Excitement over oil discovery rekindles false find memories

In the plains of Isiolo in Northern Kenya, the search for oil continues as drilling gangs — hoping to strike the elusive wealth — faithfully sink millions of dollars in the dream.

Optimism is running high and so is the adrenaline.

It is a matter of weeks and Kenya will know if it has struck the black gold, a discovery that will make it save billions of shillings spent on import of oil and perhaps make it a darling of many countries and investors.

Energy minister Kiraitu Murungi, last week, announced that oil prospectors have started to revive their interest and echoed an air of optimism that the country could soon strike oil in the north this year... “in a matter of weeks.”

It is this optimism, which interestingly rekindles past memories of false strikes, that drives the industry.

In 1989, retired President Moi flew back to Nairobi from this Isiolo fields and excitedly announced that Total had struck oil!

The company had only found non-commercial traces of the fuel.

This time around, the Chinese firm-China National Overseas Oil Company (CNOOC) are drilling deeper in these blocks, sinking an ambitious well with a depth of 5,556 metres; the deepest in the country’s history.

In 1991, Shell BP stumbled on small quantities of good-quality low sulphur oil in Loperot area, Turkana.

In 2006, Australian company conducted a well-publicised drilling off the Lamu coast triggering misplaced activism from the locals. But Woodside was not lucky.

This time it is the Chinese company’s turn to take the dive.

“The Chinese may have discovered only hydro-carbons with no commercial quantities,” said an industry analyst George Wachira, who has followed prospecting in the country since the 1970s.

Mr Wachira feels confident to place the prospect of discovering the fuel at 70/30.

Amidst high level of optimism—supported by previous studies on the petroleum potential for substantial oil deposits and possible significant find —there is scepticism about their commercial viability.

Although geophysicists say the country deserves an oil discovery, after sinking 32 exploration wells, petroleum experts say Kenya’s geology—is complex and scantily explored.

However, the work already done at Merti, Isiolo exploratory well shows trappings of oil.

“We have found traces of oil and/or gas in 19 of them,” says John Omenge, chief geologist, Ministry of Energy.

The latest data from the exploration fields in Marsabit and Isiolo allude to a discovery of gas before oil, and there is hope that the first on-shore drilling since 1991 will yield commercial quantities of the “black gold”.

But geological experts are cautious not to excite the country, ahead of the completion of the drilling by mid next week.

With just over 500 metres before the current onshore exploration is completed, the state-owned National Oil Corporation (Nock), has made it clear that so far no quantities of either oil or gas, no discovery has yet been made in the Bogal 1-1 well.

“The Bogal 1-1 exploratory well in Isiolo , currently at a depth of 4,856 metres, is still to reach its projected total depth of 5,556 metres. It is only when the well reaches total depth that comprehensive testing programme will be done and once concluded , a discovery may be declared,” said Mr Mwendia Nyaga, the national secretary for the National Fossils Fuel Advisory Committee (NFFAC).

The NFFAC is involved in exploration and negotiations for oil drilling contracts and is the custodian of Kenya’s cash flow model, for Production Sharing Contracts (PSCs) .

These are agreements used in setting terms between companies seeking to explore for oil and the government.

PSCs state that should they be successful, CNOOC will be allowed to use the money from produced oil to recover capital and operation expenses .

The balance is shared between the government and the company—mostly at a rate of about 80 per cent government and 20 per cent for the company.

Should commercial quantities be found, it could take at least another five years before the oil could flow into the pipelines, but this is not a long wait for consumers who have been casualties of escalating fuel prices with the fluctuation of the dollar.

The country will also save billions spent on fuel imports. Kenya consumes 250 million litres of oil per month or 3.6 billion litres per year with fuel prices oscillating in a range between $69 and $84 this quarter, touching $82.78 on Monday.

Gas traces

According to Nock, it is unlikely that a discovery can be declared until an exploratory well has penetrated all the potential reservoir targets and exhaustive testing completed on these targets.

“This testing would normally include wire line logging, and if this identifies potentially productive zones, this would be followed by drill stem testing to evaluate production flow rates,” said Mr Nyaga.

When Nock was formed in 1981, part of its mandate was to facilitate and participate in the exploration and exploitation of petroleum resources, on behalf of the Government.

Mr Nyaga says the gas traces that have been found in the course of drilling the Merti area of Isiolo District in exploration Block 9, is not peculiar to it, but a common phenomenon.

In all past drilling activities, both oil and gas shows have been frequently encountered yet these have not resulted in the discovery of oil or gas in commercially viable terms.

Other geologists support this position saying it is unlikely for a discovery to be made soon until the Isiolo exploratory well has penetrated all the potential reservoir targets and exhaustive testing completed on these targets.

The cautious approach by geologists follows dimming hopes for oil deposits as the global cash crunch hit prospectors, with no new investors being licensed.

The cash crunch had led most exploration companies including oil multinationals to reschedule, scale down and eventually close down their operations.

“Test wells are very expensive and time-consuming to drill. On average, an exploratory well such the one planned in Marsabit costs $100 million (Sh7.8 billion) to drill, while a production well costs many times this figure. “A single test well can cost over a billion shillings, and take as long as several months to completely drill,” said Mr Nyaga.

Typically, four test wells are drilled per site, and the average success rate is around 12 per cent for finding a viable oil reserve in a frontier region such as Kenya.

The entire oil exploration process for a single well could take as long as three years to complete.

Many companies are not successful on their first drilling attempt, and it may take several wells before any return on their investment is realised.

Drillers who are persistent and are willing to put in the effort to drill the test wells, verify their finds, and sell to the right supplier can walk away with a tidy profit.

Even though there has been no commercial discovery of oil in the country to date, a significant amount of data showing evidence of a petroleum system have been acquired over the years.

Kenya misses

Past studies by geophysicists show that there are potential of “billions” of barrels of oil and/or gas in Tarbaj, an area in Mandera, Marsabit and Turkana.

In 2009, reports showed that the Mandera area had “proven rocks, but unproven output owing to limited sampling”.

Vangold resources studies have also showed that a 81,000 sq km area between Marsabit and the Kenya Somalia border could have as much as 1.8 billion barrels of oil in one section.

The most hopeful of the four prospecting blocks, the 400,000 sq.km Tertiary Rift Basin, comprises Nyanza and parts of the Rift Valley.

This is because its geology is the same as Uganda’s

Kenya, with a long history of exploration activities, appears the only country in the region yet to discover gas or oil.

Uganda stumbled on substantial deposits in the western part and yet it share the same oil-latent rocks; Tanzania is already mining gas while Rwanda has discovered methane gas around Lake Kivu.