Kenya’s run of geologic luck continues, following the announcement of the country’s fourth consecutive discovery of oil by the UK's Tullow Oil and Canada's Africa Oil. Similarly, while activity in the natural gas sector is proceeding at a slower pace, following the recent departure
of one explorer, the outlook for new finds is promising.
New wells
Tullow and Africa Oil, which are joint partners in the exploration of the East Africa Rift Basin, announced in late September that drilling revealed oil in the Auwerwer and Upper Lokone sandstone reservoirs, bringing their total discoveries in Kenya to an estimated 300m barrels. The companies had previously announced a major discovery in Turkana after beginning exploration in late 2012.
Tullow and Africa Oil have exploration licences for 12 blocks and have identified 10 additional leads and prospects. They plan to drill 12 wells over the next year.
The Turkana discovery has led to major international interest in Kenya's remaining oil exploration licences, including from France's Total, China National Offshore Oil Corporation, ExxonMobil and Chevron, though no other companies have yet announced commercially viable discoveries. Kenya has 46 blocks, of which 44 are licensed to 23 exploration companies. The government plans to create and offer seven new blocks in the near future.
Meanwhile, there is continued activity around the existing licences. The UK's Premier Oil recently bought into an exploration project through a deal with Taipan Resources for Block 2B, which contains the Pearl prospect, with its potential for 100m barrels. Upstream investment in oil production, already at $1bn a year excluding exploration, is expected to grow 60% per year through 2018.
The sudden surge in interest has led Kenya to reconsider its regulatory regime for the award of licences. In July the government announced that it would adopt open tendering to replace the "first-come, first-served" process in place. Following the Turkana discovery, the government also switched to a production sharing contract (PSC) model for oil discoveries to replace its prior practice of collecting 3% royalties on natural resources. Oil production will also be subject to a 42% corporate tax on net profits in addition to the PSC arrangement.
