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Kenya could announce oil find by the end of this year

Could Kenya finally be about to strike oil? As firms pump in millions of dollars into the exploration business, the buzz on both the Kampala and Nairobi grapevines is that Kenya could announce an oil find by the end of 2011.

While this is not the first time there has been speculation to this effect, oil exploration in the country has intensified over the past two weeks.

Two weeks ago, French oil multinational Total said it had acquired five offshore oil exploration blocks in the Lamu basin, joining a list of other giant firms that are eyeing openings in Kenya’s oil exploration.

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Total’s strategy is to strengthen its oil exploration and production presence in East Africa. It has started exploration and development of reserves in Uganda’s Lake Albert region and is active in Tanzania.

“Recent discoveries around offshore Mozambique and Tanzania offer a very promising outlook for these Kenyan permits,” said Total’s senior vice president for exploration Marc Blaizot. UK based Tullow Oil, which has subsidiaries in Uganda and Ghana, is expected to begin exploration in Turkana before the end of this month. The London Stock Exchange quoted the BG Group last week as saying it will spend $25 million on a seismic survey to map potential depots of crude oil in blocks L10A and L10B offshore Kenya, beginning November or December 2011.

“The surveys are aimed at collecting data to identify the presence of structures that could contain exploitable reserves of hydrocarbons,” said the company in its environmental and social impact assessment (ESIA) study report.

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Although Kenya is yet to give a formal indication of where its exploration programme, which now involves half a dozen companies, is headed, in recent weeks, well-placed sources in Uganda’s oil industry have suggested that the country is on the verge on making an announcement that could cement East Africa’s position as major oil region on the continent.

Kenyan Ministry of Energy officials too, are optimistic.

“This time, there is great hope that we shall discover oil. Tullow has started moving drilling rigs to Turkana County and the actual drilling will start soon. There is great excitement at the company,” Energy Permanent Secretary Patrick Nyoike said at the beginning of the month.

Speaking during an event in Kampala earlier this month, a senior official from Tullow Uganda suggested that Kenya would make a major announcement before year-end.

“I don’t want to pre-empt official communications, but I believe Kenya will announce the finding of oil before the end of this year,” he said.

Optimism surrounding the Kenyan programme is informed by recent oil discoveries in Uganda that, combined with the fact that the rocks that form the East African Rift System are about the same age, suggests a high potential for oil in Kenya. Gas discoveries in Tanzania and significant proven oil reserves along the border between Uganda and DR Congo have also encouraged interest in the once largely overlooked region.

Kenya’s search for commercial oil is intensifying as Tullow Oil Plc is preparing to drill Ngamia-1 well block 10BB near Lodwar using a Weatherford 804 rig that will move to block 10A to sink another well. A proven working petroleum system exists in block 10BB.

A host of other companies have been jostling for a piece of the exploration pie in the copuntry’s potentially lucrative oil fields. In May, BG Group Plc and Dominion Petroleum Ltd led two separate groups in an oil exploration bid in Lamu.

In August, Canadian oil and gas explorer Africa Oil Corp awarded Weatherford International Ltd a contract for a drilling rig for an exploration well it plans to sink in northern Kenya, with its partners, later in the year. Weatherford is the world’s fourth-largest oilfield services company and it is expected to drill the rig at the Ngamia exploration well within Kenya’s Block 10BB.

Africa Oil is also expected to sink its first test well in the final quarter of the year as part of an elaborate exploration programme in East Africa that is reportedly expected to cost $43 million.

Before its exit mid this year, China National Offshore Oil Corporation (CNOOC) had worked with Africa Oil and Lion Energy Corp to drill an exploratory well in block 9 in northern Kenya. It also had a license for block L2, an inland area in the Lamu basin.

George Wachira, a director at Petroleum Focus Consultants, said the joint venture partners will drill more wells in block 10BB to quantify commercial viability of the oil and gas before coming up with a development plan.

“The lead time for oil production is five to seven years due to the need to put in place drilling machinery and pipelines with other requisite infrastructure. It is a capital intensive exercise,” he said.

Reacting to the current speculation about prospects for an early oil find, senior geologists at Uganda’s Energy Ministry who were at the forefront of the country’s search for oil two decades ago, said they had no reason to doubt that there was oil in Kenya, with the area around Lake Turkana and the coastal belt being singled out as the most promising prospects.

“The faults in the Albertine Rift are similar to the faults in Lake Turkana. It follows that if you found oil in the Albertine Rift, there is no reason not to find oil in Lake Turkana,” observed one official.

Rift System

Equally, the discovery of gas reserves in Songo Songo off the coast of Tanzania is a pointer to the presence of hydrocarbons off Kenya’s coastal belt.

“All these faults are part of the African Rift System which begins somewhere near Mozambique and extends north to the Red Sea, so it is only a matter of time before oil is discovered in many places along the Rift System,” the official added.

After a few false starts, Uganda has enjoyed an unusually high success rate in oil exploration, with 96 per cent of the 44 wild-cat wells drilled hitting hydrocarbons.  Some 800 million barrels of oil are confirmed while estimates have put total reserves in excess of two billion barrels.

The Ugandan programme, in which oil explorer Tullow has recently farmed out its interests to China’s CNOOC and French giant Total, has now moved into the Extended Well Testing phase to establish the dynamics of the wells to help design an optimal production programme.

However, production timelines have slipped from late 2009 when an early production programme was supposed to have commenced, into the indefinite future.

While the run of dry wells that Kenya has suffered so far might have been disappointing, the view of Ugandan geologists who regularly compare notes with their Kenyan counterparts is that those wells may well hold the secrets that will eventually lead to oil.

“If you drill a dry well, it is important to understand why it is dry.

Studying that data in detail will give you clues about where you are most likely to find oil next,” said the Ugandan official.

Oil & Energy Services Ltd expects more exploratory wells to be drilled from the fourth quarter of 2011 as prospecting firms fulfil commitments to seismic survey and other work programmes of their contracts in Kenya.

“The average cost of drilling a well onshore is $30 million and offshore $50 million to $100 million. Discovery of commercial oil in Uganda has led to increased optimism in Kenya,” said lead consultant Mwendia Nyaga.

According to analysts, the oil finds in Uganda and Ghana, combined with the current surge in international prices for crude, have done a lot to reshape the perception of oil prospects in new geological fields such as East Africa’s, attracting capital into the region.

Just 25 years ago, leading authorities in oil exploration were dismissing Uganda and Ghana as not worth attention on the grounds that at 25 million years, East Africa’s basins were too young to yield oil.

On the other hand, with the exception of Nigeria, which had been producing oil since the 1950s, the West African coast was considered too cold to yield oil, something that has been proven wrong with the world class find in Ghana.




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