Kenya's Road to Banking Oil Billions Still Long and Slippery

5 January 2021

March 2021 will mark nine years since Kenya made the big announcement that oil had been discovered in Turkana.

The petrodollars have however remained elusive and may remain so this year after events in 2020 added to the cloud of uncertainty over the future of the oil project in Turkana.

The announcement on March 26, 2012 that Kenya had discovered commercially viable volumes of oil resources in Turkana was sweet music to the ears of many with the then Energy minister Kiraitu Murungi, now Meru Governor, even adding that Kenya's oil deposits were likely to be bigger than Uganda's.

It was a short-lived celebration. The slippery walk that has followed the journey to oil riches has only made the dream harder to achieve. There are even many pointers to the possibility that the wait may just be longer or the riches may virtually become unattainable.

The British multinational Tullow Oil which is involved as the lead agency recently fanned the doubts after it announced a planned "reassessment" of the project which has kept Kenyans waiting for close to a decade.

"In Kenya, Tullow is in the process of re-assessing Project Oil Kenya to design an economic project at low oil prices whilst preserving the phased development concept," Tullow Oil chief executive officer Rahul Dhir wrote in a December statement.

The statement also affirmed an earlier one that the oil firm had received extensions to their exploration licences for Blocks 10BB and 13T to the end of 2021 after the Ministry of Mining and Petroleum approved its work programme and budget for 2021.

Cash constraints

That was not the only announcement by Tullow that pushed the goal posts on the petrodollars' timeline. The cash-constrained multinational had announced that it was putting its entire stake in the Turkana oil fields on sale.

Although Tullow Oil insisted it was not entirely abandoning the project, the cash constraints and the search for a buyer of its stake in the project sent signals that all was not well. Total, which is the more liquid partner in the venture also announced it would shed part of its stake.

Even if all was well, finding a buyer for its stake and allowing time for the new buyer to settle into the project and take it to conclusion was going to be a tall order and one that would definitely push the dream of oil riches further away.

Then came the Covid-19 and the deepest drop of oil prices that drained the last hopes that investor confidence would be sufficient to help draw interest from deep pocketed individuals to fund the next phase of the project that had gobbled up over Sh200 billion between 2012 and 2018 alone.

The pandemic did not just disrupt the dream of having the petrodollars in good time but added a new layer of doubt on whether the venture's viability was still a hot cake in the face of dampened demand and a new impetus towards the reduction of fossil fuel.

The pandemic emboldened the push towards other forms of energy that are environmentally friendly and some governments like the United Kingdom which have previously funded oil and gas pulled the plug on such ventures.

At home Tullow Oil even invoked a Force Majeure citing Covid-19 and some tax measures passed in Kenya which had "proved unfavourable'" for the oil venture.

The move froze most operations in the Turkana Oil fields where an Early Oil Pilot Scheme was on its second phase involving the trucking of stored crude oil to the Kenyan Coast for shipping, once significant volumes are achieved.

Tullow also significantly reduced its local staffing, signaling reduced operations in a move that further fuelled the doubts that the Kenya oil project was on the right pipeline to deliver the wealth that many had waited for since 2012.

Even as the bumpy ride of 2020 seemed to have ended as the year closed, the steepest section of the slippery slope seems to have just begun.

"In parallel, over the coming months, the Joint Venture partners will work closely with the Government of Kenya on land and water agreements, gaining approval of the Environmental and Social Impact Assessments and finalising the commercial framework for the project. The successful completion of this work will enable the submission of Field Development Plans to the Government of Kenya," the Tullow Oil boss also mentioned in the December statements.


The steps summarised in one paragraph may be well the make-or-break steps that will determine whether the oil dream will become a reality.

Tullow has previously complained that the government was dragging its feet in the land acquisition for the upstream development, a move that is likely to push further the all-important Final Investment Decision, another goal post that has shifted more than once.

The commercial frameworks for the project in a fast-changing oil market may have further complicated the realisation of such a deal after Tullow showed its muscles during the Force Majeure where it had the tax reliefs conceded as the government becomes keen to earn more revenues in the post-pandemic recovery.

The water issue which has been kept under the carpet all along will also prove difficult since the deal has to be made with the West Pokot county government which has already presented its own raft of demands to be met apart from the possibility of evoking some community-related challenges in between.

Community issues like land and water will play out more prominently with the fast-polarising political climate and the run up to the 2022, another potential party breaker and addition to the barriers towards oil riches.

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