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Economy

Tullow Oil set to sign pipeline deal with Kenya before year end

A worker at the Tullow oil rig at Ngamia 1 in Turkana. PHOTO | FILE
A worker at the Tullow oil rig at Ngamia 1 in Turkana. PHOTO | FILE 

British exploration company Tullow Oil says it expects to sign an agreement with the government before the end of the year that will pave the way for the construction of a pipeline to transport crude petroleum from Turkana to the Kenyan coast.

The joint venture agreement (JDA) will be followed by studies on the pipeline’s technical requirements as well as its financing and ownership structure.

Plans to construct the pipeline were set back by the withdrawal by Uganda, which opted to sign a deal with Tanzania for a separate pipeline, citing security concerns over the Kenya route.

The British oil explorer disclosed in a trading update released Wednesday that the signing of the contract — together with African Oil and Maersk Companies — will also permit them to investigate the social and environmental impact of the 865km pipeline.

President Uhuru Kenyatta in August announced that the agreement had been “concluded”.

Tullow, in a trading update released Wednesday, said the negotiations were in fact concluded last month and that it expects that the agreement will be “executed” by the end of the year.

“The JDA will allow important studies to commence such as Front End Engineering Design (FEED), Environmental and Social Impact Assessments (ESIA), as well as studies on pipeline financing and ownership,” Tullow said in the statement.

FEED, the engineering process that comes after the conceptual design or feasibility study, focuses on the technical requirements and approximate investment costs for a project.

Tullow’s count of the Turkana oil reserves stands at 750 million barrels — which is considered economically viable at the current prices of $46 a barrel. One barrel is equivalent to 159 litres.

The construction of the oil pipeline linking the Turkana oilfields to the Lamu port is expected to begin in 2018 and end in 2021 at a cost of approximately Sh210 billion.

The pipeline is expected to have the capacity to move between 80,000-120,000 barrels of oil per day. At that rate, it would take 20 years to exhaust the Turkana oil deposits.

Tullow, which first struck oil in 2012, says it is preparing to execute the Early Oil Pilot Scheme (EOPS) that will see it export 2,000 barrels of crude oil per day by road as a precursor to the Full Field Development (FFD).

The plan will utilise five existing wells to produce oil which will then be transported to Turkana and Mombasa by road in insulated tankers, according to the government.

Critics of the plan, which is to deliver its first product mid next year, say transporting these minimal amounts of oil via road is not cost-effective.

The government and Tullow have, however defended the plan, saying it will provide important logistical and technical information important for commercial oil production.

“This data will help the operators of the project understand the behaviour of oil reservoirs and how they transform as they produce oil,” Energy principal secretary Andrew Kamau said in a newspaper opinion article last month.

Tullow also announced that, together with its JV partners, it will restart exploration drilling in the South Lokichar basin next month.

The partner firms will drill two new wells, Etete and Erut, as well as appraise two others in the Ngamia and Amosing fields that have already proved to have oil reserves.

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