Nervy times in Kenya's elections
Oil companies will be hoping that the relatively calm passing of the country's presidential elections will pave the way for faster progress towards pipeline exports
What looks like a victory for the incumbent, Uhuru Kenyatta, in Kenya's presidential elections, held on 8 August, has done little to clarify the outlook for the country's nascent oil industry, though pre-election posturing by candidates over the division of oil revenues may die down.
Provisional results indicate that Kenyatta won by a clear majority, although opposition leaders have claimed the electoral management system was hacked to produce a fraudulent result. The country's electoral commission has dismissed these claims and observers from the African Union, Commonwealth and other bodies described the elections as credible.
Sporadic violence, producing several fatalities, followed the poll, but the scale has so far been nothing like that which swept the country following the 2007 presidential polls when around 1,200 people died and hundreds of thousands were displaced. However, the mood remains tense.
The future of Kenya's oil industry was a focus for political battles in the run up to the elections. Efforts to kick-start oil exports from the Turkana region of northern Kenya by taking small quantities to the port of Mombasa by road have been stymied by activists over recent months. They have blocked roads and seized oil company assets, as part of protests over the extent of jobs and financial benefits on offer to the local community.
The issue became politically charged when Kenyatta's main rival for the presidency, Raila Odinga, claimed that up to 30% of proceeds from oil production should stay in the region if he won, rather than the 5% which Kenyatta has mentioned. The precise formula has yet to be decided.
With Kenyatta seemingly back in charge, where we go from here is uncertain. Kenyatta and Turkana county governor Josephat Nanok have traded insults over the extent of proposed benefits during recent months, so some bridge building will be necessary to get oil projects back on track.
Tullow Oil, the operator of the Turkana acreage, and its partners, including Africa Oil Corp, hope to produce 80,000-120,000 barrels per day for pipeline shipment to the port of Lamu, starting in 2020, assuming the infrastructure can be installed in time.
But they have also agreed to a government plan for an early project to take 2,000 b/d of oil from Tullow's existing limited production, currently being stored in the region, more than 1,000km to the coast by road and rail for shipment on to Asian markets, despite the doubtful profitability of the enterprise.
One reason for doing this was to give the largely poor local communities near Lake Turkana a taster of what the full-scale production project will mean for the local economy and jobs—quite possibly as a sweetener ahead of the presidential elections.
Instead, it has given the government and the oil companies a reminder of the strength of regional identities within Kenya and of the task if commercial oil exports are to become a reality. Just at the most basic level, roads to the Turkana region need to be upgraded to get construction equipment in—and the early oil out—effectively.
Tullow recently regained control of assets, including some wells, which were occupied or had access blocked by activists in June, according to local media reports. Now the company is waiting to see what action the government will take next.
Meanwhile, Tullow is ploughing on with its exploration campaign, which has covered a wide swathe of acreage in the Turkana region. Most recently, it reported that its Etiir-1 exploration well, which spudded in June had not found "material reservoir development or shows". However, this dry well follows a string of promising discoveries, to which the London-based company hopes to add with three further exploratory wells planned for this year.
Tullow has estimated that ten oil accumulations in the South Lokichar Basin add up an estimated mean resource of around 750m barrels, with a 1bn barrel upside—its partner Africa Oil Corp puts the upside at 1.6bn barrels.
The government has said it wants the stalled early oil project to get going by the end of the year. Achieving that will be a test of the diplomatic skills of all parties involved—ones which need to remain honed if Kenya is to make its debut as a commercial oil producer at the start of the next decade.