State puts a freeze on new oil exploration license

The Ministry of Energy and Petroleum will not issue new licences to oil exploration firms for recently created oil blocks until the global industry regains confidence and resumes investments.

The Ministry in May said it had created 17 new blocks and is expected to give licences to new and existing exploration companies next year.

The recent dip in oil prices has however seen oil companies slow down on investments in exploration activities not just in Kenya but globally. Andrew Kamau, Principal Secretary for Petroleum at the Ministry said Government would auction the new blocks when there was an increased confidence in the industry and companies ready to invest in exploration activities.

“People want to take oil blocks and then probably just hold on to them. We want companies to take up blocks because they want to explore and not just build their portfolios,” he said. Mr Kamau spoke during the fourth oil and gas conference in Nairobi.

The move by the Ministry to hold on the licensing of explorers is expected to ward off speculators who have in the past landed exploration licences and failed to invest in any activities, only to sell them later to prospective explorers at exorbitant prices.

The country has 63 blocks, up from the 46 blocks that were there before the May announcement by the ministry that added 17 new blocks.

Exploration and production companies have reduced investments in oil exploration following a drop in oil prices. Crude prices started declining in 2014, reaching a low of $30 per barrel earlier this year. It has since gained some ground and is currently trading at $48 per barrel.

Kenya has an estimated 750 million barrels of recoverable resources in Lokichar, where UK firm Tullow has been exploring for oil. It estimates that recoverable oil in the area can reach a billion barrels with further testing and drilling of exploration wells.

The company early this month said it would resume drilling of exploration wells in Turkana County. It expects to drill and appraise four wells beginning December.

Oil production

Tullow, together with the Ministry of Energy , are also in plans to start oil production on a pilot basis by mid next year. Crude will be moved by road from Turkana to Mombasa where it will be stored and exported.

The Government has recently started the rehabilitation of roads to facilitate the movement of the cargo using specialised containers.
The pilot production is expected to enable the country test market reaction to its oil and inform the subsequent production phases. Tullow itself recently invited bids from logistics companies that will move crude from Turkana to Mombasa by road through specially designed containers.

Kenya plans to reach commercial production stage by 2020. It is expected that the crude will by them be moved using a planned pipeline between Turkana and Lamu. Discussions between the Government and Tullow on the development of the pipeline were concluded in October and an agreement will be signed by end of this year.

“The Joint Development Agreement (JDA) will allow important studies to commence such as Front End Engineering Design (FEED), Environmental and Social Impact Assessments (ESIA), as well as studies on pipeline financing and ownership,” said Tullow in a trading update earlier this month.