tullow oil’s discovery in its first well in the south lokichar tertiary rift basin, kenya’s find could change the preexisting commercial dynamics of east africa’s emerging oil plays in a similar manner that texas crowded out oklahoma’s discoveries in the early twentieth century. so far tullow has downplayed its ngamia-1 well’s 20 meters of net oil discovery on block 10bb in turkana county, but has hinted that adjacent acreage in kenya, and also ethiopia, could be significant in the company’s africa expansion strategy. the block’s operators—tullow, africa oil corporation, and lundin—have estimated reserves to be from anywhere between 30 – 45 bbls of oil in miocene era sandstones. kenyan president mwai kibaki and energy minister kiraitu murungi have compared kenya’s light, waxy crude with ugandan varieties. tullow had long written off the rift valley basin in favor of the albertine rift basin (which is ten times larger than what is in kenya and ethiopia), but recent discoveries suggest that the company many change how it views its east africa portfolio–essentially shifting more of its eggs in to its kenyan basket.
previous drilling campaigns have only explored at intermediate depths (approximately 1,000 meters), and tullow plans to drill almost 2,000 meters deeper to see if it can replicate its previous success. successful onshore campaigns have piqued the interest of kenya’s offshore potential, which is looking to compete with the flurry of discoveries off the tanzanian and mozambican coasts. however, across the world, daily rig rental rates have been steadily increasing, and in east africa the price tag can be as high as $600,000. and although the oil services industry plans to construct approximately 50 new rig this year, those interested in exploring kenya’s (and also uganda’s) oil will face difficulties in securing a rig, critical for the development of kenyan oil. the fact that there are few rigs under contract in the region suggest that ships must travel longer, to an unknown area. kenya—which predicts it will need up to half a dozen rigs to complete its exploration targets—will have to compete with tullow’s planned expansion in uganda, which is planning to drill up to twenty wells. and while somali pirates have taken a break from their own “exploration,” an increase in maritime commercial activity closer to their borders could incentivize a new piracy campaign.
the excitement around kenya’s oil discovery comes in the run-up to what will be hotly contested elections, which will likely be held in early 2013. while kenya’s embryonic oil story could share similarities with uganda’s drama with tullow and heritage surrounding payment on capital gains taxes (kenya does not have this on its books), the involvement of the controversial former foreign affairs minister moses wetangula adds a political dimension unlike what was seen in uganda. while uganda’s virtual one-party system ensures that politics stays out of commercial transactions, kenya’s vibrant, and at times violent, multipartyism means that business can be politicized.
although tullow oil and africa oil corporation have found themselves in favorable geological terrain, they could be sitting on questionable legal and political terrain, particularly if they decide to sell their blocks in the run-up to election season. the uganda oil rush has triggered a licensing rush in kenya’s tertiary rift basin, and the operators of 10bb were early to the game. a local subsidiary of canadian turkana energy stealthily emerged to sign a production sharing agreement before lundin, a current partner with the aforementioned two companies. two well-connected kenyans—amyn lakhani and wetangula—were the leading kenyan partners with turkana. turkana’s board agreed to a share-swap bid from africa oil in 2009, and eventually tullow purchased 50% of africa’s oil stake for about $34 million.
wetangula was appointed by president mwai kibaki, and has not been an anti-corruption crusader. an odinga victory looks increasingly likely in 2013, despite kibaki, kenyatta, and ruto attempts to reshape the “kkk” ethnic alliance that has for so long dominated contemporary kenyan politics in the wake of the icc indictments. an odinga win could see odm politicians target turkana and those companies who worked closely with them, if wetangula conspicuously contributes—in the same way that the ceos of ghana’s eo group, who contributed to the opposition npp during the 2008 elections, were targeted by the ruling ndc—to whomever becomes the pnu nominee for 2013.