Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Showing posts with label Kenya. Show all posts
Showing posts with label Kenya. Show all posts

Wednesday 7 February 2018

Kenya goes alone with first oil targeting 2021 - plays catch-up with Uganda


Kenya was left at the pipeline “altar” in 2016 when Uganda decided to export its crude via a Tanzanian pipeline instead. The years of work around a joint Ugandan-Kenyan pipeline went to waste as the two countries could not agree on the development with security as well as political factors hindering co-operation between the two countries.



Kenyan oil discoveries in the Lokichar Basin had been left in limbo with no export plan in sight. However, over the course of 2017, Kenya realised it had to go it alone and started evaluating plans for a standalone export pipeline. In October 2017 the Lokichar owners, Tullow, Africa Oil and Maersk, initiated a study including FEED for the proposed pipeline. The ministry announced at the time that it was planning for an 820km pipeline between Lokichar and Lamu at a cost of USD2.1 billion to be completed in 2021.

The pipeline is expected to be FID-ed in 2019 and it has been reported that significant work has been carried out on the routing which has to deal with the complications of security risk, avoiding nature reserves, population displacement, elevation as well as cost.

Tullow’s commitment to the pipeline was followed by a commitment by Total in January 2018, which appears to have been part of the deal to obtain approval for taking over Blocks 10BA, 10BB and 13T from Maersk as part of the Maersk Oil acquisition.

On 7th February, Tullow announced that it progressing Kenya further with plans for an initial small scale development of 210mmbbl with peak production of 60-80mbopd. This would be the first phase of a wider development which originally had a 560mmbbl 2C resource number and peak production of 100mbopd+.



The Tullow-led JV will develop the Amosing and Ngamia fields as an initial 210mmbbl “Foundation Stage” which will include the export pipeline to Lamu, allowing for earlier FID than a full scale project. Foundation Stage upstream capex is estimated at USD1.8 billion and pipeline capex is estimated at USD1.1 billion – this is significantly below the USD2.1 billion estimate announced last year and the USD2.7-3.0 billion a few years ago (for the Kenyan leg only).

This export infrastructure is critical for monetising the discoveries in the Lokichar and also unlock remaining exploration potential in Kenya along the pipeline route. Tullow is targeting an FID in 2019 with first oil in 2021/22.

Tuesday 28 February 2017

Africa Oil - slowly progressing

Africa Oil published its 2016 financials last night - the USD850 million company (market capitalisation) ended the year with cash-in-hand of USD463 million.

The release included few updates – G&A was down c.50% year-on-year as a result of lower equity-based payments and the impact of the weak Canadian dollar on head office salaries, and the company reported a small USD6.5 million write off on its Ethiopian assets.

Attention remains focused on the Lokichar Basin development - preparations for FEED are underway, the pipeline Joint Development Agreement is currently in the final stages of negotiation. Separately the conclusion of the Maersk carry, an additional USD75 million of development carry may become available to Africa Oil upon confirmation of existing resources.

During Q4 2016, the company elected to relinquish its 15% working interest in the South Omo Block in Ethiopia, resulting in the USD6.5 million impairment charge mentioned above. Africa Oil’s joint venture partners in the Rift Basin Area of Ethiopia and Block 9 in Kenya have provided notification of their intent to withdraw from the joint venture; the company’s working interest in the blocks will therefore increase to 100%. These licences are due to expire in February and June 2017, respectively.

Monday 10 October 2016

Kenya First Oil

On 9th October, a government spokesperson said that President Kenyatta had held meetings with the Lokichar Basin oil companies (Tullow, Africa Oil, Maersk) on the Early Oil Pilot Scheme (“EOPS”). The EOPS has already received FID and will produce 2,000bbl/d, starting in June 2017. The oil will be trucked from the Lokichar Basin to Mombasa. The EOPS will allow the partners to establish a production history, providing valuable dynamic reservoir data. This implementation experience will assist in the planning of the full field development.

In the run up to the launch of the EOPS, the operator commissioned two trucks for the transport of a trial batch of crude from Block 10BB to Kenya Refineries. This trial is currently in progress and will help the partners to understand how the oil behaves under different operating conditions while on transit, and will help in determining the design, cost and type of equipment needed for the EOPS.

The Government expects to sign additional agreements in due course, including the Joint Partnership Agreement (“JPA”) that deals with the work related to the transportation of the crude oil to Lamu by pipeline.

Thursday 18 June 2015

Why Kenyan crude will be exported and not domestically refined

Mombasa refinery
Source: http://mygov.go.ke/national-treasury-sets-aside-funds-to-buy-essar-stake-in-refinery/

Kenya currently has no crude oil production and relies solely on imports to feed the domestic refinery in Mombasa. Aside from feedstock for the refinery, there is no other demand for crude oil in Kenya.

In 2012, domestic consumption of refined products was 73mbbl/d – this was satisfied by 20mbbl/d of domestic production from the refinery and 53mbbl/d of imports. The shortfall in domestic production has been met by imports for many years and this has steadily grown from 22mbbl/d in 2005 along with the increasing demand for refined products. The shortfall suggests that there is scope to increase throughput of the refinery and reduce the level of imports.

Kenya Refined Products Production and Consumption
Source: Kenya National Bureau of Statistics, Kenya Petroleum Refineries Limited, OGInsights

The refinery has a design capacity of 80mbbl/d, but has continually operated at c.40% of capacity. This low utilisation is due to a number of reasons including regular utility supply outages, limitation on size of cargoes it can accommodate, low profitability (some batches of processing are loss making), limitation on product slate and general inefficiency of the refinery. The refinery has a reformer and a catalytic hydro-treater, but no upgrading units; the refinery’s two complexes were commissioned in 1963 and 1974 with minimal investment since. The profitability of the refinery was further hit in 2013 when the incoming government removed the price protection previously provided to the refinery, making it uncompetitive relative to refined product imports.

The refinery’s current configuration is designed to handle heavy crude grades from the Middle East. In 2012, a refinery upgrade project was considered by the then owners (50% Essar Energy, 50% Government of Kenya). The plans included changing the configuration to handle lighter crudes and would incorporate the ability to process Lokichar crude. However, the $1.5bn cost of the upgrade was deemed to be too expensive and uneconomic; as a result the upgrade was abandoned, following which, Essar Energy decided to exit the joint venture. In December 2014, Essar Energy sold its 50% interest in the refinery to the Government of Kenya.

The refinery has been mothballed since mid-2013 and now acts as a storage facility for imported refined products. All demand for refined products are now met by imports. There are currently no plans to restart the refinery, and without further investment, it is unlikely the refinery would be able to operate profitably. Until there is a plan and willing financing to upgrade the refinery, the destination for Lokichar crude is most likely to be the export market - in its current state, the refinery configuration is not designed to process Lokichar crude.

In a scenario where the refinery was upgraded and being wholly fed by Lokichar crude, then feedstock requirements could reach c.100mbbl/d by 2020 in order to fully meet forecast domestic demand for refined products (96mbbl/d estimate by Kenya Petroleum Refineries Limited). However, this scenario is deemed to be highly unlikely in the foreseeable future.

Wednesday 3 June 2015

Lundin stops funding Africa Oil


Africa Oil’s history dates back to 1983, when it was founded as Canmex Minerals with funding from the Lundin family. The company was officially renamed to Africa Oil in June 2009 to reflect its strategic and geographic focus. Since 2009, the company went through a series of acquisitions to consolidate its position in Kenya and Ethiopia.

Friday 1 May 2015

Pricing Kenyan crude



The price a crude fetches is typically against a benchmark such as Brent, WTI or Urals and the underlying crude marketing agreement will detail the calculation of the premium or discount to such a benchmark as well as other adjustments. As Kenyan crude has never been marketed before, there is no established pricing for Lokichar crude – however, a hypothetical value can be calculated. One of the key determinants of crude pricing is crude quality with the heaviness (API gravity) and sourness (sulphur content) often being a point of focus.

The heaviness of a crude is measured in °API and is a measurement of how heavy or light a crude is compared to water. Crude with an above 10°API is lighter than and will therefore float on water (i.e. is less dense). Heavier crude oils have longer hydrocarbon chain lengths and are generally less desirable as it is more difficult to convert them into more useful petroleum products. Light crude oil is defined as having an API gravity of greater than 31.1° API and a heavy crude oil has an API gravity of below 22.3° API.

The sourness of a crude is a measure of the level of sulphur by weight. Crude with less than 0.5% sulphur is considered sweet and above this level is sour. Sour crude is less desirable as the sulphur is a corrosive material and requires more processing; there are also increasingly strict limits on the sulphur content of gasoline and other petroleum products.


Amosing well testshave flowed oil between 31° to 38° API and is therefore considered a light oil; sulphur content is generally less than 0.1%. Based on test results to date, Lokichar crude is relatively high quality and should fetch pricing broadly in line with Brent (see bubble chart).

Other determinants of crude oil pricing are:
  • Location - the total cost to a buyer is the wellhead price plus the cost of transportation and freight which will be benchmarked against other sources of supply
  • Logistics – for long haul crudes, larger parcels tend to command a premium as per unit freight costs are lower; this also requires the loading and destination ports to be able handle larger vessels as well as having sufficient storage facilities
  • Destination – refineries have different configurations in that they are setup to process different kinds of crudes. Not all refineries require light, sweet crudes and some are built to handle heavier crudes and will desire certain crude blends over others 
Refiners pay particular attention to the crude assay, or the chemical composition of the crude – this goes beyond looking at the API gravity and sulphur content mentioned above. For example, the pour point, wax content, level of other impurities are important considerations and depending on the refinery product slate, the refinery yields are also key (this refers to the relative proportion of the different hydrocarbon chain lengths in the oil). BP’s assay for Brent is shown below.



Monday 27 April 2015

Battle of the routes



Significant resources have been discovered in East Africa with 1.7bnbbl lying in Uganda and 600mmbbl in Kenya. The key barrier to monetising the vast amounts of oil is an export pipeline. In 2010, when Tullow acquired Heritage’s acreage, first oil was envisaged for 2016. Over the last five years, this timing has slowly crept back with estimates now pushed back to late-2019 despite government PR continuing to promote first oil in 2016-17.

There remains a significant risk that the timeline will be delayed further as the regional governments have yet to decide on a route. There are currently two routes under consideration, a Northern Route and a Southern Route. The governments’ preference is for a Northern Route which aligns with a wider regional plan for the development of a trade corridor from South Sudan through to the Port of Lamu in Kenya. In 2010, the LAPSSET (Lamu-South Sudan-Ethiopia) study was commissioned to explore a road and railway path as part of this plan, which also considered a concurrent pipeline as part of the development. In 2014, the Northern Route for a pipeline was further advanced with the governments engaging Toyota to select the actual path for the Northern Route and to carry out pre-FEED – this work is expected to be completed in May 2015.

The upstream partners have commissioned their own study into a Southern Route, which is to run parallel to the existing Mombasa-Eldoret products pipeline. Whilst this will utilise existing rights of way and road networks which will aid accessibility and construction, the higher population density along this route vs. the Northern Route could pose its own challenges.


To date, the governments’ focus remains on the Northern Route and they have given little consideration to the alternative Southern Route. The upstream partners continue to lobby the governments on the Southern Route which is seen as logistically less challenging. However, political impetus may override any economic and logistical considerations in choosing the final route, and until one is chosen, Uganda and Kenya’s discovered resources remain stranded.

Saturday 6 December 2014

Sub-Saharan Africa - newsflow update



Gabon Deepwater - Leopard discovery

  • Leopard-1 was drilled on licence BCD10
  • Shell 75%*, CNOOC 25%
  • Encountered substantial gas column with 200m net gas pay
  • Further appraisal required
  • FLNG? 3-4 tcf may be required, although economics of sales into Europe are marginal
  • Government is also keen to grow domestic gas market

Congo Offshore - Eni/NewAge - follow up discovery in Marine XII
  • Minsala Marine discovery
  • Estimated 1bnboe in place, of which 80% oil
  • In same shallow water block as the Litchendjili and Nene Marine fields, both of which are currently undergoing development

Angola - first discovery in Kwanza Basin
  • Pre-salt offshore Kwanza Basin - oil discovery made by Repsol
  • Will evaluate commerciality of the Locosso oil field
  • Located in Block 22, immediately to south of Cobalt's Block 21 which contains the play opening Cameia field
  • Given remote location and water depth, Wood Mackenzie estimates will require 300mmbbl to be commercial on standalone basis

Liberia, Cote d'Ivoire - Anadarko's non-commercial wells

Nigeria - NNPC pre-empts sale of OML25
  • NNPC has pre-empted on the sale of OML25
  • Post transaction, NNPC will own 100% and likely transfer the interest to NPDC
  • NPDC's portfolio is already overstretched and future investment will be heavily constrained
  • The winning bidder of the Shell, Eni, Total process was Crestar Integrated Natural Resources Limited
  • It is believed that the pre-emption, a decision made by the Minster of Energy, is due to Crestar's Chairman being  Osten Olorunsola
    • The Minister of Energy had fired Osten Olorunsola as Director of Petroleum Resources in June 2013
  • http://africaoilgasreport.com/2014/11/farm-in-farm-out/nnpc-in-desperate-search-for-funds-to-pay-for-oml-25/
South Sudan - fighting likely to intensify around fields
  • Government and rebels now re-arming following end of rainy season
  • Sudan is providing South Sudanese Machar-led rebels with weapons and intelligence
  • Rebels likely to set-up bases where they can attack oil fields
  • Local self defence militia are guarding fields bolstered by Chinese peacekeepers
    • Should prevent rebels gaining control of fields, but fighting likely to intensify
East African export pipeline
  • World bank has pledged USD600mm funding towards Ugandan/Kenyan export pipeline
  • Total cost estimated to be >USD4bn
  • Project still remains in early stages - commercial structure, construction, ownership and operations all yet to be determined
  • FEED contracts expected to be awarded end of 2014