Tullow raises Kenya’s oil export hopes with March 2017 production date

What you need to know:

Tullow Oil will initially produce 2,000 barrels of crude oil per day and have stocks ready for export in June 2017.
Kenya plans to have the oil transported by road from Turkana to Eldoret for onward delivery by train to the port of Mombasa.

British oil firm Tullow on Wednesday raised Kenya’s hopes of becoming an oil exporting country after it officially announced plans to start producing oil from Turkana in March next year.

Tullow Oil chief operating officer Paul McDade told President Uhuru Kenyatta at State House Nairobi that it will initially produce 2,000 barrels of crude oil per day and have stocks ready for export in June 2017.

The announcement is in line with State House’s plan to have the oil transported by road from Turkana to Eldoret for onward delivery by train to the port of Mombasa — a distance of 1,089 kilometres.

“Following President Kenyatta’s directive that exportation of Kenya’s first oil be expedited, Tullow Oil has this afternoon confirmed that it will start oil production in March next year,” a statement from State House said.

Tullow’s count of the Turkana oil reserves so far stands at 750 million barrels — which is considered commercially viable at the current prices of $50 (Sh5,050) a barrel. One barrel is equivalent to 159 litres.

The government is hoping that exporting oil will earn the country the much-needed petrodollars it needs to stem the rising tide of public debt that now stands at more than Sh3 trillion.

Mr McDade said Tullow will be drilling eight extra exploratory wells in North Lokichar, Turkana County where it hopes to make more discoveries and take the mean recoverable resources to more than a billion barrels.

At the current global crude prices of $50 a barrel, the export of 2,000 barrels a day would bring in Sh3.68 billion annually before factoring in the cost of production, transportation and profit margins of the mining firm.

Concerns, however, remain about the economic viability of transporting the oil by road and rail to Mombasa — especially because no hard data has been produced to support it.

READ: Kenya to export 2,000 barrels of crude by road

Petroleum Principal Secretary Andrew Kamau told the Business Daily in a recent interview that the venture will remain profitable as long as crude prices remain at more than $34 (Sh3,434) per barrel.

The Sh3.2 billion Leseru-Lokichar Road, which is expected to connect the remote Turkana site to Eldoret, is nearly complete. Two weeks ago, the Cabinet also approved plans to replace the Kainuk Bridge to enable larger trucks move huge quantities of crude oil.

The construction of the 865-kilometre oil pipeline linking the Turkana oilfields to Lamu port is set to start in 2018 and end in 2021 at a cost of Sh210 billion.

The pipeline is expected to have the capacity to move between 80,000-120,000 barrels of oil per day. At this rate, it would take about 20 years to exhaust the Turkana oil deposits.

Energy secretary Charles Keter said that Kenya has signed a Joint Development Agreement (JDA) with the three companies that hold the licences to the oilfields — Tullow, African Oil and Maersk Companies — for the development of the pipeline.

“We have started and we are not going back. We want to be at the top of the pile. So, we have set a path and by 2019, Kenya is going to be a major oil producer and exporter of oil,” Mr Kenyatta said.

The identity of who will buy Kenya’s oil remains unknown as the global market grapples with a glut that has more than halved the prices of crude oil in the past three years.

Kenya closed its obsolete refinery in 2013, putting the country on the sole path of exporting crude even as it continues to import refined products.

Crude oil prices have remained volatile in the face of an oversupply, plummeting at some point this year to $30 a barrel from more than $100 in 2014 before recovering to the current $50 a barrel.

Tullow struck Kenya’s first oil in the northwest region of in Lokichar in 2012, and followed it with a string of other finds.

At the expected peak of 80,000 barrels per day, Kenya will still stay far from Saudi Arabia, the world’s top producer which pumps out over 10 million barrels a day.

Kenya initially hoped to build a joint pipeline with Uganda but Kampala later opted for the Tanzanian route.