It was some seven years ago that UK-based oil exploration firm Tullow Oil Plc ($TUWOY) first discovered promising reserves in the land-locked East-African nation of Uganada.
Indeed, the company’s discoveries in Uganda, as well as in the neighboring Democratic Republic of Congo, had caught the attention of a number of major companies, such as Royal Dutch Shell ($RDS.A), France’s Total SA (TOT) , and China’s CNOOC Ltd. (CEO) .
Tullow has been hunting for reserves in East Africa for a number of decades, while exploration on the continent has traditionally focused on the Western countries like Angola and Nigeria, and North of the Sahara in the Maghreb in places like Libya and Algeria. The company has been frustrated over the last 50 or so years by its efforts in Kenya in particular, where it has drilled over 30 wells in the Northern Turkana region since 1960, none of which have borne any fruit to speak of.
That situation looks to be changing, however. Last year, three separate discoveries in the Southern Lokichar Basin are currently estimated by the company to contain at least 300 million barrels of oil equivalent.
The news is obviously good for Tullow, but also for Kenya, a nation that has, up until the present, imported all of its oil (80,000 barrels per day) at a yearly cost of $8 million. With two wells already pumping, the Kenyan government is now stepping up efforts to get the crude flowing sooner, with Tullow and its partner Africa Oil Corp (AOIFF) working in tandem to help out.
Companies such as Shell, Vitol Group, and Total SA, who have been the country’s main suppliers of oil and other petroleum products, will in all likelihood lose out as a result of the discoveries, particularly as Tullow now thinks that the region could have total reserves of some 10 billion barrels, which put in perspective is several times greater than the UK’s own proven reserves.
But neighboring Uganda could also lose out on the deal. The nearly 2 billion barrels discovered seven years ago by Tullow has not yet been tapped due to disagreements between the government and the oil company and its partners. Furthermore, whatever oil Uganda does end up pumping will have to be piped through Kenya to ports on the coast of the Indian Ocean, and that is not likely to start happening until 2018.
Kenya, by contrast, sees itself becoming East Africa’s first exporter of oil by 2016, and is very eager to get the jump on its neighbors in this regard.
[Image: Map of East Africa, courtesy of Wikimedia Commons]
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer