Two major oil firms are set to enter Kenya’s exploration scene, adding excitement to the long search for petroleum which has intensified since the beginning of the year.Ministry of Energy officials said French oil giant Total and Brazil’s Petrobras will be among the first beneficiaries of the next round of prospecting licence awards early next year.
“We are creating new blocks for big oil firms with the financial muscle and technical capability to prospect,” said Martin Heya, the Commissioner of Petroleum.
Mr Heya said award of a prospecting licence to Total will follow fresh gazettement of seven new blocks early next year. The move marks a significant shift in the potential that global oil prospectors see in Kenya.
“We are working with the Survey of Kenya to speed up the process of re-allocating blocks that have been relinquished by previous prospectors,” he said.
Kenya has no proven oil reserves , but has become an international hotspot for exploration after the recent discoveries of gas in Tanzania and Mozambique and oil in neighbouring Uganda.
Signs that Kenya had appeared in the radar of major oil firms initially emerged in February when the UK listed firm Tullow closed a farm-out deal with Centric Energy for a 50 per cent stake in the latter’s Block 10BA in north-western Kenya.
Tullow Kenya BV paid a record Sh807.7 million for the deal that pushed to five the number of its exploration blocks in northern Kenya.
Under the revenue-sharing agreement signed as part of the deal, the UK firm also agreed to finance 80 per cent of future expenditure to a limit of Sh2.5 billion ($30 million).
Tullow, which is preparing to start seismic tests and drilling for oil in the first week of January, also closed a farm-out deal with Africa Oil early this year that gave it a 50 per cent operatorship stake in blocks 10BB and 10A.
The general manager of Tullow Oil Kenya, Martin Mbogo, said most drilling equipment had already been delivered to block 10BB in Lockchar, Turkana. Viability of the wells will be known within 70 days, according to estimates by the UK based firm.
“We are testing the equipment. Drilling should start on January 4 or latest within the first quarter of 2012,” said Mr Mbogo. Tullow is also preparing to sink two wells in Blocks 10DD and 10A in the Lake Turkana Basin, raising expectations of a repeat performance of its massive oil find in Uganda three years ago.
The UK firm has discovered more than two billion barrels of oil in the Albertine Basin of Uganda but political bickering in Kampala has nearly stalled preparations for mining.
In yet another multi-million shilling deal, Origin Energy announced in February that it had sold a 50 per cent interest in a Kenyan exploration block to Apache Corporation of the US, effectively making it the operator of the offshore licence.
And in September, Total partnered with US majors Anadarko and Apache to buy out small independents with proprietary rights, further raising hopes for an oil find.
Smaller players such as Cove, Origin Oil, Pancontinental and Lion Energy, who have dominated Kenya’s prospecting scene for years, have been quietly exiting in recognition of the change in the balance of power in favour of big players. Industry consultant Mwendia Nyaga said a reorganisation of the licensing process is necessary to increase the interest of big oil in frontier markets such as Kenya.
“Most blocks with data have been taken up mainly by smaller firms in the prospection business but the new blocks have no data,” he said adding that small firms are needed to provide that information and promote the acreage.
In the latest deal announced last week, Canada’s Africa Oil said it was concluding the acquisition of Lion Energy’s shares at an estimated cost of Sh3.45 billion, subject to approval by shareholders and the governments of Kenya and Somaliland where the two companies have interests.
In Kenya, Lion Energy is a joint venture partner of Africa Oil – a company with interests in key oil exploration blocs in North Western Kenya.
Lion Energy estimates the current value of its cash, accounts receivables, and investments in marketable securities at about Sh2.5 billion.
“Good quality existing seismic data show robust leads and prospects throughout Africa Oil’s project areas,” Keith Hill, the company’s managing director, said in a statement to regulators.
Mr Hill’s optimism confirms the growing belief among top Ministry of Energy officials that big oil firm’s perception of Kenya changed with recent gas and oil discoveries in Mozambique and Tanzania.
The two countries are known to have a similar rock type as Kenya’s.
Evidence of that increasing interest has also come from the recent acquisition by Ophir, an Australian company, of Dominion’s interests in Kenya.
The deal was preceded by another involving US giant Apache’s takeover of Origin Energy’s interest in the country.
Exploration activity
Though Total is not new to Kenya’s oil prospecting scene having acquired 40 per cent of Anadarko’s five blocks in Lamu Basin in September, the planned award of additional blocks to the French firm would be significant in marking the entry for the first time of big oil firm into the local prospection scene.
Ministry of Energy officials said award of new blocs to Total will take place during the new round of licensing expected upon completion of ongoing demarcation.
Total has also recently signed a farm-in deal with Anadarko and Cove for five offshore blocks in the Kenyan coast highlighting the increasing interest of large-cap oil in the region.
The award of 28 out Kenya’s 38 exploration blocks has also created a market for farm-in deals between smaller players and bigger players such as Apache and Anadarko.
Tullow’s work in North Western Kenya begins only a few months after two other oil prospectors, BG Group and UK-listed firm Dominion Petroleum were licensed to prospect in the Lamu Basin.“The kind of exploration activity that is taking place today has never been seen at any other time in the history of oil search in Kenya,” said Mr Heya.
Citi Group, an American bank with a presence in Kenya, said it expects more activity in the exploration sub-sector in coming months.
“We have seen an acceleration in activity with multiple seismic programmes being acquired, more intensive drilling campaigns planned over the next 12 months and continued deal activity,” the bank said in a recent report.
“We see continued interest from the larger players to gain access to the region with a number of smaller players establishing interesting acreage positions,” the report said.
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