Big Companies Scramble for Stake in Kenyan Oil Exploration

Small independents are selling their stakes to big Western-based exploration firms, raising hopes that Kenya could strike oil.

Major western-based firms have pumped millions of dollars in the search for oil in Kenya.

The country is yet to strike oil despite increased exploration work in recent years, this has been blamed on lack of resources by small independent explorers who have been holding their licenses for speculation.

But the discovery of oil in Uganda and Mozambique, which have similar geological structures, has put Kenya on the radar of major oil explorations sparking acquisitions and mergers in the scramble for oil blocks.

This has seen firms listed on the New York and London stock exchanges such as Premier Oil, Apache Oil, and Tullow Oil stake a claim on Kenya’s exploration business egging policy makers to believe that the country could strike oil in coming months.

Smaller players such as Cove, Origin Oil, and Pancontinental have either exited the scene or remained with minority interests in what has shifted the balance of power in the oil and prospecting business to Western nations.

Citi Group reckons that exploration work is set to intensify in coming months.

“We have seen an acceleration in industry activity recently with multiple seismic programmes being acquired, more intensive drilling campaigns planned over the next 12 months, and continued deal activity,” says the bank in its latest report dubbed A Dash for Gas and Oil in East Africa.

Recent discoveries

“Total also recently agreed on a farm-in with Anadarko and Cove for five offshore blocks, which highlights the interest of large-cap oil in the region.

We see continued interest from the larger players to gain access to the region with a number of smaller players establishing interesting acreage positions.”

In September, French multinational Total acquired a 40 per cent stake in five blocks within the Lamu Basin from Anadarko Kenya Company Cove Energy with the brief of accelerating exploration work that was proving burdensome to the twin firms.

“Recent discoveries in offshore Mozambique and Tanzania offer a very promising outlook for these Kenyan permits,” Marc Blaizot, Total’s senior vice president in-charge of exploration said in a statement.

Before this the London Stock Exchange listed BG Group was given two blocks in May while New York Stock Exchange listed Apache Oil acquired a stake from Origin Energy. Tullow and Dominion are also busy on the exploration front.

Citi group expects the majors to begin drilling between next year and 2013 in what will mark the busiest exploration season in the history of Kenya’s Mr Mwendia Nyaga, an industry consultant says licenses have been issued to several companies and the late-comers are considering partnerships to gain entry.

“The licensing is unprecedented. All blocks are taken hence the partnerships,” Mr Mwendia Nyaga, an energy consultant, and former CEO of National Oil said recently in an interview.

Attracting capital

According to analysts, oil finds in Uganda and Ghana, combined with the current surge in international crude prices, have done a lot to reshape the perception of oil prospects in new geological fields such as East Africa’s, attracting capital into the region.

“With high global oil prices we always have cycles of higher risk taking by investors, especially in areas that are considered to be frontier regions and which not many would touch if oil prices were low,” said Petroleum Focus Consultants director George Wachira.

Hopes of Kenya’s striking oil were dampened when China National Offshore Oil Corporation (CNOOC) announced its exit from Kenya oil exploration market’s in 2009 when it was the only cash flush firm in the region.

Its exit marked the comeback by giant US and European firms eyeing opportunities in Kenya’s oil exploration business.

The state-owned CNOOC had been a major factor in oil exploration in Kenya after securing exclusive exploration rights in 2004 from Kibaki’s government.

All European firms seeking oil exploration licences were then asked by the Energy ministry to go into joint ventures with CNOOC in a process technically known as farm-ins.