Kenya’s Oil Investment Grows as Tullow, Apache Draw Attention

Kenya’s planned investment in oil and gas exploration may rise to a record as the discovery of crude in neighboring Uganda piques interest in the largely untapped territory, Petroleum Commissioner Martin Heya said.

Tullow Oil Plc, the London-based explorer with the most licenses in Africa, plans to sink two test wells in north-western Kenya this year and early 2012, while U.S.-based Apache Corp. may drill offshore next year, Heya said in an interview yesterday in Nairobi, the Kenyan capital. Spending on exploration and drilling is estimated at $126 million, and other companies may follow as more plans are approved, he said.

“The level of activity is at a high and we think once Tullow starts drilling we must prepare ourselves for even more interest,” Heya said. “The more wells that are drilled, the faster a discovery will be made.”

Exploration companies are increasing spending in Kenya as neighboring Uganda, with an estimated 2.5 billion barrels of oil reserves, prepares to become a crude producer next year when Tullow expects to start pumping from the Lake Albert Basin. Only 32 exploratory wells have been drilled in Kenya. That compares with 480 in East Africa, 14,500 in the west of the continent and 19,000 in north and central Africa, according to data from U.K.- based explorer Afren Plc.

“Big companies like Tullow coming into the country automatically creates more interest,” Dragan Trajkov, an oil and gas analyst at Renaissance Capital Ltd. in London, said an e-mailed response to questions today. “I wouldn’t be surprised if the Kenyan government tries to capitalize on it, as it provides credibility to potentially finding more discoveries.”

Neighboring Producers

Kenya has no proven reserves. Tanzania to the south produces commercial gas from two offshore deposits for domestic power generation, and neighboring South Sudan is sub-Saharan Africa’s third-biggest oil producer, after Angola and Nigeria.

About 14 oil and gas companies including Anadarko Petroleum Corp., based in Texas, Canada’s Vanoil Energy Ltd. and Afren have signed 26 production-sharing agreements with Kenya, Heya said.

This month, Simba Energy Inc., based in British Columbia, said it entered a production-sharing accord for a northeast Kenyan block, and U.K.-based Dominion Petroleum Ltd. announced it was granted rights to explore in the Lamu Basin. BG Group Plc said in May it signed leasing contracts with the Kenyan government for two offshore exploration blocks.

Officials from France-based Total SA have held “early” talks with Kenya on possibly acquiring a deepwater block that’s not yet been designated as a zone for exploration, Heya said.

“They had come here in June or July and we discussed on a block, but it is not gazetted by the government,” he said. “We need to follow up on it.”

In Kenya, once new legislation required under a constitution enacted last year is put into force, there may be tighter restrictions on entrants to the oil and gas industry as lawmakers will have to approve exploration plans, Heya said.

“Now is the right time for people to come,” he said.

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