14 years on, Kenya's oil dream still a mirage amid mounting Tullow woes

A sample of the crude oil discovered at South Lokcihar in Turkana County in 2012. [Courtesy]

On March 26, 2012, the then Energy and Petroleum Minister Kiraitu Murungi made a grand announcement: Kenya had struck oil! 

Waving a small bottle of the oil he said had been discovered in South Lokcihar in Turkana County, Mr Kairaitu smiled at the cameras, sending the country into a frenzy.

The big find, as it came to be known, would dominate discussions on mainstream media, social media and even small talk among individuals in the weeks and months that followed. 

Mr Kiraitu, bullish at the time, said the Kenyan discovery was much larger than Uganda’s, which had discovered oil six years earlier in 2006.

The two had come to announce the discovery of the black gold - potentially bringing to an end years of waiting for Kenya’s transport and economic savour.

“The Ministry of Energy is pleased to announce that initial results from the Ngamia-1 exploration well located in Turkana County in Block 10BB have confirmed the presence of light waxy crude oil,” said the Minister, who had been accompanied by his Principal Secretary Patrick Nyoike.

“This discovery is a promising first step for Kenya and is the start of a multi-well exploratory drilling campaign which will be undertaken over the next three years,” he said.

And to show how much of a big deal this was, the late President Mwai Kibaki would later that day relay the same messages to Kenyans in a televised address.

“I wish to make an important announcement to the nation,” President Kibaki opened his address.

“This morning, I have been informed by the Minister for Energy that our country has made a major breakthrough in our oil exploration.”

For Kenyans keen on dates, next week Tuesday will mark exactly 14 years since the major announcement. The country is, however, yet to export its first barrel of commercially produced oil. 

And the events of the recent weeks do not inspire confidence that this will happen any time soon. 

Last week, Kenya’s oil project suffered new setbacks, adding to the numerous hurdles that the project faces that appear to mount by the day and keep pushing further into the horizon of the country’s dream of becoming an oil producer. 

Tullow Oil, the UK oil explorer and producer, was sued for environmental degradation in South Lokichar, Turkana County. The community wants the firm to pay Sh270 billion for what they term “violence of development.” 

When it published its annual results, Tullow also disclosed to shareholders that the Energy and Petroleum Regulatory Authority had postponed its decision on its Field Development Plan (FDP), which is supposed to guide the development of the oil fields of Lokichar in Turkana County.

Approval of the FDP would see Tullow granted an oil production licence, setting the stage for the start of the commercial phase of the project. 

Tullow Oil said the Energy and Petroleum Regulatory Authority (Epra) had extended the review period for the project’s FDP.

The plan, which charts the way forward for the project, was submitted to Epra in December 2021. An updated FDP was submitted in March last year. 

“On March 1, 2024, Tullow received a letter from the Epra extending the review period of the updated Field Development Plan to June 30, 2024,” said Tullow on the plan that had been expected to get approvals by September.

After Epra is done with the FDP, it will then go to the Ministry and later Parliament for further review. 

Former Energy and Petroleum Minister Kiraitu Murungi. [David Njaaga, Standard]

“Once their evaluation is concluded, the FDP will be submitted to the Cabinet Secretary for Energy and Petroleum for review before submission to Parliament for final approval,” said Tullow. 

“(Epra) has engaged third-party consultants to review the revised FDP, and the current review period ends on June 30, 2024. The Group expects a production licence to be granted once government due process has been completed.”

Another major issue that has been nagging Tullow is that it is also yet to secure a strategic partner to inject capital into the project, which would mean that even with the government’s approval, the development of the oil fields would still face delays. 

Without a deep-pocketed strategic investor and also in the absence of its joint venture partners, the project might be facing indefinite delay.

Total Energies and Africa Oil quit last year, saying they were pursuing other interests. The two firms held a 25 per cent stake each, with their exit leaving Tullow as the only player in the project with a 100 per cent interest. 

Tullow has also been shopping for a strategic investor, an exercise that has been unsuccessful for more than two years. 

“Kenya remains a material option to drive value and growth for Tullow,” said Tullow. 

The firm noted that the “withdrawal is ultimately subject to the Kenyan government’s consent, at which stage the transaction will be considered completed”.

Tullow said the exit of the two firms now gives it more flexibility in operating the blocks as well as engaging other firms that may be interested in coming on board as strategic investors. 

“The increased interest provides us with greater strategic flexibility,” said Tullow, whose interest increased to 100 per cent from 50 per cent following the exit of its joint venture partners, adding that it is in “discussions with prospective strategic partners for this project.”

In the FDP, Tullow details how it will go about developing the oil fields and producing the resource that it estimates to be in the region of 470 million barrels of oil. 

The firm has said the development would entail a production facility at Lokichar with a capacity of 120,000 barrels of oil per day and an 892-kilometre pipeline to transport the crude oil to Lamu Port for export. 

The approval process for FDP, which has already run longer than expected, could result in further delays for Project Oil Kenya. 

Following its exit from the Joint Venture, Africa Oil last week said there has been a delay by the government to approve the exit. 

Tullow is expected to reach financial close within a year of the FDP being approved and start developing the fields in Lokichar.

This is expected to take three years after which the country is expected to export its first barrels of commercially produced oil.

The date for the first oil has always been a moving target, and this was recently moved to 2027, which considering the delays, now appears ambitious.

Tullow earlier estimated the cost of production from the wells at $22 (Sh3,146 at the current exchange rate) a barrel, a fairly low production cost considering the current crude oil prices at about $80 (Sh11,440) a barrel.

In Turkana County, Tullow faces what appears to be an even bigger challenge. The locals have sued the firm for environmental degradation and are demanding $2 billion (Sh270 billion) from the firm. 

The 46 residents, who include 13 minors, sued the government, Tullow Kenya and the National Environment Management Authority (Nema), claiming that the exploration has left their land and environment in ruins.

They are seeking $2 billion in compensation, making the case the most expensive battle against the government.

The Turkana residents have filed the case alongside a human rights lobby, Kituo cha Sheria.

Their lawyers John Mwariri and Anthony Mulekyo told the court that the government and Tullow knew that clearing vegetation, soil excavation and drilling would harm the environment.

They lamented that Tullow dug holes and burrows that to date have never been filled up.

“The first respondent acted negligently and in violation of its duty of care when it abandoned the quarries, well pads and burrow pits without rehabilitation thereby posing danger to the children who may and or have drowned in the flooded quarries or gullies,” reads documents lodged in court. The case was filed on March 6. 

The residents, led by Elhanah Elimlim, claimed that the synthetic material used in drilling finds its way to the underground water.

They further claim Nema and Tullow got into a secret deal to change the drilling method without the involvement of the community.

While the politicos whipped up emotions while failing to manage the expectations, Tullow had from the onset cautioned the journey to being an oil producer would not exactly be an easy path.