Kenya will not join the league of oil producing countries in the world despite the decade long activities of Tullow Oil Plc that had made residents of Turkana harbor hopes of prosperity.
by 
Kenya will not join the league of oil producing countries in the world despite the decade long activities of Tullow Oil Plc that had made residents of Turkana harbor hopes of prosperity.
The discovery, which ushered hundreds of community-based organisations and non-state actors working around the rights of natives regarding prospecting and mining also brought with it an investment dawn.
When I sojourned past Lodwar town towards Lokichar and Lochwaa, Grace Akuwam looked pensive as the wind swept grains of soil towards her direction where she sat, waiting for her turn at the borehole despite the unforgiving overhead sun. It was five months ago when a local rights organisantion had approached her to participate in a march against Tullow Oil Plc.
Yes, the 68-year-old knows about Tullow Oil Plc, “this group of foreigners who came and made big installations on their land, fencing hectares and erecting huge unfathomable metals, that sometimes emit smoke.”
“People sometimes are not happy with the visitors who come to work here. They say that the visitors have not lived well and used the parcels of land given to them in a manner that pleases the community,” says Akuwam.
Akuwam hasn’t participated in the many policy discussions on oil at a national level, or technical and complex discussions on revenue and land acquisition associated with it. However, she is part of the anxieties that the community members have held since 2012 since the discovery of oil.
She wants to hear what comes out of a case filed by Kituo Cha Sheria, a human rights lobby on behalf of 13 children from the county who sued Tullow Oil for environmental degradation.
The petition filed at Lodwar Court seeks among other reliefs the compensation to the community for the loss of their animals which they argue have died as a result of waste dumped wrongfully in their localities by Tullow Oil Plc. They also want the company to be compelled to clean and remove all the waste they have dumped into the environment.
The residents’ plea is compounded by the thorny matter of Tullow Oil Plc’s payment to the community on leased land. For instance, in July, the payment of Sh258 million to the devolved unit turned into a bone of contention between a section of locals and the county leadership.
Turkana County where Tullow Oil Plc made an oil find ranks poorly in the poverty index. The Kenya Poverty Report Based on the 2022 Kenya Continuous Household Survey indicates that 4 out of 10 youth in the 15- 24-year category and 3 in 10 youth in the 18-35-year category were food poor in 2022, meaning Turkana is among top five counties where youths are unable to feed themselves adequately.
The report also shows that Turkana County is among devolved units with the highest poverty gap at (20.4%) ahead of Mandera (17.9%), Marsabit (15.2%) and West Pokot (14.3%) counties.
In the Turkana County 2024 Long Rains, Food and Nutrition Security Assessment Report by the Kenya Drought Management Authority, livestock keeping is the main economic activity in the county with over 60% percent of the households depending on livestock as their main livelihood, while 12% of county population is composed of agro-pastoralists who grow crops and keep livestock.
The high expectations from oil drilling has borne contention on how to share-out proceeds from the company to the devolved unit. The contention at some point saw a meeting in Lokichar town to deliberate on the release of the funds end in disarray. The meeting was attended by Turkana South MP Ariko Namoit, Lokichar MCA Samwel Lomodo, county government officials, Tullow Oil representatives, elders and religious leaders.
Just like Akuwam who had high hopes of prosperity following the oil discovery, the prospects were greeted with nationalist fervor. Pundits, officials, and their surrogates played avatars to the proposition that the biggest East Africa economy would soon get its economic wishes fulfilled by an instant oil bonanza.
Some got inspired and migrated to Lodwar and other sprawling urban centres in Turkana and northern Kenya for labour and capital into oil production. Others launched community based organisations checkmating oil companies against environmental degradation and labour rights.
After Tullow Oil pitched a tent in Turkana, there has been an uptick in investments, from hotels; some even named Black Gold- to microfinancing, all meant to cater to oil activities.
Still, while many welcome economic opportunities, community-based human rights groups have documented countless local complaints: land seizures, forced displacement, pollution, water extraction, and bribery, just to name a few.
The prospect on what Turkana oil could bring to the residents and the country was bolstered by the fact that as of 2016, Kenya had begun pursuing plans to link its proposed Kenya Crude Oil Pipeline, also known as the Lokichar–Lamu Oil Pipeline, with a new pipeline to South Sudan’s oil fields, for increased oil export through Kenya’s Lamu Port.
The LAPSSET Corridor Program includes Kenya, Ethiopia, and South Sudan. The project consists of major highway, crude and product oil pipelines which aim to further integrate the region. Regarding South Sudan, the crude oil pipeline will connect Lamu to Isiolo to Juba.
The project itself has since run into multiple difficulties regarding its partners. Uganda left the project in favour of linking its gas infrastructure with Tanzania. Similarly, Ethiopia’s commitment looks precarious due to its recent partnership with Djibouti to build the Horn of Africa Pipeline. South Sudan’s support remains inconclusive due not only to its internal conflict but also very low oil prices. However, Kenya seeks to continue with the massive project.
For policy makers occasioned to air-conditioned boardrooms in Nairobi or Washington, the oil find was timely because, in the face of global economic strife, the state of Kenya’s foreign exchange reserves has never been too good. Depressed oil prices bode ill for marginal oil producers. The nation’s public budget is also not quite under control. Foreign exchange reserves are therefore significant for the contribution they make towards meeting a country’s foreign currency obligations.
The journey of Tullow Oil’s exploration of oil in Turkana has been tortuous, and that can now be compared to Waiting for Godot; a play that is a typical example of the theatre of the absurd, that describe a situation where there is waiting for something to happen, but it probably never will.
When Tullow Oil plc recently confirmed its continued commitment to its project in Kenya during a Senate Committee of Energy hearing, it was another umpteenth time in the over one decade that the company has been in the country.
Speaking at the Committee session, Tullow Kenya BV Managing Director Madhan Srinivasan confirmed that Tullow is working closely with stakeholders, including the government, the Energy and Petroleum Regulatory Authority (EPRA), and the host community. He also confirmed that Tullow now has a strong balance sheet and the technical capability to develop the Turkana oil resources.
Srinivasan commented: “Tullow submitted a Field Development Plan (FDP) in March 2023 and we are working on final revisions following feedback from EPRA. Upon reaching final approval, we can commence critical work streams to enable the project to reach a Final Investment Decision (FID).”
“Tullow has operated the Kenyan assets and spent over $2 billion since the first discovery in 2012, which returned a discovery of 585 million barrels of oil. Tullow continues to be committed to bringing broader social benefits from its operations, such as community water boreholes, which continue to benefit around 20,000 households per year,” he told the committee.
The elephant in the room has been Tullow Oil Plc’s interest in the Turkana oil project if a decade later its activities are not bringing any prospects to Turkana residents and Kenyans.
Tullow Oil plc has been posting impressive profit results in international bourse, indicating that it is capable of solely undertaking the Turkana Oil project. For instance, in its 2024 half year results, it had first half revenue of $759 million, gross profit of $460 million and profit after tax of $196 million.
After an impressive posting, Rahul Dhir, Chief Executive Officer, Tullow Oil plc said, “During the first half of 2024, Tullow has continued to deliver strong operational and financial performance. We are pleased to report improved results across key financial metrics compared to the first half of 2023; with higher production and oil price realisations combined with lower expenditure.”
During the release of its profit results, the company, just like its Kenyan subsidiary, announced that it continues to work collaboratively with the Government of Kenya as they evaluate the amended Field Development Plan (FDP).
“The Energy and Petroleum Regulatory Authority (EPRA) has provided useful feedback and the FDP review period has been extended for a further six months to 31 December 2024. Tullow is continuing its cooperation and collaboration with the Government to reach final approval of the FDP. Discussions continue with prospective strategic partners for this project,” notes the company in its 2024 Half Year Results report.
There are several reasons why Turkana’s oil may not soon flow as expected. For instance, the Institute of Economic Affairs, in October 2020, through a research paper by Emmanuel Wa- Kyendo examined the quality of oil mined in Turkana and noted that generating profits from drilling is a matter of optimising price and cost, and that alongside the oil quantum, the quality of oil is an important determinant of production cost.
“Experts hold that Kenya’s Lokichar crude is light and sweet with an API of 32-38 and sulfuric content below 0.5%. The quality of Kenya’s Lokichar crude is at parity with UK Brent oil. Importantly, Kenya’s oil has a 40% waxy content. If not kept at temperatures above 40 degrees Celsius, the waxiness of this oil reduces its viscosity. This drives up transportation costs as pipelines and trucks must be specially equipped to keep the oil at a desirable temperature,” notes Wa-Kyendo.
The paper continues to aver that despite the true breakeven cost of Turkana crude oil remaining unavailable as of this writing. In August 2019, Kenya sold its first export of 200,000 barrels of this oil for US$60 per barrel.
Turkana oil is extracted almost 800 kilometers away from the port of Mombasa – the closest port. Oil tankers impose minimum loading requirements for crude oil. A long distance from the port and low production rates combined forced the producer to stock the 200,000 barrels over a matter of months before they met tanker requirements. Turkana crude oil becomes solid at temperatures below 40 degrees Celsius. Whatever the actual production costs may be, Turkana crudes’ waxy content requires that oil transportation methods – whether by road or pipeline – include costly heating mechanisms. It seems that no matter how one looks at it, Turkana crude does not rank among the cheapest to produce.
The institute elaborates that Turkana crude is small in quantity and of a quality that increases extraction challenges and costs. These two factors make for a crude oil that is markedly inefficient to produce.
Based on the quantity of proven reserves and the quality of the crude oil, it is highly unlikely that Kenya would become a market maker. It must take the prices that the markets set. In the region, the economic viability of South Sudan’s oil has been proven to a greater degree than that of Kenya.
Tullow Oil plc’s unending about-turns and twists in its exploits in Kenya have seen it attempt to work with other companies who have since pulled out. For instance, In July of 2024, it was announced that Africa Oil Corp still had liabilities amounting to $1.8 million for its operations in the country and another claim of an unspecified amount from the local community, a year after it exited the three oil blocks in Turkana oilfield.
Africa Oil, a Canadian oil and gas company, in a report to its shareholders for the first quarter of this year, put its “accounts payable and accrued liabilities” at $11.8 million down from $14.2 million in December last year relating to its exit from Blocks 10BB, 13T and 10 BA on June 30.
Its liability is likely to increase as the company disclosed it was informed of another claim of an unspecified amount from the local community.
After the exit of its subsidiary, Africa Oil Kenya BV, the parent company revealed in its half-year results for 2023 that it had settled $15.5 million between April and June in 2023 to the Kenya Revenue Authority and other undisclosed partners. The firm says it is still awaiting the government’s approval to transfer its interests and future obligations in the three oil blocks to Tullow Oil.
Until May 2023, the three blocks were owned jointly by Tullow Oil, which had a 50 percent stake, TotalEnergies (25 percent) and Africa Oil (25 percent). However, Africa Oil and TotalEnergies left the joint venture “unequivocally and unconditionally” raising doubts on the viability of a project the country had once staked its hopes of altering its economic fortunes by joining the oil-producing club.
In March it was also announced that the evaluation of a field development plan (FDP) submitted by Tullow Oil for the Turkana oil fields had been extended to June.
The company, which fully owns the rights to the project, had initially expected the review of the FDP to be completed by the end of March 2024. The Energy and Petroleum Regulatory Authority (EPRA) initially said the decision on the revised plan would be made by June 2023, but the Ministry of Energy and Petroleum later pushed the deadline to September. The FDP was initially submitted to the government in December 2021 but was later revised to make it economically viable at lower global crude oil prices.
The revised FDP, which followed an audit revealed there are commercially recoverable oil reserves in Turkana that are at least 14 percent larger than previously estimated.
The audit by British petroleum consulting firm Gaffney, Cline & Associates led the firms to revise the production capacity of the oilfields to 120,000 barrels of oil per day (bopd), up from previous estimates of 70,000 bopd.
This saw the revision of the FDP that has increased the size of the crude oil processing facility in Turkana and the size of the pipeline to transport the oil to Lamu, increasing the projected cost of the project from Ksh 319 billion ($2.23 billion) to Ksh 377 billion ($2.64 billion).
The revised FDP also increased the diameter size of the planned Lokichar-Lamu crude oil pipeline from 18 inches to 20 inches to handle a higher product volume and drilling of additional exploration wells.
However, the final decision on whether the revised FDP is accepted or rejected will be made by parliament. The final investment decision (FID), Tullow says, will be made once it receives and finalizes an acceptable offer from a strategic partner. The FID also hinges on whether it will secure approvals from the Kenyan government regarding the provision of the required infrastructure for the project such as a crude oil pipeline and fiscal terms.
Since the Turkana field was discovered in 2012, estimates of its scale and profitability have been volatile. On the one hand, Tullow, as the operator, has continued to add to its estimate of the overall resource in place.
The unending circus of Tullow Oil plc’s presence in Turkana suggests a possible Illicit Financial Flow (IFF). Former Petroleum Cabinet Secretary John Munyes said that the Turkana oil deal that was signed between Kenya and Turkana oil exploration firms will be kept as a secret from the taxpayers.
The deal that was expected to raise a total of about 300 billion shillings from international financiers was an effort to improve and speed up the development of the South Lokichar oil basin.
The agreement covers aspects such as the cost recovery, fiscal review and task incentives. However, the secretary declined to share the copies of these terms with the members of the media.
According to a report by the Global Financial Integrity (GFI) published in July, 2024 titled “Illicit Financial Flows Risks Related to Beneficial Ownership in the Mining Sector in Kenya,” there are serious deficiencies in the current system in a way that thwarts transparency and accountability in curbing illicit financial flow in the extractive sector.
The report examines the regulatory and legal framework governing Kenya’s mining industry and offers an in-depth exploration of the challenges and gaps in implementing and enforcing beneficial ownership in the country.
Among the recommendations in the report include an analysis of the existing tax frameworks, with a focus on the identification of potential vulnerabilities and loopholes that could facilitate illicit financial activities.
The report also avers that the measurement of illicit financial flows is quite difficult in view of the difficulties associated with determining and measuring illicit activities such as unrecorded movement of cash from a nation, underreporting outflows and sales production transfer, mispricing as well as tax evasion.
In a 2024 report by European Commission on the tax motivated illicit financial flows titled “Study on Tax Motivated Illicit Financial Flows,” it was ascertained that resource discoveries often lead to weaker political institutions, enabling those in power to exploit their political position to capture these windfall profits, in the Tullow Oil plc project in Kenya, the decision to keep the contracts signed between the company and government has raised eyebrows since the action defies the article in the constitution that states that the public has the right to access information held by the state.
A research work by Catherine Njeri titled, “Governance Practices and Illicit Financial Flows in Kenya’s Oil and Mining Sectors,” published in 2021 examining the effects of governance practices in curbing IFFs in Kenya‟s oil and mining sectors by scrutinizing, transparency, stakeholder accountability and the rule of law as critical governance practices found out that despite the existence of key institutional and regulatory frameworks governing Kenya‟s oil and mining sectors, there still exists a huge vacuum in adequate transparency principles to facilitate prevention of illicit financial flows mainly due to a lack information symmetry from government and multinational companies with relevant stakeholders.
Another research report by Oxfam International titled, “The Use of Tax Havens in the Ownership of Kenyan Petroleum Rights,” by Don Hubert, PhD of the Resources for Development Consulting in 2016 places ambiguous deals such as that between Tullow Oil plc and the government of Kenya on the spot.
It notes that the initial allocation of petroleum rights in Kenya often bears little relation to the companies that subsequently hold those rights. It goes further to reveal that in some cases, the original rights holders agree to sell to other companies. The transfer then takes place following the approval of the Ministry of Energy and Petroleum (MEP). This happened, for example, in the case of the two most significant petroleum Blocks in the country – 10BB and 13T. Kenya has demarcated a total of 46 petroleum blocks with 41 currently licensed to oil exploration and production companies.
“The principal source of information provided by the government is a map of exploration blocks along with a list of the lead company. Unfortunately, the map itself is outdated and the information provided is incomplete. Some blocks have been relinquished since this map was published. Furthermore, the list of companies includes neither the legal names of the operators or joint venture partners nor information on the size of their respective stakes.”
Executive Director and Founder of Friends of Lake Turkana, a nonprofit organisation, Ikal Angelei believes that the government and the oil companies have an obligation beyond making agreement documents publicly available.
“The government and company should make the information understandable to people in the community by breaking down how the contracts relate to the use of land and water, and how the infrastructure could impact the free movement of pastoral communities and their animals,” says Angelei.
The environmentalist also thinks that the contracts should also be accessible to the entire population that will be impacted, which is dispersed across a vast swath of land, she said, meaning that “we need to think about being innovative around how people get information.”
