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African Energy Outlook

Kenya firms up plan to become first East African oil exporter

September 1, 2016 - By Robert Perkins, Eklavya Gupte in London

* Tullow agrees export pipeline deal
* First oil to be exported from June 2017
* Initial production seen at 2,000 b/d

Kenya plans to start exporting its first crude from mid-2017, President Uhuru Kenyatta said on August 24, as the country pushes ahead with a planned pipeline to secure its place as the first oil exporter in East Africa.

Tullow Oil and its partners will be ready to flow crude for export from their oil fields in the northeastern Lokichar Basin from June after starting commercial production in March, the president's office said.

Initial trucked exports to Mombasa will only be temporary as the government plans to export oil via a pipeline from South Lokichar to Lamu. The partners also firmed up a deal with the government to build the export pipeline to Kenya's Indian Ocean coastline, the government said.

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The deal means Kenya is set to overtake neighboring Uganda in the race to become the first oil exporter in the region, a speedy turnaround for the fuel importer less than six years after its maiden commercial oil discovery.

East Africa's oil export routes

The pipeline deal is also key for Tullow and its partners Africa Oil and Maersk Oil after Uganda decided in April to ditch proposals for a shared export pipeline via Kenya in favor of its own export route.

In a tweet August 31, Kenyatta said Tullow had confirmed with the government that it will start first oil production from the Lokichar fields in March 2017, with export flows ready to begin three months later. The schedule is in line with previous guidance from Tullow, which in June estimated initial production of 2,000 b/d from around "mid-2017."

The Africa-focused oil explorer has discovered some 750 million barrels of recoverable resources in the Lokichar basin in Turkana County in northern Kenya, following a string of successful finds starting in 2012.

Representatives from Tullow including CEO Aidan Heavey and Chief Operating Officer Paul McDade have met the government to finalize oil production plans. The oil will initially be transported by road from Lokichar to Mombasa, where it will be exported, according to the statement from Kenyatta's office.

Further potential

McDade told the government 2,000 b/d will be produced initially, adding Tullow was "committed to aggressive exploration that will see at least eight more wells drilled in North Lokichar to scale up production," the statement said.

Tullow confirmed it "has made good progress [in South Lokichar, Kenya,] and will be ready to start oil exportation in June 2017." Earlier this month, Kenya said the country's Eldoret-Lokichar road was being upgraded at a cost of Kenyan Shilling 3.2 billion ($32 million) to allow crude transit to Mombasa for export. At the time, it said the initial production would be between 2,000 b/d and 4,000 b/d.

Tullow is planning a new exploration program in Kenya starting in the fourth quarter of this year and focusing on growing its existing resources to boost export flows. The producer has not given future production targets for the fields, but has said the onshore finds hold further exploration potential of over 1 billion barrels.

Pipeline plans

The government said August 31 the partners agreed to a joint development deal for the export pipeline and energy minister Charles Keter confirmed construction of the pipeline to Lamu Port from Lokichar was on course.

"We have started and we are not moving back. We want to be at the top of the pile. So, we have set a path and by 2019, Kenya is going to be a major oil producer and exporter," Kenyatta said in the statement. In April, Kenya's oil minister said the pipeline—to run 891 km between Lokichar and Lamu—would cost $2.1 billion and should be completed by mid-2021.

Tullow, which is developing oil resources in both Uganda and Kenya, was initially in favor of a pipeline traversing a northern route via northwestern Kenya and wanted a Ugandan pipeline to connect with a pipeline from the Lokichar oil fields.

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