Firm’s presence in exploratory field could tilt scale in the joint pipeline development

By Macharia Kamau | Published Tue, August 29th 2017 at 10:27, Updated August 29th 2017 at 10:35 GMT +3
The TOTAL oil refinery is seen on January 10, 2007 in Leuna, Germany. (Photo by Katja Buchholz/Getty Images)

NAIROBI, KENYA: Total last week announced the acquisition of Maersk Oil, setting the stage for the French firm to get a footing in the Turkana oilfields nearing to start production.

While the oil major will assume a 25 per cent stake in the Turkana oil project, it could be in the coming years become a critical player in the project and Kenya’s upstream industry.

This considering the developments in Uganda over the last one year, where it moved from being a minority player in the Lake Albert project into being the operator.

It also plans to play a part in building Uganda’s crude oil pipeline, firmly putting it in a position to steer Uganda to being an oil producer.

Total also has had interests in Kenya’s oil exploration since 2011 and currently holds a licence to search for oil in Block L22, located in offshore Lamu.

It will however settle in to an uncomfortable position - having convinced Uganda to change the route of its export pipeline, which did not go well with some Kenyans, including senior Government officials.

Kenya had banked on a joint pipeline development that would move crude from Western Uganda through Turkana and then to Lamu Port for export.

Total committed to help Uganda build an export pipeline through Tanzania as well as expressed concerns about the security of the route that the Kenyan pipeline will take.

The altering of the route sparked a tiff with Kenya. Total in a statement last week said the move would complement its position in East Africa through Maersk Oil’s Kenya assets.

“We will have the opportunity to better understand how we can develop these discoveries in Kenya, which are in a region that will become a core area for Total,” said Total Chairman and Chief Executive Patrick Pouyanné.

There will be questions as to whether Total will start by mending relations or whether it might make major alterations in the plans that have already been set in motion and aimed at seeing Kenya become an oil producer.

These include the Early Oil Pilot Scheme that was put on ice until after elections and the planned 867km Turkana-Lamu pipeline.

Minority stake

Experts opine that Total might not have a major impact yet but could in the coming years, especially if it decides to buy more stake in the project.

Energy consultant Patrick Obath says Total might not have much of a say in the day-to-day running of the operations in Turkana considering it has just acquired a minority stake.

He noted that the relations between Tullow and Africa Oil is critical considering the different oil blocks that the two companies own jointly.

“At the moment what matters is the relationship between Tullow and Africa Oil. The two companies jointly own a number of blocks whereby one or the other is usually the operator,” he said.

With its entry in Kenya, there are possibilities that Total might increase its stake.

Tullow Oil has previously hinted at selling its stake in the three oil blocks  earmarked for commercial production by 2022. The firm has a 50 per cent stake in the blocks, with the rest held by Africa Oil(25 per cent) and now Total (25 per cent).

Experts say it is just a matter of time before Tullow sells its stake, adding that it could probably be waiting for an opportune moment - especially towards production to secure a good deal for part of its stake in the project.

“Tullow is fairly small compared to Total and the options it has when moving to full field development is either to borrow money to finance the development or sell part of its stake to large companies that can help in mobilising resources for the development,” said Eng Obath.

“It usually goes in to risky areas, derisks them and then sells a stake at a much higher value. It is the same case with Turkana and it is likely to sell when getting close to production.”

When it announced the acquisition of the Maersk Oil business, Total did not reveal much about new assets in the region, just noting that the acquisition would complement its position in East Africa, which will become a core region for Africa.

Eng Obath notes that the Kenyan assets, though holding a minority stake and the industry being at infancy stages, are critical to Total in growing its overall business in the region and in Kenya, where it a dominant player in the retail and storage of petroleum products.

Strengthen position

The company’s retail business is the largest in Kenya, a position it enjoys in other East African countries.

It recently acquired Gulf Africa Petroleum Corporation, which has substantial storage facilities and has in the past outbid other marketers in the Open Tender System to get most of the contracts to import petroleum products on behalf of the industry.

“Total is very much an African centric company and the move will strengthen its position in the upstream sector in the region. It is strong in downstream and midstream,” he said.

East Africa Extractives Network Managing Director Tina Nduta noted that the acquisition is a vote of confidence in the fledgling industry.

The firm handles consultancy in mining and energy. “It is still early to tell what shape this will take in the long-term but it is clear that Total has an interest in playing a critical role in the upstream sector,” she said.

“The move is also a show of confidence in Kenya’s oil. The company cannot have made such a decision unless there is potential for quality oil.”

Total will be looking to undertake further exploration in the Tullow led consortium and increase the recoverable resources in Turkana.