Kenya’s investment profile rises with Turkana oil find

A wave of excitement on Monday swept through Kenya after President Kibaki announced that the UK petroleum explorer that unlocked billions of barrels in neighbouring Uganda had made a “major breakthrough” with the discovery of oil in Turkana. \

Also read: Kenya to list eight new oil exploration blocks

The President, who made the announcement at a public function in Nairobi, said Tullow made the discovery at the weekend but cautioned that commercial viability of the oil find remained uncertain.

(Also read: Kenya strikes oil)

“This is the first time Kenya has made such a discovery and it is very good news for our country,” Mr Kibaki said.

Also see: New York listed firm joins scramble for Kenya oil blocks

“It is, however, the beginning of a long journey to making our country an oil producer, which typically takes in excess of three years.”
Oil industry experts said that apart from raising Tullow’s profile as a steady oil hunter with a proven track record in finding oil in Africa, the discovery has significantly lowered the risk profile of oil exploration in Kenya setting the stage for new investments
“This oil find risk has technically lowered Kenya’s exploration risk.

We are likely to see companies spending more here because indications are that their investment will not go to waste,” Mwendia Nyagah, a consultant on petroleum issues said.

The discovery of oil in Turkana is also likely to trigger major a shake-up of firms holding exploration licences for speculative purposes as more newcomers line up for a piece of the action.

Shareholders of Tullow Oil, a public listed company at the London Stock Exchange, reaped the initial fruits of the oil find as news of the discovery lifted its shares during yesterday’s trading.

Tullow’s share price climbed 2.5 per cent to £15.07 (Sh1996) after it announced that its drilling campaign in Kenya and Ethopia had discovered light crude oil.

“This is an excellent start to our major exploration campaign in the East African rift basins of Kenya and Ethiopia. To make such a good oil find in our first well is beyond our expectations and bodes well for the material programme ahead of us,” Tullow’s exploration director Angus McCoss told BBC.

Tullow said it had found 20 meters of oil in the Ngamia-1 exploration well it co-owns with Canadian partner Africa Oil Corp. (AOI) – referring to the depth of the oil reservoir.

The well, in Block 10BB of the Turkana County, had been drilled to about a third of its target depth of 2,700 metres raising the prospect of it being the largest oil find in the region.
The UK firm is aiming for at least 300 million barrels of oil with its first two sites in an underdeveloped area that runs across the Kenyan border into Ethiopia.

Tullow said in a statement released immediately after President Kibaki made the announcement that the oil discovered in northern Kenya ‘has similar properties to the light waxy crude it discovered in Uganda six years ago.’

“Following this discovery the outlook for further success has been significantly improved.”
In Nairobi, Energy Minister Kiraitu Murungi had inflamed the fire of excitement saying Tullow had informed him that Kenya’s oil deposits could be bigger than Uganda’s – a statement Tullow declined to confirm or deny.
George Cazenove, the Tullow spokesman, however sought to temper the excitement with a warning that the discovery had only put Kenya at the beginning of a long process to becoming an oil producer.
Mr Cazenove gave the example of neighbouring Uganda where oil was first discovered in 2006 and has not yet reached the production stage.

“I think Uganda provides a helpful parallel,” Mr Cazenove said. “There’s a lot more work to do before we talk about how we get this to production and how it would affect Kenya as a nation. It’s a great result but must be seen in context. It’s a long-term game for sure,” he said.

Prior to this discovery, Kenya had not struck any oil or gas despite sinking at least 32 exploratory wells since independence in 1963.

Tullow and its partner, Africa Oil, have been drilling the Ngamia-1 well on block 10BB in the Lokichar basin since last year and said focus would now shift to finding commercially viable reserves that could elevate Kenya into the respectable league of oil producers and attract a massive inflow of foreign investment.
The exploration firms said the Ngamia structure is the first prospect to be tested as part of a multi-well drilling campaign in Kenya and Ethiopia.

“Many leads and prospects similar to Ngamia have been identified and following this discovery the outlook for further success has been significantly improved,” Africa Oil said.

The discovery of oil deposits in Turkana is expected to propel the Kenya’s profile as a potential oil and gas producer and draw huge inflows of foreign investments, joining Uganda and Tanzania that have already established commercial deposits of oil and natural gas respectively.

Tullow has confirmed 1.1 billion barrels of oil in Uganda and believes there are 1.4 billion left to find. Uganda plans to begin processing its oil for export next year.
East Africa is in the middle of a major scramble for oil and gas resources as exploration firms rush to seal deals amid continued discovery of more deposits of gas and oil.

This has resulted in major in major inflows of investments that have boosted economic growth in the region. Industry estimates showed that East Africa signed at least 17 notable deals in last year, including five corporate worth over $250 million combined, more than double the number in 2010, which was just eight.

This figure is likely to leap further following renewed interest triggered by fresh discoveries of natural gas reserves in Tanzania and the oil find in Kenya.

Jefferies Equity Research, a global researcher, estimates at least 16 exploration wells will be sunk across East Africa this year.

In Kenya, the Energy Ministry has marked out eight new offshore oil blocks to be opened up for leasing by exploration firms, bringing the total number of exploration blocks in the country to 46. The blocks will have areas of between 10,000 square km and 15,000 square km and between 2,600 and 4,000 metres deep.

At least five oil companies are already jostling for the new blocks, which the government had initially expected to list in the Kenya Gazette by the end of February, but delays arose due to errors while surveying the blocks.

Additional reporting by George Omondi