Kenya strikes oil, to check commercial viability

Mon Mar 26, 2012 6:21pm BST

1 of 3. An oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, is seen in this general view taken in Turkana County, in this undated handout photograph.

Credit: Reuters/Tullow Oil plc/Handout

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(Reuters) - Kenya announced on Monday its first oil discovery, saying it was found in the northern part of the country where Africa-focused British firm Tullow Oil Plc (TLW.L) has been exploring for oil, and was now checking on the commercial viability of the find.

Kenya and its neighbours in east Africa as well as the Horn of the continent have become a hot spot for oil and gas exploration in recent years, spurred by new finds.

South Sudan, which split from Sudan in July under a 2005 peace deal that ended decades of civil war, is an oil producer, while commercial oil deposits were found in Uganda, and there are vast natural gas deposits in Tanzania and Mozambique.

President Mwai Kibaki said in a statement read on live television that Tullow had encountered in excess of 20 metres of net oil pay, and would drill more wells in the area to ascertain the commercial viability of the find.

"This is the first time Kenya has made such a discovery and it is very good news," Kibaki said. "It is however the beginning of a long journey to make our country an oil producer, which typically takes in excess of 3 years."

Shares in Tullow jumped 2.5 percent in London immediately after the announcement of its oil find in Kenya.

At a joint news conference with Tullow executives, Kenya's Energy Minister Kiraitu Murungi displayed a glass bottle of the "light waxy crude oil" found by the company.

"We will make sure that the oil in Kenya is a blessing for the people of Kenya and not a curse," Murungi said, in reference to other countries whose people remained mired in poverty despite having struck oil.

Analysts said although it was still too soon to tell the significance of Tullow's discovery, with the exact quantity or deposits as yet unknown, it was worth noting that Tullow had stated that the find went beyond their expectations.

"This is likely to attract interest from other explorers in the coming months, keen to take advantage of this early find," London-based Marc Mercer, Africa associate at the Eurasia Group, a political risk consultancy, said.

"If considerable reserves are found along the quantity discovered in Uganda, then this is somewhat of a game changer for Kenya and they are well placed to develop the industry for export given their geographic location."

Kenya is positioned on Africa's east coast, which could be a hub serving fast-growing Asian markets through its Mombasa port and the Lamu port, now in the initial stages of construction.

MORE DRILLING TO FOLLOW

Tim O'Hanlon, Tullow's vice president for Africa told reporters his company had been drilling the well since January this year, and it was the first prospect to be tested as part of a multi-well drilling campaign in Kenya and Ethiopia.

Tullow Oil operates Kenya's block 10BB with a 50 percent working interest and Canada's Africa Oil Corp. (AOI.V), which holds the remaining stake.

Africa Oil's shares also rose after the announcement.

Tullow said it had been drilling the Ngamia-1 well on block 10BB, in the Lokichar basin in Turkana County. The well had reached a depth of 1,041 metres at the time of discovery.

"We have many other prospects to drill of this size and even larger ones, and we will do that," O'Hanlon said.

"We have had similar discoveries in Uganda... I guarantee you that Tullow will now accelerate its efforts to make the dream come true for everybody."

Tullow discovered oil in Uganda to the west of the country, along the border with the Democratic Republic of Congo, in 2006.

UK's BG Group (BG.L) said on Monday it discovered more gas than estimated off the coast of Tanzania.

Kenyan officials told Reuters Nairobi would include a tax break for firms exploring for oil and gas in a new law, in a bid to attract even more investments in the sector.

(Additional reporting by Duncan Miriri; writing by James Macharia; editing by James Jukwey)

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