Kenya smells crude oil cash as pilot project set to go live

The earliest Kenya can export her first barrel of crude oil will be in December, even as it embarks on trucking the first 600 barrels from Turkana to Mombasa this Sunday.

At a production rate of 2,000 barrels per day, estimates show that it may take more than six months for Tullow Oil to produce enough crude oil from the fields of Turkana to fill up one oil tanker ship with a capacity of 400,000 barrels.

Andrew Kamau, the Petroleum Principal Secretary, is quick to point out that Kenya does not expect any profit from this early export.

The pilot, he says, is expected to test the Kenyan crude oil in the world market, as well offer lessons to the country as it moves to the commercial development phase.

"When we have accumulated about 400,000 barrels, we will go out and ask people to let us know what they think our crude oil is worth... we will sell to persons who give us the best price,” explained Mr Kamau at a briefing on the pilot project in Nairobi, yesterday.

The Early Oil Pilot Scheme is expected to commence this Sunday when the first convoy of four trucks, each carrying 150 barrels of crude oil, will be flagged off by President Uhuru Kenyatta.

The first consignment of 600 barrels of crude oil is valued at Sh4.5 million going by the average market price. The first shipment will also bring closer to reality the dream of Kenya joining the exclusive club of oil producers.

“Early oil is not a commercial project. This is an experiment… it is a geological project. We want to find out what is in the ground. As for break even, how much money is going to be made or when the communities are going to get the money, it is not a relevant question. The communities understand that it is part of the extended oil well testing programme,” said Kamau.

The Ministry of Petroleum and Mining said it is targeting production and stockpiling of at least 400,000 barrels of oil before commencing exporting. Kamau said such a quantity, although modest in volume, is still ideal, considering it is the country’s first oil export consignment.

Tullow will produce 2,000 barrels a day, meaning it can take 200 days or six and a half months to produce enough crude to meet the 400,000 barrels that is adequate to form the first export shipment.

This would mean that the first ship carrying the Turkana crude will be departing from Mombasa in December, at the earliest, if the players along the supply chain stick to the timelines. It would also mean that subsequent exports would be undertaken twice a year.

Kamau said once the crude accumulates at the Kenya Petroleum Refineries’ (KPRL) facilities, the Ministry, together with Tullow and its joint venture partners in the Lokichar oil project, would source for international buyers through a competitive bidding process.

Government officials have previously said Chinese and Indian firms had expressed interest in purchasing Kenya’s crude oil.

Kamau said the Government has addressed concerns raised by the local community to ensure commercial oil production is not delayed.

These have largely centered on revenue sharing deal, which the National and County Governments agreed on two weeks ago.

The pilot was scheduled to start in June last year, but faced delays, with the other key contributing factor cited as lack of an enabling legislation.

“There are a lot of factors that we needed to look into… factors such as the environment and the community,” Kamau explained.

“We can either work through these issues while producing 2,000 barrels a day with minimal costs or at full field development that could be expensive to manage.”

He reckons that during the commercial phase at full field development, an oil production company might pay between $50,000 (Sh5 million) and $100,000 (Sh10 million) per day for an oil rig, which would make it uneconomical.

“We also need to test the reservoirs and the route that we will use to bring in the equipment.”

During the pilot phase, Tullow Oil will produce oil from two fields of Ngamia and Amosing, but Kamau said it might also include Twiga Field in the near future.

There are currently about 70,000 barrels stored in Lokichar that were produced during an extended well testing programme in 2015. This consignment will form the first cargo to be trucked before Tullow embarks on a daily production of 2,000 barrels.