Ecobank: Kenya Oil Segment Needs $16 Billion Investment

NAIROBI--Kenya's oil exploration and production sector needs more than $16 billion of investments over the next three years according to a report by pan-African bank, Ecobank, released last week.

Ecobank said Kenya is expected to join the league of oil producing countries in sub-Saharan Africa by 2017, despite funding constraints, rising insecurity and a pending new energy law.

U.K.-listed Tullow Oil (TLW.LN) and its partner Australia's Africa Oil Corp. (AOIFF) are expected to submit a field development plan by 2015, following their first oil discovery two years ago in Turkana county, northern Kenya. The two oil companies estimate that their blocks possess between 600 million and 1 billion barrels of oil and could produce between 100,000 and 120,000 barrels of crude oil a day starting in 2017, if the government approves their field development plan by fourth-quarter 2015, the report said.

Other firms such as U.S. Independent Anadarko Petroleum Corporation, Canadian explorer Rift Energy and U.K. Independent Tower Resources are among several other oil companies also looking to acquire new seismic data and drill exploration wells in Kenya.

"Inability to source necessary funding is however likely to result in oil companies having to relinquish some portion of their oil blocks due to inability to meet seismic and drilling commitments," the report said.

"More importantly, it could delay the start-up of oil production by another one, or two years."

Tullow Oil risks being over-extended on borrowings if it takes on additional debt to develop its Kenya oilfields. However, it is likely to attract valuations as high as $452 million for a planned farm-out of a 10%-15 % stake in its Lokichar basin blocks.

Kenya is likely to pass a revised petroleum law in October 2014 that is expected to provide the framework for oil revenue management and could increase the government's take from oil operations and enforce more local content initiatives.

The report said that communities in the oil discovery areas have intensified their demands for involvement in the industry, which could result in community development levies being included in the new bill.

Rising insecurity is also a major concern in Kenya for oil investors. "Recent attacks by Al-Shabaab could dampen investor interest," the report said, and offshore exploration could also be affected by an existing maritime border dispute between Kenya and Somalia.

"These dynamics make the next 18 months critical in the development of the Kenyan upstream sector," the report said. Kenya is likely to play a key role in the emerging East Africa oil and gas industry with a new export terminal at Lamu and a crude oil pipeline enabling oil exports to Asia, it added.

Write to George Mwangi at [e-mail]

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