Oil sector is also hot on heels with significant findings.
Kenya oil sector gets boost on US-based firm drilling pledge
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Kenya’s oil and gas exploration has received a boost after Houston-based Anadarko Petroleum said that it will go ahead with its local drilling programme despite cutting its budget for other markets.
Anadarko said it had to cut its exploration budget by a third due to the falling oil prices which is at a five-year low. The reduction in the exploration budget will mostly affect its US-based blocks but work on its Lamu-based blocks will continue this year.
“In 2015, Anadarko expects to drill nine to 12 deep water exploration/ appraisal wells focusing on play-opening exploration opportunities in Colombia, Kenya and the Gulf of Mexico,” said the company in a statement.
Anadarko did not give a breakdown of how many wells it plans to drill on its five Lamu Basin blocks or how much it has budgeted for the local work but offshore drilling is significantly more expensive than onshore drilling.
Large deposits
Offshore drilling can cost as much as $150 million (Sh13.56 billion) while an onshore equivalent can requires between $20 million (Sh1.82 billion) and $25 million (Sh2.28 billion).
Analysts say that oil explorers are continuing their searches despite the falling prices on confidence that they will find large deposits.
“BG Group of the UK is planning to drill two offshore wells in its blocks located in Mombasa at a cost of $160 million (Sh14.4 billion). There is consensus among exploration firms that the region still promises strong finds that justify continued investment,” said the 2014 fourth quarter Natural Resources report by Burbidge Capital.
Tullow Oil, Taipan Resources, Simba and ERHC Energy are other explorers that have drilling programmes for 2015.
Continued exploration is also expected to benefit local companies that offer supporting services such as logistics, security and construction.
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Tullow enters new phase with mega Turkana camp plan
Business Daily
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London Stock Exchange-listed oil and gas company Tullow
is scaling up its exploration operations in northern Kenya with the planned construction of a mammoth logistics centre that signals the transition to the critical wells appraisal stage.
Tullow is building the new camp on a 426-acre parcel of land leased from Turkana residents in Kapese. The facility is located seven kilometers from Lokichar - one of the areas it has struck oil.
“Tullow has recorded success in the exploration phase of its programme in Kenya and is entering the extended exploration and appraisal phase,” the explorer says in the latest regulatory filings.
The oil firm said the project is informed by the challenges its operations in Block 10BB and 13T are facing with the provision of adequate camp facilities, material storage yards and work areas for contractors.
The plan is to have the new base replace Tullow’s four sites, currently located in the Lokichar and Turkana basins.
“Tullow operates from several locations in the Lokichar and Turkana basins, which are Twiga, Ngamia, Ekales and Engomo camps,” said Mercy Kabangi, Tullow Kenya’s senior communications advisor, adding that the Kapese camp is a short to medium term facility that will support the firm’s operations for the next three to six years.
It will, among other things, be capable of holding approximately 1,200 workers and larger aircraft.
The firm has set aside Sh9.1 billion for its exploration and appraisal activities in Kenya this year. It has, however, not disclosed what portion will go into building the new integrated support base (ISB).
Tullow’s massive investment in the base is significant because Block 10BB holds the Amosing and Ngamia wells, the two locations where the company has made oil finds in varying amounts since its first announcement in 2012.
Extended well tests on Ngamia basin are set to begin mid next year while tests on the Amosing well are set to begin next month, a crucial stage in determining the amount of commercially viable oil in the Turkana basin.
The 13T oil block holds Ekales and Twiga wells on which Tullow is currently conducting early development activity, with drilling results from the Ekales-2 well expected next month.
An operations update by Tullow last week showed that the Ngamia-7 well found 132 metres of oil net of costs of extraction (also called net oil pay) while the Ekales-2 appraisal well found net oil pay of between 50 and 70 metres.
“This result, and the promising initial flows from the Amosing oil field extended well test, give us further confidence in the size and scale of our two cornerstone fields for the development of the South Lokichar Basin,” said Tullow exploration director Angus McCoss in the statement.
Mid last year, Tullow pledged to meet the government’s target of commercialising oil by 2017, even as it described the resource discovered as being of high quality and highly marketable internationally.
Tullow, which is Britain’s fourth-largest oil and gas firm, and its partner Africa Oil have struck commercially viable oil deposits totalling 600 million barrels in Turkana’s Lokichar basin.
The 2017 target, and the growing number of successful resource finds in the two highly promising blocks in northern Kenya, has necessitated the latest investment in a new camp.
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The total area of land leased is approximately 426.3 acres and Tullow proposes to develop about 380 acres, which is currently fenced with an electric wire fence,” Tullow says in the regulatory filings
“The land is currently used as an airstrip for arriving and departing passengers mainly going to work at various Tullow operating locations in South Lokichar.”
Phase one of the new base will include a community liaison office, a 400 man camp, a contractors’ work area, a fuel and maintenance facility, security and information systems offices and a logistics centre.
The second phase of the multi-million shilling project will include construction of a central power plant, fuel distribution and water treatments systems, an 800- man camp, an air terminal and medical centre.
Tullow personnel currently reside in several rig and support camps that are not centralised, an aspect the oil firm views is not cost-efficient for the next stage of its activities.
“The current facilities are not designed and do not have the capacity to support an extended exploration and appraisal programme and to allow Tullow and its service contractors operate in the remote South Lokichar region,” the UK-based oil explorer notes.
The investment by Tullow in Kenya comes at a time when the company is cutting back on expenditures as part of measures taken in the wake of falling international prices of crude.
Tullow Oil in January announced that it would slash its global exploration budget by Sh9.1 billion ($100 million), but added that it will continue focusing on its East African business.
The budget cut reduced its projected exploration expenditure for this year to Sh18.2 billion ($200 million) from the Sh27.3 billion ($300 million) it announced in November.
Africa Oil encounters 28-metre oil in Turkana well
Business Daily
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Africa Oil has encountered hydrocarbons at Amosing-5A with depth of between 15 to 28 metres, which it sees as proving a northern extension to the Amosing field within the wider Lokichar basin, Turkana.
Africa Oil strikes more crude in Lokichar Basin
The well is located in Block 10BB exploratory where Tullow Oil owns 50 per cent and shipping giant Maersk has recently taken a 25 per cent stake.
In a statement from Canada, the company said the well had been drilled in the July-September to test the surrounding rock.
“The well encountered an estimated 15 to 28 metres of net oil pay in a down-flank position and successfully proved a northern extension to the Amosing field,” said the company.
The firm also reported the Twiga-3 exploratory appraisal well in Block 13T encountered sands within the Lokone Shale, interpreted as good quality oil-bearing reservoir over a gross interval of 120 metres.
“This result will be assessed in future exploration and appraisal activities, stepping out into the South Lokichar basin to further define this encouraging additional oil potential,” said an update.
Reservoir extension
It further said following completion of appraisal activities at Marriot 46 — which is in the North Lokichar basin — it is now drilling the Emesek-1 basin opening well, which will test the undrilled basin.
It added that the rig in use at Atom-2 will later move to drill the Cheptuket-1 exploration well in Block 12A to test an area in the undrilled Kerio Valley Basin, which it said is in a similar structural setting to the successful Ngamia and Amosing discoveries made earlier.
“The production phase of the Extended Well Testing (EWT) programme has been completed at the Amosing field and is ongoing at the Ngamia field,” it said.
Africa Oil said the results prove reservoir extension over distances suitable for field development.
“The production phase of the Ngamia field EWT commenced in September. Results to date indicate well productivity in line with expectations and proven communication in one zone to date,” said Africa Oil.
READ: Africa Oil strikes 200m of oil raising Lokichar Basin hopes
Production objectives
Africa Oil said there were ongoing discussions with the Kenyan Government on the draft field development plan for the discoveries in the South Lokichar Basin.
A field development plan establishes the number of wells to be drilled to reach production objectives, the recovery techniques to be used to extract the fluids within the reservoir and the treatment systems needed to preserve the environment.
Oil exploration firm Tullow has reported another oil find in northern Kenya, Reuters reported.
“Etom-2 well in block 13t, northern Kenya, has encountered 102 metres of net oil pay in two columns,”
Turkana oil to earn Kenya Sh6.4 trillion in 23 years
Kenya will make about Sh6.4 trillion from the Turkana oil find alone if commercial production starts by 2020. An Oxfam report has also suggested that the oil will be completely depleted by 2043. This means production can be carried out for a maximum of 23 years. Researchers for the report by the global development charity say the country will make on average about Sh280 billion every year. “This amount, however, does not put Kenya in the league of Saudi Arabia,” Charles Wanguhu, one of the authors of the report titled Protecting Future Oil Revenues: Priorities in Advance of Production. This will translate to about Sh6.4 trillion over the period, which is one and a half times the country’s GDP. This is one of the first reports that has projected the value of the Turkana oil in an attempt to manage public expectations. The earnings are expected to be shared between the national and county governments, and the host community. Turkana is estimated to have more than 600 million barrels of oil, but this is still a drop in the ocean compared to the big oil producers in the Middle East. MAJOR EXPORTERS According to the report, the break-even point for Kenya’s oil will be about Sh4,500 ($45) per barrel. This is almost twice what Tullow Oil said would be the break-even point. Tullow told its shareholders that Kenyan oil can be commercially extracted at a break-even cost of about $25 (Sh2,543) per barrel, lower than the current global price of $30 (Sh3,040). This would put Kenya among the 10 cheapest oil-producing countries, ahead of major exporters like Nigeria and Angola. However, these projected production costs are almost three times Kuwait’s $8.50 (Sh864) and Saudi Arabia’s $9.90 (Sh1,007) — the two least-cost oil producers in the world, according to the findings of a Norwegian oil and gas consulting firm, Rystad Energy. The true price of Turkana production will be known once Tullow completes a field development plan that will show if local production is viable, the amount of financing required and will pave the way for an investment decision to be made. Should Kenyan resources prove to be commercially viable, Tullow said it would take at least three-and-a-half years after extraction is given the go-ahead for the country to extract its first barrel of oil. The Oxfam report also raised concerns after it found that more than a third of the companies that own petroleum rights in Kenya hold them through a tax haven subsidiary.
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Turkana oil to earn Kenya Sh6.4 trillion in 23 years