80pc of Kenya crude oil cannot be tapped

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Economy

80pc of Kenya crude oil cannot be tapped


A worker at the Ngamia 3 oil exploration site, run by Tullow, in the village of Nakukulas, Turkana. PHOTO FILE | NMG

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Summary

  • The company said a new audit of the Turkana oil fields revealed a larger reservoir – commonly referred to as Oil Initially In Place (OIIP) in exploration parlance – compared to the previous estimate of 1.77 billion barrels.
  • The commercially extractable volume climbs to 585 million barrels from the previous estimate of 433 million barrels, according to the audit of British oil consultancy Gaffney Cline Associates (GCA).
  • The OIIP is different from actual proven oil reserves because it represents the total amount of crude that is potentially in a reservoir and not the amount of oil that can be recovered for commercial use.

More than 80% of Kenya’s estimated 2.85 billion barrels of oil remains inaccessible for commercial exploitation due to limitations in extraction technology, UK oil company Tullow said in a program update exploration in Turkana County.

The company said a new audit of the Turkana oil fields revealed a larger reservoir – commonly referred to as Oil Initially In Place (OIIP) in exploration parlance – compared to the previous estimate of 1.77 billion barrels.

The commercially extractable volume climbs to 585 million barrels from the previous estimate of 433 million barrels, according to the audit of British oil consultancy Gaffney Cline Associates (GCA).

The OIIP is different from actual proven oil reserves because it represents the total amount of crude that is potentially in a reservoir and not the amount of oil that can be recovered for commercial use.

“The 2.85 billion barrels is what we call ‘oil in place’, they are not reserves; what is critical is how much can be recovered and the 585 million barrels number is comparable to other onshore oil fields around the world, ”Tullow told Business Daily.

“It is possible that (in the future) the technology will experience greater recovery from the field, but 585 million barrels is our best estimate at this time.”

At the current crude price of $ 75.50 per barrel, potential crude in the reservoir would be valued at Sh 23.66 trillion ($ 215 billion) – equivalent to twice Kenya’s GDP – while the Proven commercially viable reserves are valued at Sh4.86 trillion ($ 44.1 billion).

Kenya would not earn the full amount at the start of production, however, with a significant percentage going to production and shipping costs.

For example, Tullow estimates it will cost 373 billion shillings ($ 3.4 billion) to set up a crude pipeline and processing facilities for the oil fields.

The company also has the right to recoup its exploration costs from sales of crude, which further eats up the country’s revenue from the commodity. Countries with oil deposits periodically update recoverable reserves estimates as extraction technology evolves.

For example, in the United States, the development of better fracking techniques targeting deep oil fields has helped to double the country’s oil production since 2006.

Fracking involves the injection of liquid and materials at high pressure to create small fractures within compact oil formations, which then allows its extraction using conventional rigs.

Tullow added that he made the highest estimates of extractable volumes due to the facility’s greater processing capacity, additional wells to be drilled, and a larger crude oil export pipeline. diameter, which lowers the unit cost per barrel to $ 22 from $ 31 previously.

The company said that, based on the new plan, it would be able to produce 120,000 barrels of oil per day, up from 72,000 barrels previously estimated. Kenya has already tested the international market with crude shipments.

Tullow has yet to develop the field for commercial production more than nine years after first finding oil in Turkana, attributing the delay to factors such as unfavorable global oil prices since 2014, delays in approval of land and water rights, a tax dispute and Covid- 19 disruptions.

The firm and its project partners Africa Oil and Total had initially planned to make a final investment decision in 2019 and to produce the first oil between this year and next year.

Tullow has already presented the Kenyan government with a draft comprehensive investment plan for oil production in Turkana, seeking to exceed the government’s deadline to do so by the end of this year or risk losing the concession.

Tullow expects the Petroleum Department to review the plan and provide comments before presenting a final plan by December.

Approval of the investment plan will see the company launch plans to build the infrastructure, including an 825-kilometer heated pipeline to remove oil from Kenya.

“Tullow and its joint venture partners have worked closely over the past year to reshape Kenya’s development. Through this work, we made the project financially viable at lower oil prices and adjusted our plans to improve the environmental and social impact of the development, ”said Tullow.

When a company first obtains an oil license, it usually has a number of years of exclusive exploration rights.

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