Out-Law News 3 min. read

Kenya offshore oil find set to fuel ‘significant industry interest’

Australian oil exploration firm Pancontinental Oil & Gas NL has confirmed an “historic” discovery of oil in an exploratory well sunk off the Lamu coast in southern Kenya.

Pancontinental said analysis has shown there is a 14-metre thick oil column beneath a 29.6-metre column of gas in the ‘Sunbird-1’ zone. According to the company, the results are “first proof” that a prospective oil system is present in the Lamu Basin and is “expected to lead to a significant increase in industry interest offshore Kenya”.

Pancontinental’s chief executive officer Barry Rushworth said: “The Sunbird-1 oil is the historic first-ever oil discovery offshore Kenya. Furthermore, it is the only offshore oil column ever reported seaward of the eastern coastal margin of the African continent, from South Africa to the north-west tip of Somalia.”

Rushworth said: “We encountered a thick and effective seal over the top of the reef, which was an initial risk for us, and the regional follow-on implications of this are truly significant. Porosity, permeability and seal for the reservoir were all better than Pancontinental expected. Now that we know there is a prospective oil system in the Lamu Basin and we know the important technical details, we are in a prime position to explore for larger volumes of oil over our very extensive portfolio of prospects and leads.”

Pancontinental said: “The oil and gas have been geochemically typed in detail and the prospective source rocks have been dated and characterised for use in future exploration. Calculating the Sunbird results (in the area designated ‘L10A’) has been a lengthy process due to the complexity of the data derived from the well.”

Pancontinental has interests in three exploration licences offshore Kenya: L10A, L10B and L6. The company has an 18.75% stake in the well and joint venture block L10A. L10A and L10B have respective areas of 4,962.03 square kilometres and 5,585.35 sq km and water depths of 200 to 1,900 metres.

L6 is the northernmost of Pancontinental’s three areas offshore Kenya, covering 5,010 sq km with about one quarter onshore and the remaining offshore to 400m water depth.

Pancontinental has a 40% interest in the offshore section of licence L6, 16% in the onshore portion and 25% in L10B. Partners in these three Kenyan licences (although not in each licence) are British energy producer BG Group, Thai state-owned petroleum exploration and production company PTTEP, and the Africa focused oil and gas explorer FAR Limited.

The detailed oil and gas geochemical data, which is confidential to the joint venture partners, give the age and type of the oil source rocks, as well as other data that Pancontinental believes places the L10A joint venture in a “leading position” to find commercial oil offshore Kenya.

The Kenya Investment Authority’s ‘Kenya Economic Survey 2014’ (47-page / 1.96 MB PDF) said recent discoveries of petroleum oil and natural gas “are likely to trigger more foreign direct investment inflows”.

The World Bank Group said last year that it is working with Kenya’s government to develop the country’s petroleum resources to support growth in public and private sectors.

The bank said that for a country that has been prospecting for oil since 1937, without a discovery until 2012, “excitement is high with hopes that an oil boom could propel Kenya through the middle-income threshold much earlier” than anticipated in its ‘Vision 2030’ programme, which has identified infrastructure as an “enabler of Kenya’s transformation”.

World Bank country director for Kenya Diarietou Gaye said: “The potentially substantial revenues from the oil and gas sector will come with significant challenges that require careful management. Kenya has a window of opportunity of a few years to take the right steps that will determine the shape of the oil and gas sector for decades to come.”

According to the bank, local and international non-governmental organisations “are active on the ground, advising local communities on how to negotiate the best deals when the revenue starts flowing, and lobbying for respect of human rights of the local communities and for the environment”. “A critical issue is whether the local counties will have the capacity to manage their share of the oil and gas revenue,” the bank said.

The bank’s senior expert on oil, gas and mining Alexander Huurdeman said: “Depending on how much oil will be discovered, even a small percentage of revenue transfer to the local counties could be quite significant. That’s why it is crucial to support the government on effective policy making and capacity building of local authorities and communities.”

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