The exits of TotalEnergies and Africa Oil from Kenya’s Turkana Oil project have spooked potential explorers, as the government looks to India for deep-pocketed investors to keep commercial production dreams alive.
Energy Cabinet Secretary Davis Chirchir said the decision by the two energy firms to abandon their equity to British oil explorer Tullow Oil has shocked a greenfield investment, which would have seen potential investors pump billions into the project and turn it into commercial production.
Total Energies and Africa Oil left in May and relinquished their stakes for free, putting new pressure on the project’s main operator, Tullow, which has been unable to get the project off the ground due to a lack of funds.
Tullow is facing a new headache in finding new partners as Kenya’s oil dream is delayed.
Furthermore, Mr Chirchir noted that the increased pressure on fossil fuels has reduced the prospects for licencing of blocks for a non-oil-producing country like Kenya compared to a producing country with developed market infrastructure.
“We are at a phase where if companies like Total and Africa Oil can write off their investment in a block where discoveries have been made, the risk capital that goes into a block where discoveries have not been made is a challenge,” Mr Chirchir told an oil exploration summit on Friday.
Mr Chirchir noted that the exploration risks are high owing to the fear of not finding oil, whose profits are normally used to defray their cost capital.
“So licensing of new blocks is progressively going to face more and more challenges. Because your exploration is risk capital, you are basically sinking your own money… If you don’t make a discovery, the investment that you made, you just write it off,” said Mr Chirchir, who revealed that Kenya had already started talks with the Indian government.
“I did go to India in one of the conferences to try and get the Indian government to come to support Tullow to finance this programme. Because the kind of capital requirement in the development phase is about $3.5 billion. This is the kind of investment to get to financial close,” he said.
With the rising chorus against fossil fuels as the world tries to shift to renewable energy, however, hitting the black gold does not necessarily guarantee its production.
“You can imagine someone coming and putting in so much investment, not making a discovery, even making a discovery, and because of climate change issues, you don’t get a financier to take you to the final investment decision and eventually first oil,” said Mr Chirchir.
He noted that many companies, including TotalEnergies and Africa Oil, would prefer to invest in producing fields in other countries rather than greenfields.
Africa Oil, for example, claims to have abandoned the Kenya project in order to focus on regions with high petroleum potential.
TotalEnergies backed out just months after saying it was looking into other ways to monetize its stake.
The government put 35 oil exploration blocks up for sale last year. Kenya has four petroleum exploration basins: the Lamu Basin, the Anza Basin, the Mandera Basin, and the Tertiary Rift.
The government has already gazetted 63 oil blocks within the basins, with 26 already licenced to 26 international oil companies.
The collaboration between Tullow, TotalEnergies, and Africa Oil is still in its early stages.
Mr Chirchir stated that, even if Total and Africa Oil remained in place, there was still a need for new partners to assist with oil production.
The pair each held a 25% stake in blocks 10BB, 13T, and 10BA in the South Lokichar Basin, and their exit leaves the cash-strapped Tullow to focus solely on the venture.
Tullow now has full ownership of the three blocks, despite growing doubts about its viability. This comes as Kenya has opened talks with both the Indian and Chinese governments to help them find investors for the Turkana Oil project, as the country prepares to export its first oil.
“There are countries who need securities of supply because they are non-oil producing countries with huge populations like India and China,” said Mr Chirchir.
Tullow, which is listed on the London Stock Exchange, requires a deep-pocketed strategic partner to mitigate its risks for the multi-billion shilling project, which includes the construction of a crude pipeline from Lokichar to Lamu and oilfield processing facilities.
