When compared with the continent’s west coast, East Africa is underexplored despite the discovery of crude oil and natural gas both onshore and offshore in recent times.

The region has fewer than 500 drilled wells, compared with 20,000 in North and 5,000 in West Africa. 

CFC Stanbic Bank blamed the state of affairs on exploration being conducted by small and mid-sized firms, who often sell assets to international oil companies after making commercial discoveries largely due to the high costs involved in production. It costs $25 million to drill an onshore well in Kenya and about $100 million offshore.

Kenya has discovered 600 million barrels of oil onshore, Tanzania about 50 trillion cubic feet of gas and Uganda has 6.5 billion barrels of oil, and 500 billion cubic feet of gas.

Industry players estimate that Kenya and Uganda require over $50 billion for oil production, transport and storage facilities. Tanzania needs over $20 million to build a gas liquefaction plant with an export terminal.

“Tullow Oil Plc is drilling more appraisal wells in north-western Kenya as the region has few super majors like Shell and ExxonMobil investing,” said Oscar Kang’oro, CFC Stanbic Bank head of oil and gas in East Africa.

However, projects could delayed because international crude oil prices have declined to less than $50 per barrel from about $115 in mid 2014.

“Oil and gas explorers will be revising their budgets and deciding where to allocate their limited capital spend,” said consulting firm PricewaterhouseCoopers (PwC).

READ: Fresh push for oil, gas exploration

The Nairobi-based Petroleum Focus Consultants said Kenya’s upstream investments in ongoing onshore and offshore exploration have slowed down due to oil price uncertainties, except for the Turkana basin.

“It is when Kenya moves to the next stage of resource development in Turkana that we expect to see meaningful investments in production and transportation infrastructure,” said the firm’s director, George Wachira.

Tullow and Africa Oil Corporation, each owning 50 per cent of blocks 10BB and 13T, are required to drill more wells to verify the amount of oil in South Lokichar basin in northwestern Kenya before moving to the production stage.

Tullow CEO Aidan Heavey said development studies have started and could result in the production of around 100,000 barrels of oil per day.

“The joint venture partners are working with the Kenyan and Ugandan governments and their third party technical advisor to progress the pipeline development plan,” said Mr Heavey.

Kenya’s government wants oil production to start in 2018. Tullow, China National Offshore Oil Corporation and Total of France are expected to start oil production in the Albertine basin in western Uganda in 2018.

BG Group, Ophir Energy Plc, Statoil of Norway and ExxonMobil have discovered about 50 trillion cubic feet of gas offshore Tanzania.

Nairobi-based Eduardo and Associates said host governments in East Africa ought to continue to make regulatory and legislative reforms to maintain the interest of investors and new players.

“Regulators need to give timely approvals for industry to take bankable projects to the final investment decision stage,” said Patrick Obath, Eduardo’s managing consultant.

Mark Essex, director of oil and gas KPMG Kenya, said governments can be proactive by putting in place attractive fiscal terms, and ensuring legislative and regulatory frameworks are clarified to reduce uncertainty.

“Host countries able to ensure a more amenable environment for long-term oil and gas exploration and development, will ultimately become a more attractive investment location compared with their peers,” said Mr Essex.

Chris Bredenhann, PwC’s Africa oil and gas advisory leader, said the key to companies surviving the ups and downs of the cyclical hydrocarbons market is to learn how to adapt quickly by being more agile.

“We expect an uptake in mergers and acquisitions as players with strong balance sheets secure resources from those with less liquidity” said Mr Bredenhann.