The twin exits by TotalEnergies and Africa Oil from Kenya's Turkana Oil project have spooked potential explorers as the government turns to India in search of deep-pocketed investors to keep commercial production dreams alive.
Energy Cabinet Secretary Davis Chirchir said a greenfield investment, which would have seen potential investors pump billions into the project and turn it into commercial production, has been startled by the decision by the two energy firms to abandon their equity to British oil explorer Tullow Oil.
Total Energies and Africa Oil quit in May and relinquished their stakes for free, exerting new pressure on the main operator, Tullow, which has been unable to take the project off the ground after running out of cash.
Tullow is facing a fresh headache finding new partners as Kenya’s oil dream is delayed.
Additionally, Mr Chirchir noted, the heightened pressure against fossil fuels has meant that prospects for licensing of blocks for a non-oil-producing country like Kenya are lower compared to a producing country where market infrastructure has been developed.
“We are at a phase where if companies like Total and Africa Oil can write off their investment in a block where discoveries have been made, the risk capital that goes into a block where discoveries have not been made is a challenge,” Mr Chirchir told an oil exploration summit on Friday.
Mr Chirchir noted that the exploration risks are high owing to the fear of not finding oil, whose profits are normally used to defray their cost capital.
“So licensing of new blocks is progressively going to face more and more challenges. Because your exploration is risk capital, you are basically sinking your own money… If you don’t make a discovery, the investment that you made, you just write it off,” said Mr Chirchir, who revealed that Kenya had already started talks with the Indian government.
"I did go to India in one of the conferences to try and get the Indian government to come to support Tullow to finance this programme. Because the kind of capital requirement in the development phase is about $3.5 billion. This is the kind of investment to get to financial close," he said.
With the rising chorus against fossil fuels as the world tries to shift to renewable energy, however, hitting the black gold does not necessarily guarantee its production.
“You can imagine someone coming and putting in so much investment, not making a discovery, even making a discovery, and because of climate change issues, you don’t get a financier to take you to the final investment decision and eventually first oil,” said Mr Chirchir.
He noted that a lot of companies, including TotalEnergies and Africa Oil, would rather put their money in producing fields in other countries as opposed to greenfields.
Africa Oil, for example, says it abandoned the Kenya project, opting to concentrate in regions with high petroleum potential.
TotalEnergies withdrew barely months after saying it was considering other options to monetise its stake.
Last year, the government put up 35 oil exploration blocks for sale. Kenya has four petroleum exploration basins -- Lamu Basin, Anza, Mandera and the Tertiary Rift.
Within the basins, the government has already gazetted 63 oil blocks, with 26 already licensed to 26 international oil companies.
The partnership between Tullow, TotalEnergies and Africa Oil has been at the development stage.
Mr Chirchir said that, even if Total and Africa Oil were still in place, there was still a need for new partners to help with the production of oil.
The duo owned a 25 percent stake apiece in blocks 10BB, 13T and 10BA in the South Lokichar Basin, and their exit leaves the cash-strapped Tullow to solely continue with the venture.
The exits have left Tullow with full ownership of the three blocks at a time when concerns over its viability are mounting. This even as it emerged that Kenya has opened talks with both the Indian and Chinese governments to help them get investors for the Turkana Oil project as the country prepares for the export of its first oil.
“There are countries who need securities of supply because they are non-oil producing countries with huge populations like India and China,” said Mr Chirchir.
Tullow, which is listed on the London Stock Exchange, needs a deep-pocketed strategic partner to enable it to cushion its risks for the multi-billion shilling project that includes setting up a crude pipeline from Lokichar to Lamu and processing facilities for the oilfields.
