28 September 2017

Kenya: U.S.$10 Million Equipment for Early Oil Plan on Its Way

Photo: Daily Nation
A Tullow Oil truck carrying drilling machines.

Tullow Oil has contracted Dubai-based Almansoori Petroleum Company to supply an Early Product Facility (EPF) at a cost of $10 million, to help it extract crude in South Lokichar in Kenya's north, even as uncertainty surrounds the Early Oil Pilot Scheme.

The deal with the Dubai company was signed early this year as part of the wider processes in the run up to early production, which has run into trouble after the government shelved it citing logistical challenges.

But Tullow had already secured the government's approval to bring the Early Product Facility and have it installed. The Ministry of Energy gave the green light for its procurement.

Tullow Oil says that it has invested $1.5 billion in Kenya since it started exploration activities in 2010, including $213.5 million this year. Of this, $100 million is being spent on preparing the oilfields to start production and exporting of crude oil.

The EPF, which is a temporary equipment and being ordered on a rental basis, will enable Tullow Oil connect all the 40 wells it has dug and thus achieve the targets of extracting 2,000 barrels of crude every day when the EOPS begins.

The oil firm says the equipment is on its way and is expected to be installed in November, after Tullow secures all the necessary approvals from government agencies like the Energy Regulatory Commission, the National Environment Management Authority and the Kenya National Highways Authority.

"We have decided to rent a temporary facility for pumping the crude for transportation to Mombasa before a permanent production facility can be installed to facilitate full-scale production when the pipeline is ready," said Tullow Oil communications manager Timothy Tororey.

Impediments

He said that Tullow expects the EOPS to kick off at some point despite, a campaign by some oil marketing executives and civil society groups, who say the scheme is a loss-making venture, especially considering the current crude oil prices averaging $55 per barrel on the international market.

The scheme was shelved ostensibly on the basis that Kenya needs to enact the controversial Petroleum (Exploration, Development and Production) Bill into law.

The Bill primarily seeks to address the sensitive issue of revenue-sharing between the national government, the county government, Tullow Oil and its joint venture partners and the local community.

Apart from regulatory obstacles, the scheme has also been hit by impediments like security concerns due to banditry attacks in Turkana and safety risks because of poor infrastructure.

The fact that Tullow Oil is proceeding with plans for the EOPS is giving new hope to the three companies contracted to transport the crude via road from the oilfields in Lokichar to storage facilities in Mombasa.

Primefuels Ltd, a subsidiary of Dubai-based Primefuels Group, won the tender to supply 100 tanktainers, each with a capacity to carry 150 barrels of crude while Multiple Hauliers and Oilfield Movers won the contract to supply trucks on which the tanktainers would be mounted.

The two companies were to provide 23 trucks each. By the time the scheme was deferred, the three companies had mobilised 30 tanktainers, 20 of which were in good condition and ready to start the crude transportation while the remaining 10 needed to be refurbished.

They have been complaining that they have incurred heavy losses due to the failure of the EOPS to take off on schedule and have demanded compensation.

When contacted by The EastAfrican, Energy Principal Secretary Andrew Kamau said the three companies signed contracts with Tullow Oil, thus the government is not party to any compensation demands.

"It is Tullow Oil which has the bidding contracts with the companies and the government is not involved in transportation," he said.

On its part, Tullow Oil said it is not paying any compensation because the three companies are on standby awaiting the revival of the scheme.

"We are not paying any compensation as far as am concerned," said Mr Tororey.

Before the shelving of the scheme, Tullow Oil had pumped out some 60,000 barrels which remain in storage tanks in Lokichar.

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