5 September 2011

Kenya: Country Resumes Oil Search

Tullow Oil, the company that successfully prospected for oil in Uganda, will arrive in Turkana County this month to begin exploration, raising hope that Kenya could soon strike the much sought after commodity.

According to accounts from sources in government, the possibility of finding commercially viable oil is high in the region that has remained largely unexplored.

Energy permanent secretary Patrick Nyoike said the company had started moving drilling rigs to Turkana.

Striking oil, he said, would enable the country achieve its development goals as envisaged in Vision 2030, a blueprint to turn Kenya into a medium income economy with thriving industries.

"This time there is great hope that we shall discover oil. Tullow has started moving drilling rigs to Turkana County and the actual drilling will start soon. There is great excitement by the company," Mr Nyoike said last week.

Kenya's search for oil has been fraught with frustrations, with several billions sunk in unproductive wells. In 2006, an Australian company, Woodside Energy, spent Sh3 billion in Lamu that turned unproductive.

The most recent is the much publicised oil exploration at Bhogal near Isiolo, which did not provide much except indicators of existence of gas.

Last year, China National Offshore Oil Corporation exited the Kenya oil exploration scene after two years of unsuccessful search in Isiolo.

This has, however, not dampened the spirit of the companies and the government, with several experts saying it's just a matter of time before Kenya strikes it rich.

Their confidence comes from discoveries of huge oil deposits made in Uganda and Sudan, and gas in Tanzania, which share the same geographical area with Kenya.

In recent years, the government has stepped up oil exploration efforts, with many blocks already taken up by international companies for prospecting.

Tullow showed its intention when it signed an agreement for 50 per cent interest in block 10BA of Centric Energy near Lodwar town, besides a half stake of Africa Oil Corp in six exploration licences in Kenya and Ethiopia.

The deal was sealed at a cost of $34 million (Sh2.7 billion). Tullow's exploration director, Mr Angus McCoss, at the time said the East African Rift Basin acreage shared geological attributes with the Lake Albert Rift Basin in Uganda, where the company found commercial oil deposits, giving hope that a similar discovery could be made in Kenya.

"We are delighted to be extending our acreage across prospective East African rift basins of Kenya and Ethiopia. We look forward to working with our new partners and applying our technical insights," said Mr McCoss.

The first well is to be drilled in five years if results are encouraging. "Pursuant to agreements, Tullow will earn 50 per cent participating interest in production sharing contract (PSC) and assume operatorship," said Centric's chief executive Alec Robinson.

He said that Tullow's success in Uganda will ensure block 10BA is explored using the most modern technology in line with global environmental norms and principles.

The possibility of Kenya discovering oil has raised concerns due to experiences elsewhere, where the resource has turned out to be a curse, fueling conflicts.

"Kenya would like to manage oil and gas resources in a manner that promises maximum benefits to modernise physical and social infrastructure," Energy minister Kiraitu Murungi said in an earlier interview.

Experts in the oil industry have urged the government to manage expectations to avoid pitfalls that accompany such discoveries in other parts of the world.

"Although oil extraction is highly mechanised, there will be an influx of people to a place where a discovery is made, leading to a strain on existing housing and other facilities," said Petroleum Focus Ltd director George Wachira.

He said striking oil in Kenya will not translate to creation of thousands of jobs because exploration and extraction is highly capital intensive.

Experts have also warned that land issues, mainly on sharing resources and environmental issues, will have to be addressed in oil exploration areas.

The Energy Act, they say, does not provide for a mechanism of laying a claim and sharing the proceeds if commercial quantities of oil and gas are discovered.

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