Kenya's search for oil

Source: The East African Standard (Nairobi)
13th July 2003

Kenya's search for oil enters a crucial new phase later this month when a Norwegian vessel arrives in Mombasa to begin eagerly awaited exploration activities off the coast of Lamu. It will mark the resumption of the search for oil after 10 years of little or no prospecting.

Local and international experts said this week that prospects of an oil find here are 'very high'. In fact, numerous representatives of leading international oil companies have been flocking Nairobi over the last four months to bid for exploration concessions.

This week, officials from the National Oil Corporation of Kenya (Nock) the government agency that licenses and markets exploration said production sharing agreements had been signed with two major companies for prospecting in the Lamu basin where interest has been highest.

Geological evidence gathered and analysed in Kenya and elsewhere reveals with certainty that the country has untapped oil and gas. It is the commercial value of these natural resources that Nock and the international companies now want to confirm. "We have identified with certainty the source rocks, reservoir rocks and potential traps and seals that must be in place for the formation of oil," says Albert Maende, Nock's Exploration and Production Manager. "We have also recovered natural gas in a number of wells. Is this gas commercially viable? This is what we need to find out."

What has already been confirmed is that Kenya has bitumen that can be mined commercially, particularly in the Mandera region where Nock found massive stocks after drilling a shallow well.

Nock's managing director Mary M'Mukindia said that at the end of this month, a ship named Polar Princess is expected to arrive in Mombasa to serve as the exploration base for a team of geologists from Woodside Energy, an Australian company that has already signed up for Lamu.

Oil search experts described Kenya's previous efforts to find oil as lacklustre. Only 30 exploration wells have ever been drilled, compared to Sudan, which found massive oil stocks after painstakingly sinking 78 wells.

Experts said prospecting died out in Kenya 10 years ago just when it looked certain that a major discovery was about to be made.

In a test well 'Loperot-1' about 100 kilometres south of Lodwar town in Kenya's North Eastern Province, geologists contracted by Shell Oil Corporation extracted nine litres of crude oil sometime in 1992. Shell Oil had spent hundreds of million of pounds drilling nearly three kilometres below the surface of the earth at Loperot over a period of 82 days that ended in January 1993.

It's team of geologists encountered oil one kilometre below the surface. Though the find did not make a barrel, the trouble of finding nine litres of crude oil was worth the effort for Shell, which for three decades had been involved in explorations in Kenya.

Therefore, it was only natural that the company seeks a time extension for drilling other test-wells in the adjoining region in its allotted acreage in Block 10B, which is 80 kilometres west of Lake Turkana.

Shell demanded two more years, but Kenya's Energy Ministry, under the rigid Kanu regime, rejected the plea and offered an extension of only one year, an offer that the Anglo-Dutch petroleum company declined. That marked the end of a great relationship that had seen Shell Oil sink 11 test-wells, mostly in the 1960s and early 1970s, helping Kenya fund its exploration activities and acquire a treasure of geological data that is now proving very useful as Nock tries to attract international oil prospecting companies to Kenya.

Though the results of the small oil find in Kenya were hushed up in the noxious political environment that preceded Kenya's 1992 General Election, people familiar with the matter blame both Shell Oil and the Kanu regime for the stand-off over Loperot-1. They claim that Shell Oil was acting 'funny' at first by playing down the significance of the test results, yet it was asking for an extension. Indeed, Nock had to contract an international laboratory for an independent view, which proved the great significance of Shell's find. The political climate in 1992 not only played a big role in scaring away foreign investors, but also scuttled funding opportunities for Nock's exploration activities. The World Bank had been a major financier of the prospecting activities.

An interesting revelation of Kenya's crude oil and natural gas potential was contained in a 1993 world geological survey conducted by the United States Department of Interior. The survey, which sought to establish the stock of unidentified crude oil and natural gas in the world, found that Kenya's coastal region has the potential for producing around 100 million barrels of crude oil and between 600 billion and six trillion cubic feet of natural gas.

If this reserve were to be identified, these natural resources could significantly alter Kenya's economic fortunes.

It is interesting to note that the survey identified the basins around the Kenyan, Somali and Tanzanian coast to have the same potential for undiscovered crude oil as the Gulf of Guinea, which has now become the global hotspot for oil exploration in West Africa after the discoveries in Equatorial Guinea. The Gulf of Guinea covers Nigeria, Gabon, Cameroon, Equatorial Guinea and the Democratic Republic of Congo. Since the survey, Somali has discovered it has a huge crude oil potential.

On the side of the natural gases, the Lamu Basin and Somali Basin, along the Indian Ocean, have been identified to be among the regions with high potential for discoveries.

The return of international companies to Kenya's oil exploration activities follows aggressive marketing by Nock, coupled with a new vision that emphasises the importance of pushing the search to its logical conclusion.

Since 1992, when Nock decided to go it alone in its exploration activities after donor funding fizzled out and foreign prospectors chickened out, there was only a little finance from the Kenyan Government. The country's sedimentary basins believed to hold crude oil have been subdivided into basins and blocks.

These regions include the Lamu basin which covers Kenya's coastal area and the Indian Ocean, the Mandera and Anza basin covering nearly all of the North East Province and a sizeable portion of Eastern Province, and the Tertiary Rift Basin which covers the Turkana area and some portions of Western Province and lands nearby. These basins have been sub-divided into nine blocks covering 325,060 square kilometres or 56% of Kenya's total geographical mass of 580,367 square kilometres.

The blocks have been extensively analysed for exploration and are now being marketed independently through international road shows.

In the last two months, Nock has signed production sharing agreements with two major oil companies in the Lamu basin. These are Dana Petroleum and Woodside, a consortium from Australia and Afrex and Pan Continent. Dana is one of the leading prospectors who recently struck oil in Mauritania. Two companies are currently competing to get an exploration licence for some of the remaining blocks in the Lamu basin. "We haven't signed anyone yet on-shore," says the Nock managing director, "but we have given away most of the off-shore blocks." Stratic Energy Corporation from Canada, which has helped discover oil is West Africa, is also eyeing one of the blocks as well as a UK company.

"We have come to look at exploration potential in Kenya because there have been developments in Kenya that have raised the potential of this area," says Tom Mackay, manager of new ventures at Stratic.

According to experts, several factors are making the global petroleum industry focus on Kenya. The main reason is the discovery of oil in Sudan and Somali and the potential that Tanzania and Uganda are showing. Then there is the huge wave of interest that has resulted from the discovery of huge reserves of oil along the Gulf of Guinea. And now there is the exploration data that Nock has compiled in the last decade that has added more weight to its marketing push.

This is important because oil exploration is an expensive affair, it costs Sh400 million (over US$5 million) to drill one well. The existence of geological data minimises the risk of drilling a dry well.

Prior to 1993, Nock used to rely on inherit ng exploration data from multinationals. When the period between 1985 and 1993 yielded no commercial oil discoveries, investors showed no interest. The end of the Cold War and the Iraq war in 1991 did not help matters. "In exploration terms it was expected that where major oil companies have invested and have drilled dry or marginal wells without any commercial discovery, other would-be investors would be discouraged and want to re-study the data before further investment. This was the situation in Kenya in 1993," says Maende. He adds: "Nock, having realised the new oil companies' strategy, decided to change the exploration strategy in order to avail more detailed data than the former regional data."

Nock's data has helped foreign companies focus their activities on areas with high potential. This could explain why there is a sudden interest by foreign companies to bid for blocks in the Lamu and Mandera basins, whose geological studies have been completed and show great promise.

For independent players, who are more likely to be interested in a country like Kenya, the well established infrastructure, ready markets and a refinery have made the Lamu basin the greatest attraction.

The signing of the production sharing deal with a company like Dana Petroleum has also helped market Kenya, says Mackay.

"When a major oil company is investing, you start looking," says Mackay. "A company called Heritage from Canada has had some luck in Uganda." He says that evidence points to high exploration potential in the Lamu basin and Kenya's tertiary Rift Valley region - where Loperot is situated.

According to Jon Ford, a consultant with Merlin Energy Resources in the UK who is on a fact-finding mission in Kenya for Stratic, the oil exploration activities on the West African coast, which have attracted oil majors to that region, have made small independent players like Stratic to start asking questions about East Africa.

"This industry works through fashion and trends. There has been little activity in East Africa and what a small company like ours tries to do is to predict where the next craze will be and you start wondering," says Ford. "The trick is to identify a trend and be there early."

Geologists argue that some of the basins in the northern part of Kenya have the same rock formation and geological history as do some of the oil producing regions in Sudan, Central Africa and parts of West Africa. Another statistic that M'Mukindia likes to quote is that Kenya has only sunk 30 test-wells in the last four decades compared to Sudan, which had drilled 78 holes by the time Chevron struck oil. Her dream for Kenya in the next five years is to drill 100 test-wells, with Nock financing part of this activity. At a cost of Sh400 million per well, this would cost Kenya Sh40 billion. Can Nock pull this hat-trick?

For details contact Chris Matchette-Downes