Blow for Kenya oil dream as Indian firms ditch Sh411b deal

Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling site in Lokichar, Turkana County, on February 8, 2018. [Reuters, File]

Kenya's petrodollar dreams have gone up in smoke after two Indian state-backed energy majors called off talks for buying a multi-billion stake in Tullow Oil's Lokichar oil field in Kenya.

The deal was estimated last year to be worth between $2 billion (Sh274 billion) and $3 billion (Sh411 billion).

A news report by local Indian news media quoting people in the know said the decision to end discussions lasting several months was taken "after senior executives from the two Indian suitors visited Kenya in July last year."

Executives of Indian Oil Corp, which is India's top refiner, and ONGC Videsh - the country's second-largest oil and gas firm - last year met outgoing top officials of Kenya's Energy ministry in an effort to smooth the deal.

British oil and gas exploration and production Tullow Oil is the current operator of the project and has a 50 per cent stake, while partners Canada's Africa Oil Corp and French Total Energies SE hold 25 per cent each.

The two Indian companies had been in talks to acquire the stake in Turkana oil projects held by Africa Oil and its partners Tullow in a deal earlier estimated to surpass Sh411 billion ($3 billion). The report by The Times of India did not disclose the reason the Indian energy majors backed out of the deal.

The Standard could not immediately reach the Indian firms nor Kenyan Energy ministry officials, Tullow Oil and Africa Oil representatives for immediate comment on the collapsed deal and its implications on the future of the project.

The collapse of the deal marks a huge blow to Kenya's aspiration to export oil on a commercial scale since Tullow discovered crude in the East African country in 2012.

A deep-pocketed strategic partner would enable Tullow and its partners to cushion its risks for the multi-billion shilling project that includes setting up a crude pipeline and processing facilities for the oilfields.

The future of Kenya's Turkana oil project has been dependent on the British oil explorer Tullow and its partners getting a strategic investor, the firms have maintained.

This would pave the way for the planned development of a pipeline and oil processing facility in the Turkana oil basin that includes $3.4 billion (Sh465.8 billion) investment for upstream activities.

Failure to secure a strategic investor would deal a blow to Kenya's hopes of petro-dollars needed to fuel economic growth as the project would face an uncertain future.

The large fiscal windfall associated with new oil resource revenue could help the new Kenya Kwanza government boost development and improve the standards of living for citizens through access to key services and amenities such as roads, health, food security and education.

"Failure to secure a strategic partner would impact our ability to progress the Kenya project to final investment decision and unlock value," said Tullow earlier