Oil consortium seeks to raise Sh310b from Nairobi bourse

By Fred Aminga On Wed, 21 Aug, 2019 08:00 | 3 mins read
Petroleum Principal Secretary Andrew Kamau (right) and  Tullow Oil Kenya, Managing Director, Martin Mbogo  confer during a press briefing on the progress of Early Oil Pilot Scheme in Nairobi yesterday. Photo/PD/ALICE MBURU

Kenya is edging closer to a final investment decision (FID) of Turkana oil amidst indications firms involved in the project plan to raise $3 billion (Sh310 billion) at the Nairobi Securities Exchange (NSE) to kick-start construction of the 820-kilometre Lokichar to Lamu pipeline.

The FID, which is the final go-ahead, is expected by mid next year, as the country seeks to produce up to 100,000 barrels of crude oil daily through a central processing facility (refinery) and an export pipeline. 

“The final investment decision (FID) is expected in the second half of 2020, when the award of the contract will be given,” Tullow Oil Kenya Managing Director Martin Mbogo said in Nairobi yesterday.

He said the consortium of Tullow Oil, Total and the Government – will be in the capital markets seeking lenders who will take the project to the next level, adding the three are talking to lawyers and looking at investment bankers proposals.

Mbogo said options include tapping the NSE using a special investment vehicle (SIV) for the cash. 

“We will come to the market shortly for funding for about Sh310 billion which will be 70 per cent equity and 30 per cent debt,” he advised. Debt includes such instruments as bond or commercial paper while equity will entail listing shares.

Last week, the government and Tullow Oil Plc together with its Joint Venture Partners in Kenya (Total and Africa Oil Corp) announced ChemChina UK Ltd as the buyer for Kenya’s first crude oil export.

This has triggered speculation among analysts that the deal could give China, which owns the ChemChina, an upper hand in negotiations with Kenya when the country moves to commercial production of the commodity. 

The oil, priced at $60 ( Sh6,210) per barrel after selling an estimated 200,000 barrels of crude in an early oil pilot scheme (EOPS), gave Kenya’s estimated 600 million barrels of the reserves a boost with Tullow Oil, saying  it could now consider setting up the pipeline.

Despite being waxy, Kenya’s oil is said to be sweet and with little sulphur, which according to oil marketers, makes it a hot cake on the international market.

Transport corridor

The pipeline, set to run along the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor,  is expected to be done in conjunction with South Sudan who had indicated working with Kenya even before oil was discovered.

“We already had a move with South Sudan and ministry officials were in South Sudan a few weeks ago to discuss with Juba how to use the corridor,” said Petroleum Principal Secretary Andrew Kamau.

The National Land Commission has already commenced land surveys following the completion of the Front End Engineering Design (FEED) study for the Lokichato Lamu pipeline as the country targets first commercial crude exports in 2023.

Concerns, however, abound on the impact of any adverse environment impact assessment, even as Kamau said investors will not be forthcoming without a world class Environmental and Social Impact Assessment (ESIA).

The PS said in a few weeks, the ESIA process will be provided to National Environment Management Authority for consideration. Other concerns, including water meant to flush the oil from the ground, are being addressed by a multi-agency team with ongoing conversation between county governments and the water ministry over the same.

Kamau said due to the waxy nature of Kenya’s crude, the pipeline will need to be heated to 85 degrees along the line, meaning companies such as Kenya Power and Ketraco will come in to pump in the power which could fetch upwards of Sh300 million. He added that  this would be another major injection into the Lapsset corridor where the pipeline will pass.

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