26 May 2010

Kenya: Oil Search in Kenya Shifts to Top Gear As Gas Deposits Found

In the plains of Isiolo - a wide stretch of arid waste in Kenya - the sun bakes the gangs of oil hunters that have pitched tent here as the scouting for the first successfully oil well in the country continues.

It is now remaining about 500 metres to go in search of the elusive black gold and the explorers appear guided by Duncan Clarke's book, Crude Continent, in which he talks of East Africa as a forgotten frontier that is once again, alive with corporate entrants, acreage pick up and the new promise.

Kenya has not made any commercial discoveries of either oil or gas yet, but expectations have been heightened, as news trickled in that the Chinese state-owned company - China National Offshore Oil Company (CNOOC) currently exploring oil in Northern Kenya hit high concentrations of natural gas deposits.

CNOOC is about to complete the deepest well ever in Kenya's exploration history since independence and it has found gas deposits in four zones having dug 5,085 metres deep out of the 5,600 metres target, reaching a depth described as the "secondary target."

"There are strong shows of gas. We will drill the well for the next one month to establish whether the quantities are of commercial quantities," Kiraitu Murungi told delegates at the Eastern Africa Energy Conference.

Such bubbling optimism is now influencing the renewed confidence in the search for oil in Kenya which shares the same latent rocks - with its neighbours who struck oil.

CNOOC, along with its three Joint Venture (JV) partners - Africa Oil, Lion Energy and the China Petroleum Corporation (CPC), ordered testing equipment from China to determine the extent of the commercial quantities of the hydrocarbons .

"Following evaluation of the test results, the JV partners will meet to discuss the plan for potential Bogal 1-1-Well appraisal work in addition to exploring marketing scenarios to best commercialise gas in East Africa." said Mr Keith Hill, president and CEO for Africa Oil.

Test results are expected to be available over the next 60 days.

The gas finds development at the Bhogal Well in Isiolo's Merti area also fuels optimism of a major discovery.

Geologists say the presence of significant amounts of gas is usually taken as a sign that there is oil.

"Gas shows and petrophysical analysis of wire line logs indicate multiple gas pay zones totalling approximately 91 metres in Lower Cretaceous sandstones," said Mr Hill in a statement to investors.

Grant licences

The outcome of the work by the Chinese are doing is also important in sustaining the interest of oil exploration companies in the country, which has been low key, especially after 2006, when Woodside of Australia packed up after hitting a dry well in the Lamu area.

"Our first well in Africa appears to be a potential gas discovery. The size and commerciality has yet to be determined by testing, however, the initial analysis highlights the excellent prospectivity of the block," said Mr Hill.

The Ministry of Energy in 2006 demarcated and gazetted new exploration blocks across the country, an indication that with time, exploration companies are appreciating more the potential for oil and gas which Kenya has.

The discoveries that have been made in neighbouring countries in basins which are either extensions of Kenya, or are geologically similar, is helping drive home this point.

Since 2006, several licences have been awarded by the National Fossil Fuels Advisory Committee (NFFAC), an inter-ministerial committee created that year to take over the responsibility of negotiating acreage with prospectors.

The companies granted licences included East Africa Oil Exploration of the United Kingdom, Lundin Petroleum (now Africa Oil), Vangold Resources and Turkana Oil Drilling.

Activity picked up after Uganda's sensational discoveries and as it emerged that East Africa had become a promising frontier for exploration.

Africa Oil's East African holdings is in excess of 225,000 square kilometres with assets in Kenya, Puntland (Somalia) and Ethiopia.

Apart from Block 9, the TSX Venture Exchange--listed firm is also in the process of acquiring 1,350 km of seismic on its Block 10BB which hosts the Loperot-1 oil discovery and Block 10A projects in Kenya.

Drilling in these blocks is expected to take place in 2011.

East Africa Oil Exploration and Lion Petroleum are also expected to commence seismic work on their blocks.

Vangold Resources says it will be shortly tendering for a seismic programme.

Other companies in different stages of preparations are Swiss Oil, an American company, Anadarko and Gipsyland.

Promising frontier

Activity in Kenya's exploration frontier picked up after Uganda's sensational discoveries and as it emerged that East Africa had become a promising frontier for exploration.

Another explorer-Lion Petroleum has rights to the Mandera-Lugh Basin-Block 01 and Block 2B located in the Anza Graben trend and the Mochesa basin in the North-East of Kenya.

As of last week, CNOOC had remained to cover an additional half a kilometre of distance before they can reach the primary target-- the point at which they can declare a "discovery," depending on what they find at that depth.

The Bhogal Well was identified in the early 1990's by European multinationals Amoco and Total as a target with potential for oil.

The point of departure is that the Chinese are digging deeper than anybody has attempted.

At 5,600 metres, the well is the deepest ever in Kenya.

Neighbouring Uganda - with confirmed deposits of an estimated two billion barrels of crude-- has been hitting oil at a mere 800 metres.

Last month, chief geologist at the Energy ministry, John Omenge, revealed that oil exploration interest in Kenyan blocks had increased in the last 15 months and several companies are expected to start seismic studies this year.

According to data provided by the National Oil Corporation (Nock), at least 11 blocks have been licensed since September 2008, out of a total 24 blocks leased out for exploration.

There are 13 exploration companies that are operating currently.

Petroleum blocks

A year ago, Lion Energy Corp got the approval of the previously announced farm out between the company and Lion.

Under the farm out agreement Lion has the right to earn an interest in five of the company's petroleum blocks located in Kenya and Puntland (Somalia).

Earlier in February, Platform Resources Inc, a wholly owned subsidiary of Alberta Oilsands Inc. took up a 100 per cent interest in Blocks 12A and 13T in Lokichar basin near Lodwar. Tanzania has four fields.

These are: Songo Songo Natural Gas (spudded in 1974), Mnazi Bay Natural Gas (in 1982), Mkuranga Gas (in 2007) and Kiliwani North Gas (in 2008).Rwanda has already struck methane gas in Lake Kivu, and is currently producing two megawatts of power.

It is estimated that 150 to 250 million cubic metres of methane gas are generated annually in Lake Kivu. This is equivalent to 40 million tonnes of oil.

Burundi has started exploration in Rusizi and Lake Tanganyika basins.

Opinion is divided as to whether the Kenya government has done a good job of monitoring exploration activities to detect whether these companies have been performing in accordance with conditions stipulated in the licences.

The manner in which licences are extended has sparked criticism but still, activity is going on in search of the elusive black gold .

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