International firms step up search for oil and gas reserves in Kenya

Kenya has inched closer to joining the league of "big oil" African countries as exploration reports indicate existence of oil and natural gas reserves in the Upper eastern region and Coastal strip.
Earlier, Kenya' Energy Minister Kiraitu Murungi expressed optimism that increased oil and gas exploration activities in the country indicate prospects of striking the black gold. According to Mr Murungi, Kenya's search for oil has been stepped up in recent years, with indications that oil could be struck soon. He said China National Offshore Oil Corporation (CNOOC), which will undertake the drilling in Upper Eastern province town of Isiolo, was mobilising the manpower and equipment for sinking the well.

It is estimated that Kenya's Coastal region has the potential of producing around 100 mm barrels of crude oil and 600 bn cf of natural gas. The well to be drilled by the Chinese could produce an estimated 1.7 bn barrels of oil. This, it is said, could turn around the economy of the country, which currently uses an estimated 80,000 bpd.
Kenya's Coastal region has the potential of producing around 100 mm barrels of crude oil and 600 bn cf of natural gas annually.

The well in Isiolo is expected to be 5 km deep and is estimated to cost the company $ 26 mm. This is the second major attempt at finding oil in recent years after an Australian company, Woodside Energy sank a KSh 5 bn into the 3-km deep well off the Lamu coast that bore no fruit.
"This will be the deepest well ever drilled in Kenya. With the discoveries in Sudan, Uganda and Tanzania, we believe it is just a matter of time before Kenya succeeds too. It is only a matter of time," said Mr Murungi.

The minister was addressing a gas and oil management conference in Nairobi earlier. He said that the government has signed Production Sharing Contracts with SOHI Gas Lamu and SOHI Gas Dodori and hopes to strike natural gas following similar discoveries off the coast of Tanzania recently.
"There are a number of companies currently negotiating with the Kenya government for open acreage both onshore and offshore," Mr Murungi said.

Geologists are optimistic that huge deposits could be struck in the area arguing that Kenya failed to strike oil and gas in earlier attempts due to low exploration activities in the past. The country has so far drilled 40 wells in the 400,000 sq km belt of exploration basins instead of 400.
Australia-based Gippsland Offshore Petroleum and its partner Pancontinental Oil & Gas say they have completed a geophysical survey of a 6,300 km of the Lamu basin by air and gathered enough data suggesting the existence of oil and gas reserves.

"For many years, Kenya has been part of the neglected East African exploration frontier. However we have over the last five years intensified the search for oil and gas in all our sedimentary basins," said Mr Murungi.
The oil find in Kenya could herald a regional oil boom, following similar discoveries in Uganda and Tanzania. The discovery in Uganda in 2006 sparked massive interest in Kenya's oil search with 14 companies showing interest to undertake exploration in a span of less than two years. Kenya has so far attracted 11 international exploration companies, National Oil Corporation of Kenya chief executive Mwendia Nyaga said recently.

Mr Murungi expressed optimism that natural gas reserves could be found in Lamu area even though earlier searches by Woodside Energy of Australia were unsuccessful. The Australian exploration giant drilled Pambo well at an estimated Ksh 7 bn in the deep sea, but hit fresh water instead of oil.
Mr Murungi said the government had signed 18 oil production sharing contracts in the last 18 months noting that they were at various stages of exploration.

Discoveries of oil in Uganda and gas in Tanzania and Rwanda has propelled the search in Kenya, where oil and gas exploration companies have blown up billions of shillings in search of reserves. Uganda has struck substantial reserves of oil, while Tanzania has discovered four gas fields so far.
Australian oil exploration company, Hardman Resources discovered oil in Uganda in October 2006 where commercial production is expected to commence in two years with initial estimates of 6,000 to 10,000 bpd.

Uganda has already commenced the development of a small refinery, commonly known as a topping plant, which would have a processing capacity of 4,000 bpd. This translates into 156,000 tons of fuel oil and 32,000 tons of white products (like diesel) a year.
The three fields in western Uganda, where the oil has been discovered, have reserves of between 100 mm and 300 mm barrels, with 30 mm barrels ready for extraction at just more than 12,000 bpd.

However, even as oil search gathers full steam, there are fears that cash strapped National Oil Corporation of Kenya (NOCK) risks locking the country into agreements that could prove costly in the long term. The fears are hinged on the premise that lack of cash renders NOCK unable to carry out independent oil search and has to enter intoagreements with multinationals on how to share revenues from oil finds. This is seen as risky in the event that searches are found to have potential for oil and gas on commercial scale.
NOCK has adopted a development model used by governments in most countries. The agreements, known as production sharing agreements (PSAs) are sealed by production sharing contracts (PSCs).

And are largely political in nature; technically, they keep legal ownership of oil reserves in the hands of the State, but in reality, they give oil companies full control over the operations and management of established oil wells. Any disagreements can only be resolved by international arbitration, guided purely by commercial rather than national interests or laws.
In effect, therefore, Kenya risks handing over any future oil wealth to the complete control of foreign companies. Last year, the Government signed PSCs with international oil companies for 19 out of the country's 38 blocks.

The companies that have signed PSCs for oil exploration so far are Origin Energy, Gippsland, Camec, Lundin Kenya, Vangold, Lion Petroleum and Turkana Drilling Consortium. Others are EAX, SOHI Gas Lamu, SOHI Gas Dodori, Platform Resources and China National Offshore Oil Corporation (CNOOC).
However, Kenya is said to have the longest history of oil and gas search in the region spanning 60 years, but initial indications for Kenya having oil and natural gas potential were made in a 1993 world geological survey conducted by the United States Department of interior.

There are 11 international oil companies carrying out petroleum exploration activities in the country's 19 out of 38 acreage blocks. Some 31 exploration wells have been sunk, some of which have shown oil and gas traces, but no discovery has been made so far of significant deposits.
Recently, Africa has emerged as a leading oil exploration frontier with prospecting companies repositioning themselves as the global economy recovers from financial crisis. In the past the oil and gas exploration in Africa was dominated by European and American firms but the trend is changing with Chinese, Indian and other new entrants competing for a piece of the pie. Petronas of Malaysia, China National Offshore Oil Corporation and China National Petroleum Corporation are among the companies that have increased their operations on the continent. Oil experts estimate that up to $ 300 bn has so far been sunk in oil and gas exploration projects in Africa.