Kenya: Oil And Gas Boom

Honorbale chair, Respectable delegates,

In the race for Oil and gas, Kenya is the top contender, specifically Anza and South Lokichar moving
forward at double the speed of neighboring Uganda which discovered oil i n 2006, six years before
Kenya. The bigger picture, though,is that kenya has the advantage over its neighbors due to a
convergence of add-on factors, including infrastructure aims, relative stability and what appears to
be a smarter use of natural resources to generate more investment and economic growth
The World Banks Board of Executive Directors approved US$50 million for the Government of
Kenya to strengthen its capacity to manage the oil and gas sector. The Government of Kenya
acknowledges that the development of a successful petroleum sector is never about petroleum
alone, but also about managing its impacts for sustainable development. The World Bank supports
the governments efforts to streamline the petroleum sector to increase efficiency of decision-
making related to policy formation, planning, investments, and private sector participation.
Successful implementation of the project will pave the way for economic growth and enhanced
well-being for the people of Kenya, contributing to poverty reduction and shared prosperity.
Transparency and good governance in oil contracts and revenue will be ensured through stronger
collaboration between the national and county governments hosting the new petroleum resources
and also with civil society organizations, private sector and local communities in these areas.
It shall also promote petroleum activities to contribute to fiscal and foreign exchange revenues. It
will also support entrepreneurial activities by improving the investment climate for the private
sector and enhancing the oil and gas legal and institutional framework.
In addition the project will support the drafting of key policy and planning documents The project
supports effective government management of the oil and gas industry through capacity building,
technical assistance, training programs, and the development of a legal and institutional
framework, including the development of a petroleum industry, improved transport infrastructure,
expanded power supply, job creation, and positive economic benefits from strategic investment of
the revenues generated.
Asides its oil reserves potential, Kenya is likely to play a pivotal role in the emerging upstream oil
industry in East Africa. Kenyas Mombasa port, which is the major trade port in the East Africa
region, would make it relatively easy to bring in equipment and to ship crude once development
begins. Mombasa is the focal trade port for trade routes into most east african countries which are
likely to rely considerably on ease of getting men, materials and equipment through Kenyas
borders.
Thank you,

Kenya is expected to join the league of oil producing countries in Sub Saharan Africa by 2017, going by
the efforts of UK-listed Tullow Oil and partner, Australias Africa Oil Corporation to submit a field
development plan (FDP) by 2015. Although the first oil discovery in Kenya was only made 2 years ago
by the two oil companies in the North-west of Kenya; a region called Turkana County, the oil explorers
believe production can be started within the next three years.
Preliminary studies show that the crude oil is light sweet and waxy (25 35o API) with some of the
wells drilled flowing between 3,000 5,000 barrels per day. The crude oil is to be exported through
an export pipeline linking their fields in the North-Wastern part of the country to the proposed Lamu
port on Kenyas coast. Tullow Oil plans to spud at least 12 more wells as it looks to assess the size of
Kenyas oil reserves before deciding on potentially selling some of its Kenyan stake to bring in a new
partner.
A recent oil discovery offshore Kenya is also likely to encourage oil explorers looking to explore
Kenyas offshore oil potential. The Sunbird-1 discovery by UKs BG Group and Australia Independent
Pancontinental Oil & Gas is the first oil column to be discovered offshore East Africa. Further
discoveries would considerably de-risk the shallow water oil play offshore Kenya, boosting offshore
exploration interests from other oil companies. This could potentially force other explorers such as
Tullow Oil and Anadarko Petroleum Corporation, who, despite their considerable offshore expertise in
West Africa, are focused almost entirely onshore in East Africa, to have a strategic re-think about
offshore East Africa.
However, more discoveries are required to justify the expenditure that will be incurred to open up the
offshore area.
Kenyas regional aspirations are a major attraction
Asides its oil reserves potential, Kenya is likely to play a pivotal role in the emerging upstream oil
industry in East Africa. Kenyas Mombasa port, which is the major trade port in the East Africa region,
would make it relatively easy to bring in equipment and to ship crude once development begins.
Mombasa is the focal trade port for trade routes into Uganda, Rwanda, Burundi, the Democratic
Republic of Congo (DRC) and South Sudan. Oil field development in Uganda, Ethiopia and even South
Sudan are also likely to rely considerably on ease of getting men, materials and equipment through
Kenyas borders.
The $25 billion Lamu Port South Sudan and Ethiopia (LAPSSET) pipeline, which is expected to provide
South Sudan with an alternative export route besides Sudan, is also based on the completion of the
Lamu port on Kenyas coast. Kenyas trade relation with East Africas countries is significantly
strengthened by its ownership of almost 60 percent of regional storage capacity. Kenyas 1.7 million
cubic metres of crude oil and petroleum product storage enables supply to the remaining East Africa
countries, through a series of pipeline and road networks. The government intends to add another
740,000 cubic metres of storage at the Mombasa ports as it looks to become the major trading hub for
the upstream oil industry.
From the oilfield servicing side of things, Kenya is also likely to drive the development of skilled
workforce in the oil and gas industry. Although other countries such as Uganda and Tanzania are also
looking to develop the requisite manpower, they are likely to adopt the approach of supporting their
citizens looking to study at foreign universities.
Kenya has adopted more home-grown strategies such as enforcing the training of locals by oil
companies operating in the country and establishing energy-sector courses at its domestic
universities. The Petroleum Institute of East Africa (in Kenya) has also been certified by the global
energy industry association, Energy Institute, as an approved training provider.
Kenya is also looking to establish the regions first seismic data processing centre. Kenyas National Oil
Corporation (NOCK) is looking to complete the centre by July 2015. The centre would reduce the time
taken to access and process seismic data on the region and could support regional exploration efforts.

Funding issues to pre-empt equity offerings and government take-over
However, all these plans by both the government of Kenya and the oil explorers looking at the
countrys oil potential require large amounts of capital. The average cost of a well onshore Kenya is
$25 million. Thus, the 15 or more wells planned for the next 18 months are likely to require between
$375 and $400 million.
Between 2014 and 2017, explorers are likely to spend about $750 million on drilling wells. Offshore
wells cost a lot higher as semisubmersible rigs attract as high as $600,000 per day offshore East
Africa. Oil companies are also likely to an estimated $185 million on seismic data gathering and
processing within the same period. The Lamu port portion of the LAPSSET project, which is the first
phase of the project, is expected to cost about $5.5 billion.
The second phase is the pipeline linking Kenyas oil fields in the Northern part of the country to the
Lamu port, which is likely to cost about $4 billion according to Tullows estimates. Due to the waxy
nature of the crude oil discovered in both Kenya and Uganda, the pipeline is likely to either be a
heated crude oil line or have built-in flow improvers. Tullow and partners are also likely to attract
some additional expenses to deploy the proper gathering infrastructure to connect multiple wells in
the two blocks, 10BB and 13T.
Although Tullow Oil has revenue from crude oil production in other regions and could support its field
development program with its robust borrowing base of $3.5 billion following a 7-year loan
syndication concluded in 2013, the firms capacity to take on additional debt is likely to reduce going
forward. Net debt as at 31 December 2013 had risen 113 percent to $1.8 billion, resulting in a net
gearing ratio of 33 percent. Based on additional borrowings likely to be taken to fund the $4.9 billion
development plan for the TEN fields in Ghana, among other development programs in Gabon,
Equatorial Guinea and the Republic of Congo, Tullows gearing ratio could potentially be in excess of
60 percent by 2016. Thus, the independent could have little room for additional borrowing to fund
exploration and development programs in Uganda and Kenya.
Tullows financing situation is considerably better than several other smaller firms looking to also
explore Kenyas oil potential.
Six of the last 10 biggest finds have been in Africa, where there are some 130 billion barrels of
crude oil waiting
Not even the specter of a spillover of Islamic extremism from Somalia can dampen the atmosphere in
Kenya, where commercial oil production is expected to begin in 2016 and discovery after discovery
has made this the hottest and fastest-paced hydrocarbon scene on the continent.

When it comes to new oil and gas frontiers, today its all about Africa. And more specifically, its all
about the eastern coast, with Kenya the clear darling not just because its outpacing neighboring
Uganda by leaps and bounds, but also because despite some political instability hiccups and the threat
of militant al-Shabaab, its still one of the safest venues in the region.
Six of the last 10 biggest finds have been in Africa, where all told there are some 130 billion
barrels of crude oil waiting to be tapped by more than 500 companies, according to a recent report by
PriceWaterhouseCoopers.
Topping this list are Kenyas Anza and South Lokichar basins where the discovery and development
news has been fast-paced.
In the last days of August, Tullow Oilthe British explorer behind Kenyas oil discovery debut in
2012announced another oil find that will extend the already proven South Lokichar basin
significantly northwards.
Earlier this year, in May, Tullow and partner Africa Oil Corporation left a hefty impression on the
market with the announcement of the countrys first commercial oil discovery, worth $10 billion, in
this basin.
And the next testing ground will be the neighboring Kerio Basin, which should get off the ground later
this month, while there has been a flurry of attention lately surrounding the Ogaden basin where
initial estimates are enough to send stocks soaring.
In the meantime, while bigger players such as Tullow and Africa Oil have benefited from the fame of
their initial discoveries, they have also become burdened by the pressure of rising expectations for
more discoveries. Not so the smaller players on this scene, who stand to benefit from the original
discoveries and continued drillingwithout the pressure. Investors will now be looking at who is
poised to make the next discovery.
Africa Oil and Marathon are currently drilling an appraisal well on the Sala gas discovery in the Anza
Graben Basin onshore Kenya, which will benefit other explorers with acreage just south of this,
including UK-listed Afren Plc, UK-listed Tower Resources and Taipan Resources Inc (TPN-TSK), which
has two onshore blocks in key basins. If these explorers come up with their own first find, it will be a
superior risk-reward scenario.
In the Ogaden Basin, the market will certainly take notice of Afrens new estimates late last month that
a large under-explored sub-basin, El Wak, contains up to 6.65 billion barrels of oil. If this estimate is
accurateand it comes in well above partner Taipan Resources earlier estimates of about a quarter
of thatthey would be looking at the largest onshore target ever drilled anywhere in Africa. Later this
year, Afren will be conducting seismic surveys to further define El Waks potential, and investors will
be watching closely.
The bigger picture, though, is of an East African country that has the advantage over its neighbors due
to a convergence of add-on factors, including infrastructure aims, relative stability and what appears
to be a smarter use of natural resources to generate more investment and economic growth, according
to Jennifer Cooke of the Center for Strategic and International Studies.
Among other planned infrastructure projects of a massive scale, discussions are under way for
a pipeline from neighboring Uganda, which would pass through the South Lokichar basin and come
close enough to some of the prime drilling areas that could be the site of Kenyas next discoveries.
The World Banks approval in July of $50 million for the Kenyan government to boost its management
and distribution of natural resource revenues, with an eye on long-term sustainable growth, has
further boosted confidence in long-term sustainable growth.
In the meantime, political stability has also been given a slight reprieve with the International
Criminal Courts (ICC) indefinite adjournment of the trial against Kenyan President Uhuru Kenyatta
due to lack of evidence that he organized post-election ethnic violence in 2007.
But the security situation with the regrouping of the Somalia-based al-Shabaab militant group and an
uptick of the groups apparent attacks on Kenya continue to be problematic, even more so because no
one seems to be sure whether the threat is emanating entirely from al-Shabaab.
While this remains a clear threat, it has not affected exploration and developmentand it certainly
has done little to scare foreign investors from this hydrocarbon frenzy that is expected to continue
over the next five years, further boosted by relatively cheap exploration licenses.
In this race, Kenya is the top contender, moving forward at double the speed of neighboring Uganda
which discovered oil in 2006, six years before Kenya, but will lag a year behind the newcomer in
terms of commercial production.