Kenya’s oil exploration now renews hopes of a major discovery

Expectations were once again high in Nairobi last week as news trickled in that CNOOC — the Chinese state-owned company currently exploring oil in Northern Kenya — had hit what oil exploration experts described as a “very high concentration of gas.”

In our issue of October 19-25, 2009, The EastAfrican quoted Energy Minister Kiraitu Murungi as “bubbling with optimism” over the prospects of Kenya striking oil. Indeed, he had then said, “In a matter of days, we could be celebrating. God willing, I shall be announcing a historical discovery at the end of the month.”

This time around, government officials were tightlipped, insisting that it was too early in the day to proclaim a breakthrough, but well placed sources confirmed to The EastAfrican that CNOOC had indeed found a high concentration of gas — pointing out that the development at the Bhogal Well was the most positive news in Kenya’s search for oil in many years.

The presence of significant amounts of gas is usually taken as a sign that there is oil nearby.

As of last week, CNOOC had dug up to 4,600 metres deep, having reached the depth described as the “secondary target.”

The Chinese have to cover an additional kilometre of distance before they can reach the primary target — the point at which they can declare a “discovery,” depending on what they find at that depth.

Ministry of Energy officials, while describing the development at the Bhogal Well as “very encouraging” and “positive,” disclosed that the Chinese firm indicated they had established a basis for conducting two more three-dimensional seismic studies to determine additional drillable sites.

The Bhogal Well was identified several years ago by European multinationals Amoco and Total as a target with potential for oil.

The point of departure is that the Chinese are digging deeper than anybody has attempted.

At 5,600 metres, the well is the deepest ever in Kenya.

Neighbouring Uganda — with confirmed deposits of an estimated 2 billion barrels of crude — has been hitting oil at a mere 800 metres.

Still, what the Chinese are doing is critically important for Kenya in terms of sustaining the interest of oil exploration companies in the country, which has been low key, especially after 2006, when Woodside of Australia packed up after hitting a dry well in the Lamu area.

Indeed, oil exploration activity in Kenya has been characterised by speculative activity, with companies concentrating in trading exploration licence rights — what is known in trade as “farm-ins.”

Canadian companies, a good number of them listed on the Toronto Stock Exchange (TSX) venture capital board, have been most active in the farm-in deals.

There have been incidents where companies received licences and sat on the papers for some time without even paying surface fee, only to flip the licences to third parties for millions of dollars.