Kenya’s first commercial oil discovery is set to generate approximately US$ 10 billion, as a delay in its first licensing round attracts further foreign investment.
Despite growing global interest in Kenya’s oil and gas industry, its first competitive licensing round has been postponed to at least Q4 2014. However, this delay could serve as a long-term benefit for the country’s economy, as well as its oil and gas industry, says an analyst with research and consulting firm GlobalData.
Commercial oil discovery
John Sisa, GlobalData’s Lead Analyst covering Upstream Oil & Gas in the Sub-Saharan region, states that international interest in Kenya’s oil and gas sector has intensified over the last 20 months, following Tullow Oil (Tullow) and Africa Oil Corporation’s announcement of the country’s first commercial oil discovery in block 10BB/13T within the South Lokichar Basin.
According to GlobalData, block 10BB/13T alone could generate approximately US$ 10 billion in revenue over a 30-year production period, based on regional geological characteristics and well test results. This volume of cash flow alone will cause Kenya’s Gross Domestic Product, which is currently at US$ 40.7 billion, to grow at an average yearly rate of 0.83%.
Licensing round delay
Sisa says: “The delay in Kenya’s first licensing round could prove beneficial to the country’s economy, as International Oil Companies (IOCs) could make additional, commercial oil and gas discoveries before the end of the year. This would in turn strengthen prospectivity and interest in the country’s oil and gas industry.
“Additionally, competition among IOCs during the delayed bidding process may be significantly greater than at present, and the round could include higher licensing costs and tougher fiscal terms that would maximise government revenues.”
Early production facility
Sisa believes that the Kenyan government has indicated its willingness to develop an early oil production facility by 2016, which would allow Tullow to produce oil from block 10BB/13T at marginal rates until the proper infrastructure is in place for shipment.
“This early monetisation of oil reserves would generate more revenue for the Kenyan government’s budget and would therefore act as a crucial component of economic growth. Similarly fundamental in accelerating such growth is the proposed development of the Kenya-Uganda crude oil pipeline, which is designed to pass through block 10BB/13T and South Sudan,” the analyst says.
A new port is currently being developed in Lamu, Kenya, which would also host a new refinery that receives oil from Uganda, South Sudan and Tullow’s block 10BB/13T. GlobalData expects this refinery to be launched by 2018.
