The National Oil Company (NOCK) is set to sell a stake in its oil exploration block as its eyes becoming a key player in the country’s emerging upstream sector.
The State-run petroleum company, which has since inception been mostly engaged in the retail petroleum segment, said it is looking for a firm for an equity partnership as it readies to start drilling exploratory wells at its Block 14T in Kajiado County.
The firm has undertaken some basic works on the block but is unable to proceed owing to lack of financial muscle. It expects the new partner(s) to help it determine the potential for the block.
NOCK said the equity partner will play a critical role in drilling the first exploratory well at the block and generally take exploration ‘to the next level’.
The block stretches south to the Tanzanian border.
“The Corporation is keen to enter into an equity partnership with an oil and gas company of international repute for the exploration activities it is undertaking in the block with a view to identifying more drillable prospects and drilling an exploration well within the next two years,” said NOCK in documents inviting companies to bid for the job of a transaction adviser to structure the farm-out deal.
“As the public sharing contract licence holder (for Block 14T), National Oil has been undertaking petroleum exploration activities within the Block including ground gravity survey, geochemical survey, full tensor gradiometry, seismic as well as drilling of two stratigraphic wells.”
“Using the data acquired, the corporation has been able to delineate one drillable prospect with potential for others.”
The State entity has lagged behind in its upstream business despite having the advantage of being the custodian of key data on exploration dating backing to colonial times when the search for oil started, though with disappointing results.
It has also had the advantage of being a national oil marketer and would have with ease reached out to other State oil exploration entities, especially from advanced oil producing nations.
The firm has in the past tried to work with some corporations from the Middle East for direct supply of refined petroleum products. Petroleum Principal Secretary Andrew Kamau said NOCK lacks huge cash to invest in further exploration.
He noted that the details of the partnership will be out once NOCK selects a transaction advisor, noting that it may be a deal where the partner brings expertise, equipment, and other resources to move exploration in the block forward.
“They are looking for a partner because they do not have enough money to move forward. Oil exploration is capital intensive and you will find that even big oil companies globally look for partners to share the risk,” he said.
“NOCK has put in a lot of work in terms of surveys and is now at a point where it would like to start drilling exploratory wells. Drilling one well is expensive and cost as much as Sh5 billion.”
NOCK’s block sits in the vicinity of a borehole drilled in 2017 and produced a flammable gas, exciting area residents and even the industry that hoped it was natural gas, presenting a low-hanging fruit.
The gas was ‘discovered’ after a farmer in Kipeto area of Kajiado County contracted hydrologists to drill a borehole that was expected to boost his farming activities.
At 200 metres, the hydrologists came across a ‘reservoir’ of what they said was an odourless gas and upon throwing a lit match, the gas caught fire.
Samples tested by an American firm Weatherford, however, returned a negative result.
Other than the development of the Kajiado block, NOCK plans to a role in the Lokichar oil project being developed by Tullow Oil and its joint venture partners – Total and Africa Oil.
It plans to cross-list at the Nairobi Securities Exchange (NSE) and the London Stock Exchange (LSE) to raise funds to invest in the blocks, where a Final Investment Decision is expected to be made by end of this year.
This will inform what each of the partners as well as Government through NOCK will chip towards the commercial development of the oil fields.
The PS stated that plans to list at the exchanges are on course and that the Government has just commissioned an audit on the operations of NOCK.
The dual-listing on LSE and NSE targets to raise $1 billion (Sh100.62 billion) through the sale of shares in an initial public offering. “We have just commissioned an Environmental, Social and Governance audit that will be presented to LSE… the cross-listing plans are still in the early days but are on progress,” said Kamau. The money will be used in the acquisition of up to 35 per cent stake in Blocks 10BB and 13T when the Government exercises its back-rights towards the end of this year.
The blocks, which are operated by Tullow Oil, are currently being prepped to start commercially producing oil by 2022.
The PS ruled out the possibility of using the IPO funds to drill the 14T block in Kajiado.
As the upstream petroleum continues to grow, particularly with planned new legislative framework coming into effect, National Oil will start losing some of the privileges it has had in the past when the industry segment had aroused much interest.
Its role in the upstream sector has in the past been blurred, at times playing certain roles that a regulator would be playing while still remaining owning exploration blocks.
The corporation’s mandate includes the development of the upstream oil and gas sector - including marketing Kenya’s oil blocks as well as some regulation aspects - it has in the past found it difficult to execute this specific role owing to being a player in the sector as well.