East Africa : Kenya gifts six key oil blocks to China

The Chinese have lately taken a keener interest in oil exploration in sub Saharan Africa – regarded as one of the fastest growing oil arenas in the world. A STAFF WRITER reports

Two major European oil exploration companies have protested that they are unable to access Kenya even as the country emerges as the latest frontier in the ferocious global battle between Europe and China for oil resources.

The EastAfrican has learnt that the two European companies, Compania Espanola de Petrolas (Cepsa) of Spain and Sweden’s Lundin International, have both lodged complaints with the government.

In an unprecedented act of generosity, the government in April gave the state-owned China National Offshore Oil Company Ltd (CNOOC) exclusive rights over a total of six out of 11 available blocks, including the hotly contested Blocks 9 and 10A in the Mandera area.

So dominant has China become in the oil exploration scene in Kenya that CNOOC alone now controls 28 per cent of the total exploration acreage in Kenya.

Cepsa, the first to apply to the government for the two sought-after blocks, was until last year considered a frontrunner in the race for the coveted Block 9 and 10A when the Chinese jumped into the fray. In 2005, top government officials led by President Mwai Kibaki conducted a high-profile tour of China during which the two countries signed a memorandum of understanding calling for co-operation in several sectors including the oil industry.

After the visit to Beijing, the application by the Spanish appears to have been put into cold storage as it became clear that Kenya had fallen for the charms of the world's new economic powerhouse.

Events moved very fast from then on. On April 29, acting Energy Minister Henry Obwocha signed away the six blocks to the Chinese under terms that – according to oil industry experts – were far inferior to what the Spanish and the Swedish exploration company had put on the table.

Apparently, CNOOC negotiated and signed only one complete production sharing agreement for Block L4 with the government. The rest of the contracts were one-year-study agreements granting them exclusive access to the five blocks – with the option to relinquish the blocks at the end of the one-year period.

The one-year study period covers Blocks 1, L2 and L3, 10A and 9. The blocks are located in three basins of the country covering 115,343 square kilometres.

With the door having been closed on the European companies, it is understood that the government advised Lundin and Cepsa to try negotiating with CNOOC to get the Chinese to accommodate them in joint-venture exploration deals, a common practice in the business.

But as it turned out, the Chinese have not been willing to accommodate the Europeans.

Recently, Cepsa wrote to the government lamenting that the Chinese had not responded to its offer despite several approaches.

Lundin International has also written to the government narrating its tribulations.

Why the government agreed to sign such a lopsided agreement dishing out liberal privileges to the Chinese and allowing them to hoard exploration acreage at the expense of the two European companies, is clearly the most intriguing aspect of the saga.

Apparently, the Spanish had made the government an offer whereby they would go straight into drilling exploration wells as opposed to the arrangement with the Chinese, where most of the acreage is being hoarded for studies.

Cepsa currently acts as an operator on the onshore Ouhourd Oilfields in Algeria in a joint venture with state-owned Sonatrach.

Recently, it was awarded a new exploration permit in Egypt. Currently, its upstream activities are concentrated in Spain, Algeria, Egypt and Colombia. Fields where the company has interests produce approximately 250,000 barrel per day.

The Chinese have lately taken a keener interest in oil exploration in sub Saharan Africa – regarded as one of the fastest growing oil arenas in the world.

Last year, the activities of the Chinese in Africa grabbed headline attention when CNOOC purchased a stake in Nigeria's OML Block 130 for $2.3 billion – taking China into the top league of foreign direct investment providers on the continent.

With the entry of China and other Asian companies into the oil exploration field in Africa, including such companies as Petronas of Malaysia and ONGC Videsh of India, the expectations are that this will encourage interest even in the more marginal oilfields such as Kenya’s.

China is also turning to Africa as its preferred source of oil with imports already being sourced from several African countries including Angola, Congo Brazzaville and Sudan.

Interest in oil exploration in Kenya has picked up lately after Shell stopped drilling in the Loporot area of northern Kenya in 1992.

Currently, the total number of leased blocks in Kenya is 11: Apart from the blocks leased to the Chinese, others are leased to Pan Continental Inc and the Australian company, Woodside Energy.

Until recently, the Ministry of Energy had discretionary powers over allocation of exploration acreage.

But in 2003, the responsibility was transferred to an inter-ministerial committee chaired by the ministry with representation from the Treasury, National Environmental Management Authority (Nema), the Office of the Attorney General and the National Oil Corporation of Kenya.

Petroleum exploration in Kenya began in the 1950s with the first well being drilled by British Petroleum (BP) and Shell in 1954 in Lamu, where they drilled 10 wells.

However, none of the wells was fully evaluated despite several indications of oil. In 1975, several companies acquired acreage in the upper part of the Lamu Basin

Texaco drilled at a location called Hargaso – and encountered oil and gas shows. In 1976, Chevron and Esso drilled the Anza-1 and Bahati-1 wells where the mud drilled was suspected to have hydrocarbons.

A group of companies led by Amoco and Total drilled ten wells between 1985 and 1990. The wells were found to contain limited oil and gas.

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  1. Anonymous Says:

    One can only hope this is not a precursor to another Goldenberg or angloleasing. One thing is certain though, the total proceeds from the G2G deal between the Nigerian and Kenyan government is not reaching the treasury and some of it may be in use funding the NARC government campaign kitty.