Kenya’s Great Rift Valley – the Next Big Oil Patch


Kenya's Great Rift Valley, a 450-mile-long volcanic trench ripped open by shifting tectonic plates, is known as the cradle of mankind for the million-year-old remains of human forebears discovered there. Oil drillers say the area also holds a string of fields that could make East Africa's largest economy a major energy producer. The U.K.'s Tullow Oil (TLW:LN) and Canada's Africa Oil found crude at two wells last year and now plan up to 11 more test wells in 2013. The valley could yield 10 billion barrels, Tullow estimates, enough to supply Kenya for three centuries.

The discovery puts Kenya at the center of East Africa's emerging oil industry. Uganda will soon start to produce the oil it discovered starting in 2006. Tullow and Africa Oil are drilling in Ethiopia. And South Sudan, the world's newest nation and an established oil producer, is looking for new export routes that would bypass the country it broke away from. All this oil would probably be piped to Kenya's coast.

With the continent's oil industry centered on Nigeria in West Africa, East Africa has been overlooked. Of the more than 30,000 wells drilled in Africa, fewer than 500 were in East Africa, according to Afren, an oil explorer active in the region. “There was a giant underexplored hole on the map,” Africa Oil Chief Executive Officer Keith Hill says. “Now the world has woken up to East Africa. I've never seen a basin of this magnitude.”

Kenya From Nowhere Plans East Africa's First Oil Exports: Energy

Aug 20, 2013

Kenya is headed to become the first oil exporter in East Africa, moving in less than five years from being a have-not nation to the regional leader in cutting reliance on energy suppliers such as Royal Dutch Shell Plc.

After Tullow Oil Plc (TLW) discovered oil last year, Kenya is set to start shipments in 2016, overtaking neighboring Uganda, where Tullow found crude more than seven years ago. The U.K. explorer plans to start pumping in Kenya as soon as next year, Chief Operating Officer Paul McDade said in an interview. Kenya's deposits may top 10 billion barrels, according to the company, more than three times the U.K.'s remaining reserves.

Exports will underpin Kenya's shilling currency and are being pushed by a government that wants a lead on Uganda and Democratic Republic of Congo, whose East African resources in recent years attracted explorers such as China's Cnooc Ltd. (883) and France's Total SA. (FP) Most oil companies traditionally had focused on the African powerhouses of Nigeria and Angola to the west, and Libya and Egypt on the Mediterranean.

Oil will allow Kenya to “diversify export earnings and act as a catalyst for infrastructural spending, especially on the transport network,” Phumulele Mbiyo, regional head of macroeconomic research at Nairobi-based CfC Stanbic Bank Ltd., a unit of Standard Bank Group Ltd., said in an interview. “The shilling is expected to benefit from inflows of foreign exchange and reduced spending on fuel imports.”

Viable Rate
Kenya imports all its fuel, almost 80,000 barrels of oil a day at a daily cost of more than $8 million, according to U.S. government data. It relies on exports such as coffee and tea to support the balance of trade in a $37 billion economy, East Africa's largest.

Tullow estimates it has found more than 300 million barrels of oil equivalent resources after making three discoveries in Kenya's South Lokichar Basin. In February, Twiga became the first well in Kenya to produce oil at a commercially viable rate and has the potential to produce 5,000 barrels a day.

“After 50 years of disappointments, Tullow's results in the Lokichar Basin have been the key breakthrough,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., wrote in an Aug. 16 report. “Of 30 wells between 1960 and 1992, prior to Tullow's entry, 13 were dry, 12 encountered non-commercial gas shows, and five encountered signs of oil staining or oil shows.”

Vivo Energy, a Shell joint venture with Vitol Group, as well as Total and KenolKobil Ltd. are the biggest suppliers of crude and petroleum products to the nation. Kenya Petroleum Refineries Ltd., the nation's sole refinery, half-owned by Essar Energy Plc (ESSR), only refined crude from Abu Dhabi last year.

Bullish Idea
The discoveries have been made in the remote and underdeveloped Turkana region in the northwestern part of Kenya's Rift Valley. Shipments will initially be made by truck or train for refining in Mombasa or exports. Once more fields are discovered and developed a pipeline can be built.

Kenya oil exports are “a very bullish idea, because Turkana is one of the least developed parts of Kenya,” Clare Allenson, an analyst at Eurasia Group, said in a phone interview. “This is definitely worth watching to see how” it will progress. Tullow and partner Africa Oil Corp. (AOI) plan to spend at least a year exploring for further deposits. They have two drilling rigs in Kenya and expect to secure one more later this year. The Kenyan government wants things to go faster.

“They are not drilling enough wells,” Kenyan Petroleum Commissioner Martin Heya said in a phone interview from Nairobi. “Uganda drilled a long time ago, but it's possible that we can produce earlier than anybody else. We shall be happy.”

Local Refinery
Tullow is facing delays in Uganda, where the government and oil companies are negotiating the terms of production after 1.7 billion barrels of oil were discovered. Oil from landlocked Uganda will eventually be exported through Kenya.

Ugandan President Yoweri Museveni's government has delayed the $10 billion investment planned by Tullow and its partners, Total and Cnooc, to tap the Lake Albert fields. The sides need to agree on the size of a local refinery and an export pipeline, which is likely to cross Kenya in 2018.

“Uganda missed the boat and Kenya will become the oil-sector hub,” John Small, chief executive officer of the Eastern Africa Association, said in an interview. “It only makes real commercial sense to cooperate and have linked pipeline network” in the region. In Kenya, Tullow and Africa Oil still have to submit their field development plan to the Kenyan government. Eventually, a pipeline will be built from the fields to a terminal on the Indian Ocean coast, McDade said. “For the Kenyan economy it's going to be a major step forward,” Africa Oil CEO Keith Hill said in a phone interview. “Once the export pipeline is completed they will have a significant influx of capital coming in from oil export revenues.”

Uganda's Museveni and his Kenyan and Rwandan counterparts, Uhuru Kenyatta and Paul Kagame, in June discussed plans for regional fuel and crude pipelines. Uganda needs more resources than Kenya to make its oil export pipeline viable partly because it's further away from the Indian Ocean coast.

Turkana oil: Kenya to start oil production

August 1st 2013

Turkana, Kenya: Kenya's oil prospects received a shot in the arm as Tullow Oil announced the most recent well it has drilled is commercially viable.

The British firm announced yesterday that if Kenya drills the Etuko-1 well, it will have a possible average production of 300 million barrels in all its three wells. Ngamia-1 and Twiga South-1 wells are the other commercially viable wells Tullow has drilled since January last year.

“Following the completion of the Etuko-1 well, Kenya's petroleum resources are expected to be in excess of 300 million barrels, exceeding the basin threshold for development,” Tullow said in a statement in reference to the oil discovery in the region.

The Etuko-1 well seems to have a lot of potential because Tullow said it had deepened the drilling and encountered about 50 metres of potential net oil pay. Previous announcements had put Twiga South-1 well net pay at 30 metres.

The Etuko-1 well is located on Block 10BB in Lokichar basin, in Turkana County. The discovery has raised prospects of oil in Kenya and also throughout the region, given Uganda has also struck the commodity.

Partnerships

“Our exploration-led growth strategy delivered major success in Kenya and Ethiopia, further enhancing East Africa as a new oil region,” said Aidan Heavey, Tullow-Oil's CEO.

The British firm also announced more success on the Ngamia-1 and Twiga South-1 wells where the previous estimates of barrels of oil per day were increased from 3,000 barrels per day to 5,000 barrels per day.

Net pay is the thickness of an oil reservoir, which is capable of producing hydrocarbons.

The new discoveries mean Tullow will have to engage stakeholders to ensure Kenya benefits from the oil.

“Resources discovered to date are of a scale that the partnership will initiate discussions with the Government of Kenya and other relevant stakeholders to consider development options,” the company said in its statement released yesterday.

Tullow, which is listed on the London Stock Exchange, reported its first-half 2013 net profit fell to Sh21.2 billion compared to Sh49.3 billion for the same period last year.

The British firm hopes to increase its exploration activities in Africa, especially in East Africa, with the discovery of the new oil deposits.

Story Courtesy of EXPOGROUP

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