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A decade on, Kenya’s petrodollars dream remains a mirage

FINANCIAL STANDARD
By Macharia Kamau and Dominic Omondi | Mar 15th 2022 | 5 min read
By Macharia Kamau and Dominic Omondi | March 15th 2022
FINANCIAL STANDARD

Tullow made an entry into Kenya in 2010 when it acquired a 50 per cent stake in the Lokichar oil blocks. [File, Standard]

Among the most enduring images in Kenya’s fledgling oil industry is that of former Energy and Petroleum Minister Kiraitu Murungi holding a bottle of a black substance that he declared was oil from Lokichar, Turkana County.

This was in March 2012, when the outgoing Meru Governor announced that the country had made a major find in Turkana and was well on its way to minting petrol dollars. 

For Kiraitu, this could be a distant, possibly even a forgotten memory. 

But for Kenya, it has been a decade of missed deadlines, with the dream of becoming an oil exporter seeming like a mirage that tends to move every time the finish line is within sight. 

The latest from Tullow is not particularly inspiring. The firm appears to be marking time until it sells a part of its stake in the Lokichar blocks. 

The firm said it is searching for a strategic partner in conjunction with its joint venture (JV) partners Total and Africa Oil. 

“The FDP (Field Development Plan) is conditional on a number of critical workstreams for both the government of Kenya and the JV partners, including, but not limited to, the successful introduction of a new strategic partner,” said Tullow in its recently released annual results. 

“Constructive discussions with interested parties are progressing as Tullow and the JV Partners look to secure a strategic partner for the project.” 

Production of oil

The wait-and-see attitude for a new firm to take over the Kenyan operations is seen in the investments that Tullow has made in Kenya over the last two years. 

Over 2022, Tullow plans to invest $5 million (Sh500 million) in Kenya. This is a fraction of the $350 million (Sh39.55 billion) total capital expenditure for the year.

It also pales the $270 million (Sh30.51 billion) that the firm plans to spend in Ghana, where it has already started production of oil. 

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

Tullow Oil had not responded to our queries by the time of going to press. 

When we posed questions on the matter to Petroleum Principal Secretary Andrew Kamau, he accused us of being lazy and not doing our homework, asking age-old questions that he and other government officials have already tackled.

He offered to talk us through the project and demonstrate how we have failed to do our homework when he is back in the office. He is currently away. 

While he declined a lengthy telephone interview, the PS noted that working on an oil project from initial surveys and exploratory wells to appraising the finds and drawing developments takes years, even decades. 

He gave the example of Uganda, which discovered oil in 2006 and is yet to take its product to the market. 

“You do not go and turn on a tap. When did Uganda make their discoveries?” he posed, trying to demonstrate that making an oil find is one thing and becoming an oil exporter is another.

Mr Kamau pointed out that it is an intricate process that takes time and resources, which is among the reasons why Uganda is yet to start exporting 16 years later. 

“We are doing it (going into commercial production) in half the time that Uganda has,” said the PS.

We took up his challenge to do our homework and scoured through the literature over the years. 

While he compares the time Kenya is taking to commercialise its finds in Turkana County with Uganda’s, he does not mention that Tullow took about 10 years from finding oil in Ghana to starting to export it. 

The firm made the discovery in Ghana in 2006, the same it discovered the Ugandan oil. Tullow has since sold a major stake in Uganda and ceded the operator status, leaving Total Energies to bring to fruition Uganda’s vision of being an oil exporter. 

Tullow made an entry into Kenya in 2010 when it acquired a 50 per cent stake in the Lokichar oil blocks, whose licences were then held by Africa Oil and Centric Energy.

Africa Oil is still a joint venture partner with a 25 per cent stake, but Centric has since exited. 

Drill more wells

After the discovery in 2012, which generated a lot of excitement, Tullow would in the years that followed drill more wells to explore and appraise them for oil. 

A warning sign at the entrance to Twiga 2A well in Lokichar, Turkana County, 2017. [Kevin Tunoi, Standard]

In 2014, it continued to feed the frenzy that started following its announcement of commercial oil finds in 2012, noting that the South Lokichar basin had the potential of over one billion barrels of oil. It is estimated that there are 600 million discovered barrels of recoverable resources. 

It is, however, in 2015 that Tullow started talking about the project’s commercial phase, saying that it had submitted a draft development plan to the government and had started to focus on the Final Investment Decision (FID). 

At FID, the project partners commit capital for the project as well as select contractors for key projects that will enable recovery of oil and exporting it. 

In Lokichar, these would include a central processing facility and the over 800-kilometre pipeline to Lamu that will enable the export of crude oil. 

When the joint venture partners, together with the government reach FID, it is estimated that putting up of different infrastructure would take 36 months after which Kenya could export its first commercially produced oil. 

Tullow would in 2016 say it expected to reach FID in 2018 and start exporting oil in 2021. 

Looking through Tullow’s reports, this has, however, been a moving target and today, while the firm says it expects this to happen later this year, PS Kamau on Friday said FID could come by the end of next year, citing challenges occasioned by Covid-19. 

Even then, Tullow notes that several things have to happen, with finding a strategic partner being key to the process.?

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