Operations audit of Tullow to delay drilling by 7 years

An oil rig at Ngamia 1 in Turkana County. Tullow Oil announced last week oil deposits in its exploration blocks in the county are commercially viable. FILE

By George Omondi and Allan Odhiambo

IN SUMMARY
The appraisal drilling on all blocks controlled by Tullow and its partners Africa Oil, will provide a more reliable production volumes after which the government will be furnished with a development plan.
Tullow says the resources discovered to date were of a scale that would prompt discussions with the government and investors to kick off the development process.
Unlike the light crude from Middle East that the country has been able to refine in Mombasa, the crude discovered in Turkana will have to be exported for processing


The discovery of commercial quantity oil has set off a chain of activities that include auditing the exploration operations of Tullow which could delay actual production by up to seven years.

While the assessment was based on the progress of its exploratory drilling, the British firm is expected to confirm it by concluding appraisal of its wells, experts said.

“While appraisal drilling is likely to confirm more volumes than revealed in exploration estimates, it is only after its completion that this country can say it’s on the verge of oil production,” said National Oil Corporation of Kenya general manager in charge of upstream activities Kivuti Nyaga.

The appraisal drilling on all blocks controlled by Tullow and its partners Africa Oil, will provide a more reliable production volumes after which the government will be furnished with a development plan detailing the kind of infrastructure required.

On Wednesday, Tullow said Turkana exploration basin had reserves in excess of 300 million barrels of oil after it discovered additional 50 metres of reserves in Etuko-1, surpassing the commercial production quantity of 250 million barrels.

(Read: Kenya hits mark for commercial oil production)

In a statement, the British firm said the resources discovered to date were of a scale that would prompt discussions with the government and investors to kick off the development process.

“These discussions include consideration of a ‘start-up phase’ oil production system with potential to deliver oil export via road or rail in advance of a full-scale pipeline development,” Tullow said in a statement.

On Friday, Mr Nyaga said the waxy crude discovered in Kenya would require expensive infrastructure to be delivered to the market.

Unlike the light crude from Middle East that the country has been able to refine in Mombasa, the crude discovered in Turkana will have to be exported for processing.

Experts have also pointed out that being waxy crude, the oil would either be transported in heated trucks or pipeline that has inbuilt systems to heat at specific intervals.

The waxy nature of crude oil in Kenya has cast doubt over the implementation of the production sharing contracts (PSC) that among other things compel producers to supply the discovered oil for domestic use, exporting only surplus.

“The contractor shall have the obligation to supply in priority crude oil for domestic consumption in Kenya and shall sell to the government that portion of the contractor’s share of production, which is necessary to satisfy the domestic supply requirements,” the model PSC states.

Under the model PSC, the Energy and Petroleum Cabinet Secretary will give three-month notice to contractors every year, specifying the domestic oil supply requirement.

Immediately, Tullow confirms the actual quantity of oil through appraisal drilling, a team of independent auditors are expected to review its activities to determine amount of crude to be allocated to cover its costs.