC. This basin stretches from the Kenya Somali border to the border with Tanzania.
Also Read: US firms eye Libya—the world’s oil market wild card
