Turkana oil to earn Kenya Sh6.4 trillion in 23 years

Kenya will make about Sh6.4 trillion from the Turkana oil find alone if commercial production starts by 2020.

An Oxfam report has also suggested that the oil will be completely depleted by 2043. This means production can be carried out for a maximum of 23 years.

Researchers for the report by the global development charity say the country will make on average about Sh280 billion every year.

“This amount, however, does not put Kenya in the league of Saudi Arabia,” Charles Wanguhu, one of the authors of the report titled Protecting Future Oil Revenues: Priorities in Advance of Production.

This will translate to about Sh6.4 trillion over the period, which is one and a half times the country’s GDP.

This is one of the first reports that has projected the value of the Turkana oil in an attempt to manage public expectations. The earnings are expected to be shared between the national and county governments, and the host community.

Turkana is estimated to have more than 600 million barrels of oil, but this is still a drop in the ocean compared to the big oil producers in the Middle East.

MAJOR EXPORTERS

According to the report, the break-even point for Kenya’s oil will be about Sh4,500 ($45) per barrel. This is almost twice what Tullow Oil said would be the break-even point.

Tullow told its shareholders that Kenyan oil can be commercially extracted at a break-even cost of about $25 (Sh2,543) per barrel, lower than the current global price of $30 (Sh3,040).

This would put Kenya among the 10 cheapest oil-producing countries, ahead of major exporters like Nigeria and Angola.

However, these projected production costs are almost three times Kuwait’s $8.50 (Sh864) and Saudi Arabia’s $9.90 (Sh1,007) — the two least-cost oil producers in the world, according to the findings of a Norwegian oil and gas consulting firm, Rystad Energy.

The true price of Turkana production will be known once Tullow completes a field development plan that will show if local production is viable, the amount of financing required and will pave the way for an investment decision to be made.

Should Kenyan resources prove to be commercially viable, Tullow said it would take at least three-and-a-half years after extraction is given the go-ahead for the country to extract its first barrel of oil.

The Oxfam report also raised concerns after it found that more than a third of the companies that own petroleum rights in Kenya hold them through a tax haven subsidiary.

It found that 27 parent companies own petroleum rights in Kenya either as operators or joint venture partners.

According to the report, the practice is that a local subsidiary buys services or licences from an affiliate in a low-tax jurisdiction. The price is inflated, reducing the local subsidiary’s profits.

Kenya has 46 petroleum blocks. Out of these, 41 have active production-sharing contracts. The remaining five are still vacated.

The report recommends that to protect the country, Kenya needs to increase transparency in the petroleum sector by ensuring there is full disclosure of all existing production-sharing contracts.

Oxfam added that the Government should also prepare economic analyses on revenue implications, as well as ensure no new contracts are signed before the Petroleum Bill is passed.

Transparent processes should also set up before allocation, and cost recovery audits conducted to will allow for an audit of exploration expenses to protect future revenues.