A sample of the crude oil discovered at South Lokcihar in Turkana County in 2012. [Courtesy]
Financial StandardBy Macharia Kamau |
On March 26, 2012, the then Energy and Petroleum Minister Kiraitu Murungi made a grand announcement: Kenya had struck oil!
Waving a small
bottle of the oil he said had been discovered in South Lokcihar in Turkana
County, Mr Kairaitu smiled at the cameras, sending the country into a frenzy.
The big find,
as it came to be known, would dominate discussions on mainstream media, social media
and even small talk among individuals in the weeks and months that
followed.
Mr
Kiraitu, bullish at the time, said the Kenyan discovery was much larger than
Uganda’s, which had discovered oil six years earlier in 2006.
And to show how
much of a big deal this was, the late President Mwai
Kibaki would later that day relay the same messages to Kenyans in a
televised address.
“I wish to
make an important announcement to the nation,” President Kibaki opened his
address.
“This morning,
I have been informed by the Minister for Energy that our country has made a
major breakthrough in our oil exploration.”
For Kenyans
keen on dates, next week Tuesday will mark exactly 14 years since the major
announcement. The country is, however, yet to export its first barrel of
commercially produced oil.
And the events
of the recent weeks do not inspire confidence that this will happen any time
soon.
Last week,
Kenya’s oil project suffered new setbacks, adding to the numerous hurdles that
the project faces that appear to mount by the day and keep pushing further into
the horizon of the country’s dream of becoming an oil producer.
Tullow Oil,
the UK oil explorer and producer, was sued for
environmental degradation in South Lokichar, Turkana County. The
community wants the firm to pay Sh270 billion for what they term “violence of
development.”
When it
published its annual results, Tullow also disclosed to shareholders that the
Energy and Petroleum Regulatory Authority had postponed its decision on its
Field Development Plan (FDP), which is supposed to guide the development of the
oil fields of Lokichar in Turkana County.
Approval of
the FDP would see Tullow granted an oil production licence, setting the stage
for the start of the commercial phase of the project.
Tullow Oil
said the Energy and Petroleum Regulatory Authority (Epra) had extended the
review period for the project’s FDP.
The plan,
which charts the way forward for the project, was submitted to Epra in December
2021. An updated FDP was submitted in March last year.
“On March 1,
2024, Tullow received a letter from the Epra extending the review period of the
updated Field Development Plan to June 30, 2024,” said Tullow on the plan that
had been expected to get approvals by September.
After Epra is
done with the FDP, it will then go to the Ministry and later Parliament for
further review.
“Once their evaluation is concluded,
the FDP will be submitted to the Cabinet Secretary for Energy and Petroleum for
review before submission to Parliament for final approval,” said Tullow.
“(Epra) has
engaged third-party consultants to review the revised FDP, and the current
review period ends on June 30, 2024. The Group expects a production licence to
be granted once government due process has been completed.”
Another major
issue that has been nagging Tullow is
that it is also yet to secure a strategic partner to inject capital into the
project, which would mean that even with the government’s approval, the
development of the oil fields would still face delays.
Without a
deep-pocketed strategic investor and also in the absence of its joint venture
partners, the project might be facing indefinite delay.
Total Energies
and Africa Oil quit last year, saying they were pursuing other interests. The
two firms held a 25 per cent stake each, with their exit leaving Tullow as the
only player in the project with a 100 per cent interest.
Tullow has
also been shopping for a
strategic investor, an exercise that has been unsuccessful for more than
two years.
“Kenya remains
a material option to drive value and growth for Tullow,” said Tullow.
The firm noted
that the “withdrawal is ultimately subject to the Kenyan government’s consent,
at which stage the transaction will be considered completed”.
Tullow said
the exit of the two firms now gives it more flexibility in operating the blocks
as well as engaging other firms that may be interested in coming on board as
strategic investors.
“The increased
interest provides us with greater strategic flexibility,” said Tullow, whose
interest increased to 100 per cent from 50 per cent following the exit of its
joint venture partners, adding that it is in “discussions with prospective
strategic partners for this project.”
In the FDP,
Tullow details how it will go about developing the oil fields and producing the
resource that it estimates to be in the region of 470 million barrels of
oil.
The firm has
said the development would entail a production facility at Lokichar with a
capacity of 120,000 barrels of oil per day and an 892-kilometre pipeline to
transport the crude oil to Lamu Port for export.
The approval
process for FDP, which has already run longer than expected, could result in
further delays for Project Oil Kenya.
Following its
exit from the Joint Venture, Africa Oil last week said there has been a delay
by the government to approve the exit.
Tullow is
expected to reach financial close within a year of the FDP being approved and
start developing the fields in Lokichar.
This is
expected to take three years after which the country is expected to export its
first barrels of commercially produced oil.
The date for
the first oil has always been a moving target, and this was recently moved to
2027, which considering the delays, now appears ambitious.
Tullow earlier
estimated the cost of production from the wells at $22 (Sh3,146 at the current
exchange rate) a barrel, a fairly low production cost considering the current
crude oil prices at about $80 (Sh11,440) a barrel.
In Turkana
County, Tullow faces what appears to be an even bigger challenge. The locals
have sued the firm for environmental degradation and are demanding $2 billion
(Sh270 billion) from the firm.
The 46
residents, who include 13 minors, sued the government, Tullow Kenya and the
National Environment Management Authority (Nema), claiming that the exploration
has left their land and environment in ruins.
They are
seeking $2 billion in compensation, making the case the most expensive battle
against the government.
The Turkana
residents have filed the case alongside a human rights lobby, Kituo cha Sheria.
Their lawyers
John Mwariri and Anthony Mulekyo told the court that the government and Tullow
knew that clearing vegetation, soil excavation and drilling would harm the
environment.
They lamented
that Tullow dug holes and burrows that to date have never been filled up.
“The first
respondent acted negligently and in violation of its duty of care when it
abandoned the quarries, well pads and burrow pits without rehabilitation
thereby posing danger to the children who may and or have drowned in the
flooded quarries or gullies,” reads documents lodged in court. The case was
filed on March 6.
The residents,
led by Elhanah Elimlim, claimed that the synthetic material used in drilling
finds its way to the underground water.
They further
claim Nema and Tullow got into a secret deal to change the drilling method
without the involvement of the community.
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