Tullow Turns Down Kenya Oil Exploration Deal With CNOOC-Sources

U.K.-based Tullow Oil PLC (TLW.LN) has turned down an oil exploration partnership proposal from China's CNOOC (CEO) in at least five blocks in Kenya, government officials said Tuesday.

Tullow has declined to sell a 20% stake in its five blocks in the Lake Turkan Rift Basin--currently at an exploration stage--to CNOOC, saying that it's too early to enter any deal, a Kenyan Energy Ministry official, who asked not to be named, said Tuesday. CNOOC previously explored unsuccessfully for oil in Kenya, then exited all of its Kenyan licenses. Yet it offered in January to buy a stake in Tullow's Kenyan licenses.

The Kenyan Western Rift Valley has similar geological properties to Uganda's Lake Albertine Rift, Martin Mwaisakenyi Heya, Kenya's commissioner in charge of petroleum, said last week. The discovery of oil in Uganda's Lake Albertine Rift Basin has spurred greater interest in Kenya's oil sector, prompting more international companies to apply for exploration licenses, Heya said.

Tullow Oil has already notified the Kenyan government and CNOOC of its position, but the U.K. explorer may consider a partnership with CNOOC in the future if Tullow adds value to the assets by discovering oil there, a Tullow official and a Kenyan government official said.

A Tullow spokesman declined to comment.

A CNOOC spokeswoman said she could not immediately comment on the matter.

CNOOC exited Kenyan oil exploration after three years of extensive exploration activities with disappointing results. It first entered Kenya's oil sector in 2004, acquiring licenses in six blocks. But the company has relinquished the licenses to the government, exiting its last block in December last year. Despite the exit, Kenyan government officials say that CNOOC has been trying to buy an interest in Tullow's Kenyan licenses.

Even as it exited Kenya, CNOOC struck a partnership deal with Tullow and Total SA (TOT) in neighboring Uganda, where at least 1 billion barrels of oil have been discovered. That deal, however, has been hampered by a protracted tax dispute between Uganda's government and Heritage Oil PLC (HOIL.LN), Tullow's former Uganda partner.

CNOOC is also interested in acquiring stakes on the Congolese side of the Lake Albertine Rift, Ugandan government officials have said.

This year, Tullow is planning to conduct five seismic surveys in its Kenyan licenses to determine rock structures and drilling targets, a Tullow company official has said. The company also plans to drill at least one well in Kenya before the end of 2011.

Kenya has 34 oil blocks. It has so far licensed 22 blocks.

The Kenyan government is expected to issue exploration licenses to U.K.-based integrated gas company BG Group (BG.LN) and to Dominion Petroleum (DMPTF) by April.

-By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615 [e-mail]