Kenya is likely to start producing oil in six to seven years, the International Monetary Fund (IMF) has projected.
In a new report published after consultations with government officials, the fund terms Kenya’s recent oil discoveries in northern Turkana as “commercial”, a term that both government officials and the exploration firms have used only sparingly to avoid raising public expectations too high.
“Big oil discoveries in the northern Turkana region have now made Kenya a major venue for oil exploration in East Africa. Kenya expects to start producing oil in 6-7 years,” said the IMF in the report released on Tuesday.
IMF representatives held 10-day consultations with Kenya between February 4 and 14 as part of regular reviews to assess economic performance.
The staff team was headed by Dominico Fanizza, who is based in Washington and included the Kenya Resident Representative Ragnar Gudmundsson and Rose Ngugi, formerly a member of Central Bank of Kenya’s rate-setting Monetary Policy Committee and now an economist for the fund based in Nairobi.
The IMF mission met Treasury officials, CBK Governor Njuguna Ndung’u, other senior officials, representatives of the private sector including financial institutions, and the donor community.
“The discovery of commercially viable oil reserves made in May 2012 in the Tertiary Rift by Tullow Oil has led to the entry of major foreign oil companies,” said the IMF statement.
Last month, Tullow said it had achieved close to commercial quantities of oil in Twiga South-1 well.
In February this year, the company said it had “successfully completed (tests) with a cumulative flow rate of 2,812 barrels per day…the first potentially commercial flow rates achieved in Kenya.”
At the Ngamia-1 well in Block 10BB in Kenya, the first of six drill stem tests has now been completed but further tests are ongoing to determine commercial viability. Tullow has, however, not declared quantities confirmed so far as being commercially viable, saying it is still conducting more tests.
In their communication with the IMF, Kenya government officials affirmed that prospects for commercially viable oil production have improved. The IMF noted that the policy regime for mineral resource wealth was being developed with its technical assistance.
“The government intends to update the Petroleum Act in the near future, and is reviewing its energy policy to facilitate prudent management of commercial oil and gas discoveries with technical assistance from the International Monetary Fund (IMF),” said the IMF document.
The Kenya government said in its Letter of Intent that it was reviewing tax on natural resources, noting that it was about to become a major producer.
“We will revamp our natural resource taxation framework to bring it in line with international best practices as our country is poised to become a significant producer of oil, gas and minerals,” says the Kenya in the Letter.
The IMF said Kenya’s economic prospects would improve with oil exploitation but stressed the importance of balanced growth to prevent excessive reliance on the resource.
“Looking forward, the risks from global financial and economic conditions have lessened. In addition, the prospects for commercially-viable oil discoveries could further improve the medium- to-long-term outlook, which will require policies to promote diversified and balanced growth to avoid excessive reliance on natural resources,” said the IMF.
The Bretton Woods institution noted that out of 46 blocks made available for exploration by the Energy ministry under the Petroleum Act, 45 have been licensed to 23 international oil companies.
“The companies are at different stages of exploration, and the productive capacity of two oil wells is currently being assessed. Gas has also been discovered on one of the offshore wells in the Lamu Basin,” said the report.