Why Investing In East Africa Oil Makes Sense Right Now - kenyadetails

Why Investing In East Africa Oil Makes Sense Right Now

Although the great oil price slump of 2014 continues, it looks like at a least one major African frontier region will continue to see activity in 2015: Kenya. In recent market updates, London-based Tullow Oil and Vancouver-based Africa Oil — the companies that did the most to open up the new oil and gas discoveries — said they plan to drill six basin openers in 2015 including four during the first quarter.

 

These will include one each in Kenya’s North Kerio and North Turkana basins, where drilling is already underway. Meanwhile, Kenya’s North Samaki and Tausi wells in the North Turkana and North Lokichar basins are both set to start drilling later in the quarter. The final two basin openers are expected to spud in the South Kerio and the Kerio Valley sometimes by mid-2015 and the third quarter, respectively. Additionally, more than a dozen additional wells, including exploration Wildcats and appraisals, are expected to be dug.

 

All this activity is notable given the near simultaneous announcement that Tullow will be cutting its global exploration efforts to just $200 million, down 80 percent from the $1 billion it spent looking for oil and gas in 2014. This is $100 million lower than the number Tullow announced in November and reinforces the notion that many in the oil patch are running scared in the face of oil prices staying below the $50 per barrel level for some time to come. But, this raises an important question. As Tullow pulls back elsewhere, what exactly is drawing the company’s remaining exploration spending to Kenya?

Tullow’s continuing emphasis on Kenya makes sense. It’s a relatively cheap, relatively riskless play that, once developed, will find ready buyers. Development, too, is likely to get cheaper as others bow out of projects elsewhere due to cost. All this should make Kenya’s oilfields profitable even in a low-price environment, making investing even more attractive given current market conditions. That’s good news not just for Tullow, but for East Africa’s potential to become a major new oil supplier in the relative near future.