Partners in Kenya's first oil project eye pipeline deal by mid-2018

Companies developing Kenya’s first oilfields expect to conclude agreement on construction of an export pipeline by the middle of this year, according to Toronto-listed Africa Oil, one of the partners.

Oil could account for about a tenth of Kenya’s government revenue, on par with its biggest current export, tea, once production reaches its peak, officials say. Production is expected to start around 2021-2022.

London-listed Tullow Oil, which struck oil in Kenya six years ago, and its partners proposed in January to transport oil from the land-locked Amosing and Ngamia fields via pipeline to the Indian Ocean port of Lamu 750km away.

“We’ve got two pipeline companies bidding ... Sometime before mid-year we expect to come to an agreement,” Africa Oil Chief Executive Keith Hill told an industry conference.

“We are discussing with a couple pipeline companies about coming in as a strategic partner on the pipeline,” he later told Reuters without naming the companies.

Tullow said in its 2017 annual report that the initial development stage will target about 210 million barrels of oil out of total 560 million of proven and probable reserves, with daily plateau production of 60,000-80,000 barrels per day (bpd).

Production could potentially increase to 100,000 bpd or more, Tullow added.

Tullow estimates gross capital expenditure for the first stage to be $2.9 billion, including $1.1 billion for the pipeline.

Hill said the partners were aiming to approve project’s final investment decision (FID) in the second half of 2019.

Tullow has said it would seek to reduce its stake from 50 percent once the FID decision is reached.

Africa Oil, which has previously sold part of its stake to Maersk Oil, was not looking to divest more, Hill said.

“We are getting more comfortable and staying to be a producer in Kenya ... We are not looking to sell,” he told the conference.

French oil major Total won Kenya’s approval in January to acquire stakes in the Tullow-operated blocks from A.P. Moeller-Maersk after committing to the pipeline’s project.

Last year Kenya lost a bid for a pipeline to carry crude oil from neighbouring Uganda, which could also have been used to transport oil from Kenya’s fields.