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Kenyans to buy Turkana oil blocks in Sh103bn IPO

Petroleum PS Andrew Kamau. file photo | nmg
Petroleum PS Andrew Kamau. file photo | nmg 

Kenyan taxpayers will have a chance to buy back up to a 35 per cent stake in the two Turkana oil blocks with the bulk of the country’s reserves using the proceeds of a planned initial public offering of State-owned National Oil Corporation (NOCK) shares on the Nairobi and London stock exchanges.

The government is planning to raise up to $1 billion (Sh103 billion) from the dual listing expected in early 2019, with NOCK having advertised for a consultant to guide the deal.

Petroleum principal secretary Andrew Kamau told the Business Daily that the contract for the concession of oil blocks to existing operators has a clause allowing the government to exercise a back-in right, which essentially means buying back a percentage of the ownership before production kicks in.

“When you sign a contract you have a right to buy back some share, before production. The percentage we can buy back is 15 in one block and 20 in the other. The listing should raise enough money for the purchase,” said Mr Kamau, without indicating whether the State would exercise its rights for the entire stake under the clause.

Each of the two blocks in the Lokichar Basin — the 4,719 square kilometre 13T and 6,172 square kilometre 10BB — are jointly owned by British oil firm Tullow (50 per cent), Africa Oil (25 per cent) and Total (25 per cent).

Total #ticker:TOTL joined the list of owners in August after it bought out Maersk Oil in a share and debt swap with the firm’s parent company, Danish shipping giant A.P. Moller-Maersk.

Mr Kamau said that the proposal is a clear indication that Kenya is now firmly on the way to full oil production, adding that the market can only invest in the project when it is sure of tangible reserves.

In May, the Ministry of Energy and Petroleum and the London Stock Exchange (LSE) signed a memorandum of understanding (MoU) that set the stage for cross-listing of energy firms on the UK bourse and the Nairobi Securities Exchange (NSE) #ticker:NSE.

The agreement also allows local energy firms to raise funds through bond issues on the UK bourse.

“We are now listing something that is real. The existing operators of the oil blocks are already involved... it is something that is in the contract,” the PS said, adding that each of the contracts signed with oil explorers for the blocks has own percentage of back-in rights.

These rights allow Kenyans to own part of the oil-producing blocks once they are certified to hold reserves, protecting taxpayers from the highly risky initial exploration stage.

Full-scale oil production

The potential acquisition of stakes in the oil blocks in 2019 would give the State a foothold and a bigger say in the management of the resources ahead of the full-scale oil production expected in 2021.

In the meantime, the government and Tullow plan to begin small-scale crude oil production of about 2,000 barrels a day for transportation by road to Mombasa for export next year.

Tullow struck Kenya’s first oil in Lokichar in 2012, on Ngamia-1 well located on the Block 10 BB. Subsequent discoveries in other wells have raised Kenya’s recoverable reserves to an estimated 750 million barrels, an amount which is commercially viable.

Exploration and well testing, however, continues, raising the prospects of the reserves growing in future.

Last month, the government signed an agreement with Tullow to build an 865-kilometre pipeline linking the Turkana oil fields to Lamu port at a cost of Sh210 billion. The pipeline will enable the country to pump out about 100,000 barrels a day.

Price rally

Prospects for viable oil production in Kenya have also risen with the gradual recovery of crude prices in the international market.

A barrel of crude was selling at a two-and-a-half-year high of $64 yesterday, having gone up from $50 a year ago.

The higher prices mean that it makes business sense for explorers to risk their capital in nascent oil regions like Kenya.

Tullow on Wednesday announced it has raised Sh258 billion ($2.5 billion) in new loans to help fund its African operations in 2018, an indicator that exploration work could soon pick up speed.

The collapse of oil prices from mid-2014, when a barrel was going for $115, to a low of $28 in early 2016 affected exploration activity in new markets, including Kenya, where the likes of Tullow scaled back new exploration work and a few players ended up farming out their holdings to better-heeled rivals.

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