Kenya to limit shipment of rigs in cost-cutting bid

Kenya plans to control the shipping of new rigs into the country in a move that could push foreign firms drilling steam and petroleum wells to share the heavy equipment with State agencies.

The Energy and Petroleum ministry has instructed all geothermal and petroleum explorers in the country to compile a list of rigs in their possession in its latest bid to cut drilling costs.

“We are taking a national audit of rigs in the country. I have written to all exploration firms to furnish us with number of rigs they have, their location at the moment and the horsepower of each,” Energy PS Davis Chirchir told the Business Daily.

“We believe that the number of rigs in the country is adequate to facilitate geothermal and petroleum drilling. If our audit proves so, we’ll not allow explorers to ship in more of them at taxpayers’ cost.”

State-controlled agencies Geothermal Development Company (GDC) and KenGen have a total of 15 rigs, with dozen others suspected to be in the hands of oil explorers.

KenGen, which has three rigs of its own, has also leased five others for its geothermal projects. The GDC on the other hand bought seven rigs for its steam projects after its engineers complained that the country was losing millions of shillings on leasing equipment from foreign sources.

Sources say the Chinese firms were charging up to Sh580 million ($6.5 million) as drilling fee per well, citing high shipment and operation costs. It costs about 46 per cent less (Sh310 million per well) when the agency uses its own equipment.

The government hopes to create an arrangement where private firms – mostly multinational corporations that win oil, gas and geothermal tenders – will have to hire equipment already owned or leased by State agencies.

Mr Chirchir said the cost of shipping the heavy equipment into the country, plus about Sh40 million that explorers claim as operation and leasing expense cost, have contributed to pushing up energy costs in the country.

He said sharing of rigs will also cut down money spent to cover idle time. The entities sharing rigs will, however, have to foot the Sh5 million it costs to move a rig from one site to another.

Kenya his digging 566 wells at Olkaria, Menengai and Silali in the Rift Valley in a Sh230 billion ($2.6 billion) plan, hoping to generate up to 2,336 MW.

Foreign firms that win tenders to dig the wells have been shipping in their own rigs, mostly leased from the international market, since 2010.

The demand for drilling rigs has risen sharply as multinationals deepen their search for oil and gas after Tullow Oil and its partner Africa Oil reported a discovery of approximately 650 million barrels of oil reserves in northern Kenya two years ago.

“We have encountered a lot of resistance from people who claim petroleum rigs cannot dig geothermal wells but these are just politics since the only thing that differentiates one rig from another is its horse power,” Mr Chirchir said.

Four years ago, Chinese company CNOOC, having failed to find oil in Isiolo, moved its rig to Naivasha after it was awarded a contract to drill two wells in the Olkaria fields.

In July, Kenya, Uganda and Rwanda broached an idea of raising Sh2.5 billion ($28 million) jointly to buy a rig to generate 1,000MW of electricity, hoping to save Sh3.3 billion in leasing.