U.S. firms double down on Africa as continent enters 'golden age' of production

KAMPALA, Uganda -- East Africa's emergence as a global oil and gas producer is drawing increased attention from leading U.S. producers, including Anadarko Petroleum Corp., which last week announced it would drill its first offshore wells in Kenya after making significant discoveries earlier this year in the Indian Ocean off Mozambique.

Anadarko's deal with Kenya's Ministry of Energy calls for the company to drill two exploratory wells at a cost of roughly $140 million each. But unlike in Mozambique, where the company has tapped a rich seam of natural gas in the offshore Rovuma Basin estimated at as much as 60 trillion cubic feet, the company said it would make oil discoveries the priority in Kenya because crudes are easier to process and ship.

Meanwhile, Marathon Oil Co. recently paid $32 million for an ownership stake in two Kenyan oil exploration sites from the Africa Oil Corp. of Canada and pledged to invest up to $25 million in exploration work over the next three years. "East Africa is rapidly becoming the most prospective oil and gas province in the world and the large, strategic land portfolio we hold ensures we will be at the center of industry activity," said Keith Hill, president and CEO of British Columbia-based Africa Oil.

Patrick Nyoike, Kenya's permanent secretary of energy, told Reuters earlier this month that drilling at the Anadarko sites -- known as the Kiboko prospect and the Kubwa prospect -- is set to begin in December. Anadarko owns 45 percent of the drilling licenses in the two offshore blocks, known as L7 and L11B, while the French oil giant Total SA owns 40 percent.

In Mozambique, Anadarko's exploration activity has spurred discussion of a multibillion-dollar liquefied natural gas facility that could export gas to energy-hungry nations in Europe and Asia. Speaking at an oil and gas conference in South Africa last week, Anadarko's vice president for exploration, Frank Patterson, said the proposed LNG facility could be significantly expanded from the current two-train plan to as many as eight trains, according to Platts, an energy information provider.


Report forecasts 'golden age'

Anadarko's announcements came on the heels of a new Ernst & Young report touting Africa's emergence as a global natural gas producer. The report, titled "Natural Gas in Africa -- The Frontiers of the Golden Age," states that while North and West African countries such as Algeria, Libya and Nigeria are known to have significant reserves, the greatest development potential currently lies in East Africa.

"While the West African gas growth will continue as flaring is reduced and local gas infrastructure is developed, the big future for African gas lies in the East of Africa with the massive offshore gas discoveries in East Africa, particularly in Mozambique and Tanzania," Ernst & Young said.

In addition to the established offshore fields, there is also growing interest in oil and gas discoveries in Africa's interior, where firms like Tullow Oil PLC of Great Britain, Total and the Chinese National Offshore Oil Corp. (CNOOC) have sunk tens of millions of dollars in exploration activities in northwestern Uganda along the Albertine Rift.

Uganda's oil reserves are now estimated to hold 3.5 billion barrels with 1.5 billion barrels of recoverable oil. Such prospects have triggered unprecedented exploratory drilling, and plans are under way for at least one refinery to process Uganda's crude into petroleum products.

Multinational firms have also discussed the prospect of a new oil pipeline that would move crude from production areas to market centers like Nairobi, Kenya; Dar es Salaam, Tanzania; and Kampala, where strong demand has triggered high gasoline prices. Such a line could also move oil to the Kenyan or Tanzanian coast, where it could be exported to international markets.

The spate of new discoveries is forcing many East African governments to play catch-up in developing policies aimed at balancing drilling against environmental protection, as well as crafting revenue-sharing deals to ensure that oil and gas dollars don't flow only to private firms.

Uganda's Parliament is considering three bills addressing various aspects of oil and gas development, including provisions that would govern how and where drilling will occur, how revenues would be split between government and private-sector players, and whether Uganda's oil should be reserved for domestic consumption or exported.

Tanzania is also expected to adopt new legislation in the coming weeks governing its oil and gas sector after the government came under increased pressure from advocacy groups to reform its policies before issuing a suite of offshore leases.

The Tanzanian government has also said it would renegotiate up to 26 existing oil and gas contracts with hopes of securing more revenue for government coffers. The push comes after several major discoveries by international firms, including Statoil ASA, Ophir Energy PLC and BG Group PLC.

Like what you see?

We thought you might.

Start a free trial now.

Get access to our comprehensive, daily coverage of energy and environmental politics and policy.