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Oil Will Go ‘’Bust’’ If Recession Hits

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Kenya Set To Give Local Communities Greater Share Of Oil Revenues

Kenya

Kenya plans to allocate 30 percent of future oil revenues to the community where the crude oil has been discovered, backtracking on a previous proposal to cap revenues at specific amounts in what analysts see largely as a political move.

Commercial quantities of crude oil in Kenya were discovered in 2012 in the far northern county of Turkana. Tullow Oil, which discovered the resources, has continued its exploration and appraisal drilling campaigns in Kenya, and an initial assessment indicates recoverable resources of up to 750 million barrels of oil.

Tullow Oil is currently reviewing the data from the South Lokichar basin and plans to announce its assessment of contingent resources as well as its plans for developing the basin in the first quarter of 2018.

Kenya’s government initially wanted to cap the revenue sharing to the equivalent of US$213 million (22 billion shillings) for the local county government and at US$29 million (3 billion shillings) for the community, because it was concerned with the communities’ capacity to effectively absorb the funds.  

The proposal drew criticism from the governor of the Turkana county, Josphat Nanok, who wanted local governments to get 20 percent and local communities to get 10 percent of the oil revenues.

In a draft amended petroleum bill submitted to Parliament this week, the Kenyan government has adopted the oil revenue suggestions of Turkana’s governor.

“The changes have been made under political pressure,” George Wachira, the managing director of Nairobi-based consultancy Petroleum Focus, told Reuters.

Related: The U.S. Export Boom Goes Beyond Crude

“Ideally the allocation should be indexed to a county’s capacity to spend, which will obviously increase with time,” Wachira noted.

At the end of October, Kenya’s government signed a Joint Development Study Agreement (JDA) with Tullow Oil, Africa Oil, and Maersk Oil for a proposed Lokichar-Lamu crude oil pipeline between the Turkana county and the Lamu port on the coast. The actual construction of the pipeline will depend on the completion of the Front End Engineering Design (FEED) and Environmental and Social Impact Assessment (ESIA). The pipeline is expected to cost US$2.1 billion and should be completed in the first quarter of 2021, Kenya’s government said.

By Tsvetana Paraskova for Oilprice.com

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