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Kenya Delays Much-Awaited First Oil By Three Months

Kenya

First oil from Kenya will arrive in international markets three months later than projected, according to an announcement from the nation’s energy minister on Thursday.

Minister Charles Keter said the government chose to postpone the shipment as it negotiates better revenue-sharing agreements with local communities. The news comes after a series of attacks on workers who were preparing roads that will be used to truck the oil to coastal areas.

"We do not want to start the export without having a clear picture of revenue sharing, we have to wait for the Senate to be formed, hopefully we will start the export after the election and when we have a Senate to approve the bill," Keter said.

The original contracts said local communities would get five percent of oil profits, while county governments would get 20 percent and the federal government would get the rest. But locals now insist on a ten percent share of the new revenue stream.

U.K.-based Tullow struck oil in Kenya in March 2012. Since then, Kenya’s estimated reserves have climbed to 750 million barrels. First oil, transported 1,000 kilometers over land from Turkana to Mombasa, was expected next month, but upgrades on the existing roads have been behind schedule due to the attacks and poor management.

An 855-km pipeline will go online by the year 2020, bringing crude to the Indian Ocean for export. At that point, production is due to reach 100,000 barrels per day.

Last August, Kenya and neighboring Uganda failed to agree on a single pipeline to pump crude from both countries to the coast. Uganda chose a different route for its crude, and now there will be two pipelines running to East Africa ports.

According to estimates, the breakeven price of crude for Kenya is US$45-49 a barrel, coming in slightly higher than earlier estimates of US$37-42 a barrel. This change came about due to the cost of the pipeline that will transport crude from South Lokichar to the coast.

By Zainab Calcuttawala for Oilprice.com

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