Uhuru, Nanok agree on how to share oil billions

The first convoy of trucks ferrying crude oil produced from the fields of Turkana are expected to leave Lokichar on June 1.

This comes after State House struck a deal with the County Government of Turkana on sharing of oil revenues that clears the way for the implementation of the Early Oil Pilot Scheme (EOPS).

The agreement comes after a year of haggling, mostly about revenue-sharing, and which has stalled the pilot for close to a year now.

Tullow Oil will now start production of oil at Lokichar, move it by road to Mombasa where it will be stored and later exported under the pilot project.

The project that faced uncertainties will now proceed after unlocking of the stalemate on revenue-sharing between county and national leaders. The deal that clears the way for the pilot was brokered yesterday at a State House meeting attended by President Uhuru Kenyatta and Turkana Governor Josphat Nanok.

The governor has in the past rejected revenue share proposals made in the Petroleum (Exploration and Production) Bill.

Debate on how much should go to the community as well as whether the county’s share should be capped depending on their capacity to spend had seen the Petroleum Bill stall in Parliament. The enactment of the Bill into law was critical for the project as it offered its implementation a legal framework and it is the reason that the Government pulled the plug on the project last year just as it was about to start.

The Bill proved to be divisive and was early in May suspended from debate in Parliament by its sponsor Aden Duale who said too many changes had been introduced at the committee stage.

The Government yesterday, however, said the issues had been resolved clearing the way for completion of debate in Parliament and its signing in to law.

A statement by State House said, “a deal was struck on the Petroleum (Exploration and Production) Bill specifically as regards to provisions for revenue-sharing.”

The deal retained the proposals that had been made in the Bill that was tabled in Parliament in February this year whereby the National Government will get 75 per cent of the revenues from oil while the County Government will get 20 per cent. The community share, which had been the bone of contention, was retained at five per cent.

President Kenyatta announced that the production of oil from the Turkana oilfields will start without any hindrance after an agreement was reached on the sharing of revenue.

“We now have an understanding that can put Kenya on the map of oil exporting countries. We will intensify our exploration efforts not just in Turkana but in the rest of the country now that we have a legal instrument that can help guide how oil and gas will be handled in our republic,” President Kenyatta said.

The statement added that the first trucks carrying crude oil are scheduled to roll out of Turkana County by June 1.

The deal was struck following negotiations between leaders of Turkana County led by Governor Josphat Nanok and senior Government officials including President Uhuru Kenyatta and his Deputy William Ruto.

Nanok said the “leadership and the people of Turkana are now fully in support of the exploration and production of oil after the disagreements were resolved.”

He added that the Council of Governors, which he chairs, is also satisfied on how the issue was resolved and that Turkana County Government would support the fast-tracking of the transportation of oil by road as well as the construction of the oil pipeline to Lamu Port.

“The impediment that the Turkana people were concerned with and even the Council of Governors raised in its petition to Parliament has now been discussed and resolved,” said the governor.

Other than the people feeling short-changed in the revenue sharing model that gives them five per cent compared to an earlier proposal that gave them 10 per cent, Turkana County had also rejected a proposal to cap its revenue should it exceed its annual budget. It now appears to have yielded and accepted the conditions as part of the revenue share.

The early oil project was initially slated to start June 2017 but was put on hold, with the Government citing the lack of an enabling legislation with the Petroleum Bill expected to offer a legal guidance for the pilot as well as commercial production later in 2022.

Following the agreement, Tullow Oil will now start production of 2,000 barrels of oil per day and truck it to Mombasa. It recently installed an early oil production facility at a cost of Sh1 billion.

During an extended well-testing programme in 2015, the company produced some 70,000 barrels that is stored at its facilities in Lokichar and which will make the first consignment to Mombasa.

The oil will then be stockpiled at the Kenya Petroleum Refineries (KPRL) in Changamwe and exported once it is enough to fill an oil tanker ship.

The Kenya Pipeline Company (KPC), which has leased the KPRL facilities said it is concluding the refurbishing of storage facilities that will be used to store the early oil.

The pipeline company said it has already repaired one tank with capacity for 90 million litres and is in the process of repairing another two tanks each with a similar capacity, bringing total capacity available to store the crude to 270 million litres.

The Changamwe-based refinery ceased refining crude oil in 2013 and was converted into a storage facility for crude and refined petroleum.

The oil stored in Tullow Oil’s facilities will be moved first. The firm has in the past said it would take about 60 days to empty the tanks. The three firms that had been contracted to move the crude oil last year are expected to start the job over the coming two weeks.

Tullow had contracted Multiple Hauliers EA Ltd and Oilfield Movers Ltd (OML) to supply 50 trucks – 25 trucks each – and Primefuels Kenya Ltd to supply tanktainers (specialised transport containers) that will be loaded with crude oil.

It had planned to have convoys of up to seven trucks daily, transporting about 1,000 barrels of oil. The trucks would take about one week to do a round trip from Lokichar to the port of Mombasa.

A phased approach

The early oil project is expected to offer vital lessons to Kenya, as it moves towards commercial production by 2022. It is also expected to help players in the Lokichar Oil project gauge how the market reacts to the Kenyan product.

“We are moving on to early oil which we give us more data as we get through 2018,” Tullow Oil said in a recent briefing.

Aside from the early oil, Tullow Oil is also planning for the full field development where it said it would use a phased approach to developing Lokichar oil fields and has earmarked two fields for the initial development phase in what the firm termed as the Foundation Stage.

The firm plans to invest Sh290 billion for the phase and start commercial oil production at least by 2021. Part of this will go towards building the production facility while Sh110 billion will go towards building of the pipeline.

The Ngamia field, where the popular Ngamia 1 well that had the first substantial discovery is located, and the Amosing field will be developed at the Foundation Stage and are expected to produce a total of 230 million barrels of oil.

The other five fields where the firm has been exploring for oil in Lokichar (Twiga, Etom, Erut, Agete and Ekales) will follow in subsequent phases.

The firm said it would also build a Central Processing Facility (CPF) that will produce up to 80,000 barrels of oil per day (bopd). The processing facility will be linked to the planned pipeline that will link the fields to Lamu Port.

The Ministry of Energy and Petroleum has previously projected the pipeline to cost Sh200 billion, with the Government expected to partly finance the project.

[email protected]