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Kenya project on track, despite unrest

Concerns over revenue sharing and security have triggered repeated blockades at the remotely located oil development

Community action against a Tullow Oil-led exploration and production development in northern Kenya has continued to wreak havoc with an early-oil pilot scheme (EOPS) to send small quantities of oil to the coast by road. But the company says progress towards its main objective—to export 100,000 barrels a day by pipeline in the early 2020sremains on track.

Efforts to move stored oil produced by test wells at Tullow's site near Lake Turkana 1,000km (621 miles) by road to Mombasa for export finally started earlier this year. The project had been delayed and interrupted by local activists, who periodically blockaded both the road and Tullow's site.

The most recent blockade halted road shipments in June, before which they had been running at a lowly 600 b/d. By mid-August, sufficient progress had been made in addressing local concerns that Tullow said it would resume operations on 23 August. If the scheme proceeded smoothly, the company added, it could build up cargoes to the intended 2,000 b/d by early 2019.

Security concerns

Early community action against the site was ostensibly prompted by concerns that under government plans, local communities wouldn't get a large enough share of revenues generated by the region's exports. More recently, protests have been driven by efforts from some local groups to persuade Kenya to beef up security in an area where livestock rustling is rife.

The government pushed for the EOPS, whose economic viability is questionable, as a way of raising awareness of the potential for greater oil revenues later. Tullow saw it as a way to iron out potential problems for the main development and says it's proving its worth in this respect.

"This is exactly the sort of issue we are using the EOPS to flush out," Tullow's chief executive Paul McDade said of the community unrest, in remarks at a July results presentation in London.

Source: Petroleum Economist

He said the early oil scheme had already worked in the company's favour by improving road access to the remote region. The community's calls for greater security, he continued, chimed with the company's desire for a secure and calm operating environment in order to proceed with the pipeline export project.

Achieving the latter would seem to lie mainly in the hands of the government of President Uhuru Kenyatta. The Turkana region is largely populated by poor pastoralists, whose interests have largely been ignored by the political classes in Nairobi. Now, the discovery of oil in the region and the ability to block its development have given local communities clout to draw attention to their concerns, regional observers say.

Late-2019 FID target

The most recent blockade cost around $4m in lost oil shipments by mid-August, according to the Kenyan government. However, Tullow says it has done little to affect the pipeline project timetable. Other than the EOPS, there's little activity at the oilfield site, with the focus largely on desktop studies and planning.

Tullow spokesman George Cazenove told Petroleum Economist that the company is still targeting a final investment decision on the main $3bn production and pipeline project in late 2019, as per guidance it issued back in February. First oil is scheduled to flow around three years later.

The pipeline will run for almost 900km from the oilfields to Lamu at the north end of the Kenyan coast. In May, Tullow awarded front-end engineering and design contracts for the first phase of the project to Wood, for the pipeline, and WorleyParsons, for the processing facility in the South Lokichar region near Lake Turkana.

Initially, the plan is to produce 60,000-80,000 barrels a day, rising to 100,000 b/d later. Tullow has estimated 2C proven and probable resources for the entire acreage at 560m barrels and 3C resources at 1.23bn barrels. 

Seeking accords

Despite the progress, Tullow and its partners Total and Africa Oil won't want to play dice with a $3bn project. They'll aim to be sure that all stakeholders, including the local community and the national government, are in accord over its development. That would also help smooth the way for Tullow to make good on a plan to reduce its stake in the project from 50%, possibly to 30%, before or around the time of FID.

The most recent impasse was resolved when central authorities agreed to set up a ministerial committee to provide an interface between the government, local communities and members of parliament. A grievance mechanism will allow local communities to raise issues of concern.

The hope is that, with better channels to access the government, local activists may be less likely to use the threat of a blockade as a weapon.

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