Bottom Line: Close to proving commercial viability of its major finds since last year, a new report by the IMF suggests that Kenya will start producing in 6-7 years.
Analysis: The IMF has already classified Kenya’s Turkana finds as “commercial”, noting the May 2012 discoveries by Tullow Oil in Kenya’s Tertiary Rift. This is a bit of a misnomer, but it’s close. In April, Tullow said it had achieved close to commercial quantities of oil in its Twiga South-1 well. In Tullow’s Ngamia-1 well in Block 10BB, the company has now completed the first of six drill stem tests, but commercial viability has not yet been proven. The IMF is proving to be highly optimistic here, gambling on commercial viability, while Tullow remains sober. The IMF believes that the prospects for commercial viability are high and improving.
Recommendation: The IMF’s note of confidence comes at a crucial time for the big players on the Kenyan scene, and should go some way to boost shareholder confidence. But look here for new legislation to come on line soon, as well, as the Kenyan government reviews its tax on natural resources in expectation of becoming a major producer. The rules are already changing: Now firms that want to qualify for exploration rights will have to commit to spending $28.2 million in the first two years onshore and $31.2 million in the first three years offshore. (For more information on the changing regulatory environment in Kenya, contact ISA Intel.)