London-based oil company Tullow Oil is set to intensify drilling activities in Kenya towards the end of this year, with plans to produce ‘early oil’ by the second half of 2017.
“Early oil is essentially an extended test to understand the reservoirs and test the above-ground conditions. We are looking at 2,000 barrels of oil a day,” says Martin Mbogo, Tullow Oil Kenya’s country manager. “We will resume additional drilling [towards the end of 2016] to increase our resource levels. We still have acreage that is unexplored. We still need to understand our reservoirs a lot better. So our activity level in the field is likely to tick up towards the end of this year,” he explains.
Tullow expects to have completed field development by 2021 and will then start producing 80,000 to 100,000 barrels of oil per day.
Weathering the global decline in oil prices
Earlier this year, Tullow announced that by 2017 it would cut global capital expenditure by two-thirds. A steep decline in global oil prices over the last two years has hurt companies across the oil and gas industries, prompting bankruptcies, job cuts and reduced spending in exploration and production activities.
Mbogo explains that – compared to its operations in other countries – Tullow has been “quite active” in Kenya. This is because when the company was reaching the back end of its exploration and appraisal campaign and transitioning into the development phase, oil prices were low. “That development… phase required that we be less active in the field and more active in discussion and negotiations with government. We are at a good place now and keen to get back on course,” says Mbogo, who also notes that despite heightened political temperatures, Tullow is not concerned about Kenya’s 2017 elections.
“We came into Kenya fully understanding the political and economic risks that exist. We have gone through [the 2013] election cycle which we did successfully. We are well prepared,” Mbogo says.
Building linkages with SMEs
Speaking from the sidelines of Invest In Africa’s (IIA) Kenya chapter launch, Mbogo discussed Tullow’s struggle to engage local businesses. IIA is an organisation – funded by Tullow and other African multinational and global companies – that seeks to build the capacity of SMEs and improve the linkages between small business and multinationals.
“The pain point for us has been making this journey as inclusive as possible, as diverse as possible [and] as transparent as possible in terms of getting ownership by local communities and government,” says Mbogo. He explains that the company’s core mandate is to find oil and put it into the market but that this process requires many different skills and activities. Communicating the company’s next steps – and what materials, suppliers and services those next steps will require – has been a challenge.
Mbogo says that despite many of the areas in which Tullow operates being remote, business has shown significant interest. The company aims to ensure that it allows the early and transparent access to these opportunities by SMEs. “We love [working with] SMEs partly because it translates to a cost reduction in our business,” says Mbogo. “It reduces our costs by at least 10-20%. If we were to get into production then that number would be a lot higher.”