2022: An Upstream Outlook
by Rita Maina,Senior Advisor -Energy Transition
In December 2021 The Kenya joint venture partners KJV(Tullow Oil Plc, Africa Oil and Total energies) submitted an updated field development plan (FDP) within the period of extension granted by the government of Kenya for Blocks 10BB and 13T. So what happens next?
| Action | Comments |
| Review of FDP | The minister and the contractor must jointly consider the field development plan. If there are no modifications or revisions, the FDP will be regarded as approved after 60 days |
| Ratification by parliament | In the current Petroleum Act passed in 2019, the FDP must go through a ratification process in parliament, including undertaking public participation. Since this law does not affect fiscal terms, the current act should supersede the 1984 Petroleum act. |
| Government participation | The government has six months to exercise its participation. Government will be required to give its share of capital for the development work. It is likely that GoK shall ask for a free carry to production this shall prevent taxpayers funds being put into the project before production |
| Domestic supply requirement | The government also has a right to notify the contractor of the domestic supply requirement, but this is unlikely to be exercised because we do not have the refining infrastructure. |
| Outstanding issues | The confirmation of a strategic partner. A strategic partner farming in will probably attract a capital gain tax, and if there is an active partner, they might also decide to change the field development plan, which will further delay the journey to FID and first oil The approval of the ESIAUnitization agreement for the Ngamia field, which is both blocks 13T and 10BBAgreement on the route to market (pipeline) as well as proposed financingThe upstream development agreement which should include a commitment to explore, appraise and develop the other fields.A firm-up or negotiation of the fiscal terms stated in the production sharing contract, for example, the cost-sharing formula |
| Final investment decision (FID) | A key next milestone is the final investment decision by the KJV |
Mlima prospect
In late December, the joint venture partnership of ENI, Total energies, and Qatar Energy, with ENI as an operator, commenced drilling in block L11B. The prospect known as the Mlima prospect is approximately 170km from the coast and, from previous data, is known to have an existing petroleum system. A previous company, known as Anadarko Petroleum, also explored block L11B and drilled a well known as Kiboko-1 in 2013, classified as a dry well. Data from this well and other exploration activities show that the Mlima prospect could have a much more considerable accumulation than the discoveries in the South Lokichar basin. This could mean that if the drilling is successful, there is a high probability that the South Lokichar basin discoveries will take a backseat because the Mlima prospect will have a more significant economic benefit to the country and will be easier to develop.
2022 Election
The upcoming elections pose challenge for the upstream petroleum sector. Election years are usually marred by delays in government services, especially if there is a leadership change in the respective ministries. Delayed government services could also slow down exploration and decrease investor interest.