First significant gas found offshore Kenya: partners

LONDON/NAIROBI Mon Sep 10, 2012 10:09am EDT

An oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, is seen in Turkana County, in this undated handout photograph. Kenya announced on March 26, 2012. REUTERS/Tullow Oil plc/Handout

An oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, is seen in Turkana County, in this undated handout photograph. Kenya announced on March 26, 2012.

Credit: Reuters/Tullow Oil plc/Handout

LONDON/NAIROBI (Reuters) - Oil explorers have made the first major discovery of gas offshore Kenya, they said on Monday, underlining East Africa's potential to be one of the next great hydrocarbons producing regions, although the news was twinged with some disappointment that no oil has yet been found.

A series of recent discoveries offshore Tanzania and Mozambique has cemented the future of East Africa as a major new supplier of gas to energy-hungry Asia, but attention has now turned to the potential for deepwater oil deposits, which would be easier to exploit.

The Mbawa-1 well, drilling around 70 kms off the coast of Malindi, found about 52 metres of gas in its shallowest target, said Britain's Tullow Oil and Australia's Pancontinental Oil & Gas, which have a 15 percent interest each in the licence consortium.

Drilling operator Apache Corp holds a 50 percent interest and Origin Energy ORG.AX the remaining 20 percent.

"We had high expectations … that prospect was supposed to have oil and gas," said Martin Heya, Kenya's petroleum commissioner, in an interview with Reuters.

"For me, I expected much more, but that 52 metres (of natural gas) is a good start," he added.

Tullow and Pancontinental said the well could still encounter oil. It has so far reached a depth of 2,553 metres with drilling set to continue to a total depth of 3,275 metres.

"With drilling continuing to a deeper exploration target, these interim results may be the first part of the story in this well, and they are certainly just the beginning of the main story of oil and gas exploration offshore Kenya," said Pancontinental's chief executive Barry Rushworth on Monday.

COSTLY GAS OUTLAY

For gas to reach customers, firms must liquefy it to make it easily transportable, meaning Kenya needs to build costly liquefaction facilities, which run into billions of dollars.

The expense forces oil companies to secure customers before developing the resource. The process means it will likely be at least five years before Kenya can produce a natural gas find.

"If you're measuring on a scale of 1 to 100, finding oil would have been 100, finding gas is 70-80," said Mwendia Nyaga, a Nairobi oil and gas consultant and former head of state-owned National Oil Corporation of Kenya.

The country already has a ready market for natural gas, as Asia does not produce the resource on its own. However, Nyaga warned that if policy making did not advance quickly in Kenya, gas firms could face severe delays in monetising their finds.

Kenyan officials signed an agreement with British gas group BG last May, stating the East African country would write gas rules within 12 months, so the company would have guidance as it drills its own Kenyan offshore well later this year.

Heya said that time had lapsed and there still weren't rules in place, but the ministry and National Oil Corporation had requested help from the World Bank to draft gas policy.

"We have a lot of information, don't think we have been sleeping. (Creating rules governing natural gas exploration and production) is an extremely high priority," he said.

He added the lack of rules had not delayed the progress of BG Group and U.S. explorer Anadarko, which will drill an offshore well off the north part of Kenya's coast later this year.

However, encountering gas rather than oil in the Mbawa well means they may have to change their thinking about what's under Kenya's waters. "Right now it's a matter of looking at the model afresh," Heya said.

Shares in Australia-listed minnow Pancontinental surged 65 percent after the announcement to A$0.19, valuing the company at around $220 million, while shares in its much bigger partner, Tullow, were down 1.5 percent at 1383 pence by 1405 GMT.

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