French oil major set to emerge all-important player in fledgling upstream oil industry

French oil and gas major Total

French oil major Total is set to emerge as the all-important player in the fledgling upstream oil industry not just in Kenya but the region.

This follows its word to the government a fortnight ago that it would support the development of a crude oil pipeline from Turkana to Lamu.

The commitment to support the 987 kilometre pipeline, which is projected to cost Sh200 billion, is however, a major change of heart by the firm that was initially opposed to the project.

Total even played a hand in convincing Uganda to ditch Kenya in its plans to develop an oil export pipeline, where the two countries initially planned to build a pipeline from the oilfields of Hoima in Uganda through Turkana and terminate at the Lamu Port where the oil from Lokichar and Western Uganda would be export.

Total’s support for the pipeline came after the firm’s senior officials met President Uhuru Kenyatta at State House, Nairobi. According to a statement from State House, Total would be required to use the Lokichar-Lamu pipeline to evacuate the Kenyan oil. Securing commitment for the Pipeline from the French firm appeared to have been tied to government approving the acquisition of Maersk Oil’s stake in the Lokichar blocks.

“French oil firm Total SA has confirmed its commitment to the Lokichar-to-Lamu oil pipeline as the only evacuation route for Kenya’s crude from the Lokichar fields,” said a statement by Manoah Esipisu, State House Spokesperson.

“Following Total SA’s commitment, the government has consented to a proposed acquisition of the issued and to-be-issued share capital of Maersk Oil Exploration International in respect of Blocks 10BA, 10BB and 13T.”

Total has a 25 per cent stake in the Lokichar blocks following acquisition of Maersk Oil globally, while Tullow Oil (the operator) has 50 per cent with the balance 25 per cent held by Canada’s Africa Oil.

And now, industry players and experts are pointing out that Total could be angling to be the key firm that will steer Kenya into being an oil producer, with possibility that it could buy some of Tullow Oil’s interests in the three Lokichar blocks and assume the role of an operator.

The Lokichar-Lamu pipeline and an increased presence in Turkana oilfields would give the firm an alternative route for exporting Ugandan oil, where it became the operator following acquisition of a major stake from Tullow in a deal concluded in January 2017. Total bought a 21.6 per cent stake from Tullow in the Ugandan fields, increasing its interest to 54.9 per cent and emerging as an operator.

 

Vote of confidence

The firm could also use the pipeline to Lamu as an alternative for oil from South Sudan, should it succeed in finding oil in a block where it is prospecting as well as sort out issues that it has been having with the South Sudanese government that keeps threatening to kick the firm out of the lucrative block.

“They (Total) may soon become the operator by buying some of Tullow Oil’s shares to become the majority shareholder. They may also be securing an export route for oil from South Sudan where they are exploring for oil,” said an industry insider.

Eng Patrick Obath, an oil and gas consultant, said the move by Total SA is a vote of confidence and may have come following the work done by Tullow that may show the potential for oil in Lokichar could be huge. “It is a vote of confidence by Total that there is sufficient oil and it is commercially viable,” he said.

“Decisions such as these are taken depending on the amount of data that they have. Over the last two years Tullow Oil has drilled exploratory wells and tried to determine the rate of recovery of oil, the actual amount there is and performance of different fields in the basin.”

Obath said the data is shared with the people that want to come and invest in the next phase and that’s where a firm like Total comes in.

“They (Total) have seen the opportunity as investors and have the muscle and money to get into that kind of level,” he said.

The government is currently evaluating how it will go about building the pipeline. In January, the Ministry of Energy invited eight prequalified firms to bid for the job of undertaking the Front End Engineering Design (FEED), which will entail feasibility studies and an initial design.

The FEED is expected to inform the specifications of the pipeline as well as how much it will cost the country. The ministry, however, has in the past estimated that the pipeline could cost as much as Sh200 billion.

This is in preparation for the full field development, with commercial production expected to start around 2021.

Obath said the project tending towards the production phase would need investors with deep pockets, which is the reason that Total might become a key player in the Turkana, with Tullow and Africa Oil, lacking the financial muscle that Total has.

INTERESTS IN THE REGION

“Total has seen the opportunity as an investor and has the muscle and money to get into that kind of undertaking. I don’t think Tullow has finances or size to actually be able to invest in that and when they get into such phase, they will usually invite companies that have seen the business prospect to invest when a project gets to such a phase,” he said.

With Total getting more involved in Kenya, among the scenarios that might play out include the firm emerging as the operator in Kenya and linking up its interests in the region.

“There are a lot of possibilities and it may be Tullow that continues to operate or Total or even someone else that may later come on board. Total might also emerge as a major shareholder but not want to operate and Tullow might continue being the operator,” said Obath.

“Those are all options. Ideally Total has two options now, can now go through Tanga route and can export via Kenya. Depends on what options are there in terms of compatibility, types of crude and other factors.”

Tullow has in the past said it is considering to sell some of its interests but is yet to give a timeframe as well as an indication of how much it would sell in such a farm down. Total, which is the largest player among the Lokichar joint venture partners, might be the firm that buys some of Tullow Oil’s interest when it finally decides to farm down.

“Tullow has consistently stated it could consider a farm down in the future (but) there are no current timelines for this,” said Tullow Country Manager Martin Mbogo in a recent interview.

The 893 kilometre pipeline getting Total’s support may have surprised many considering the firm played a key in role in scuttling a plan by Kenya and Uganda to have in place a joint pipeline. This would evacuate oil from Western Uganda through Turkana to Lamu where it would be exported through.

Total, however, raised concerns about security of the pipeline route and pointed out the proximity of the route as well as Lamu Port to Somalia. Of concern was also Kenya’s land ownership as well as speculative buying that usually has the effect of delaying and pushing up the cost of mega projects.

It instead convinced Uganda to use Tanzania for the crude oil export route and even offered support, including help in sourcing for financing.

At some point, it was claimed that Total had a hand in an incident where senior Energy Ministry officials, including Cabinet Secretary Charles Keter and Principal Secretary Joseph Njoroge were denied entry into Tanzania and their travel documents confiscated.

The State, however, appears confident that despite some of actions by Total in the past, the firm will play a critical role in helping Kenya become an oil producer.

“Kenya is optimistic that the entry of Total into the Kenya Joint Venture will strengthen the financial resources and technical competence to the Joint Venture and this will go a long way in accelerating the development of the resources in these Blocks,” said the statement by State House.