VZCZCXRO1058
RR RUEHGI RUEHRN
DE RUEHNR #2144/01 1410917
ZNR UUUUU ZZH
R 210917Z MAY 07
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 9814
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 NAIROBI 002144 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR AF/E, AF/EPS 
TREASURY FOR VIRGINIA BRANDON 
LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958:  N/A 
TAGS: ECON ENGR EPET EINV KE
SUBJECT: KENYA: STILL IN THE HUNT FOR OIL AND GAS 
 
REF: A. IIR 6 854 0110 07 (notal), B. Nairobi 0266 
 
     ¶C. 06 Nairobi 1637 
 
NAIROBI 00002144  001.2 OF 002 
 
 
Sensitive-but-unclassified.  Not for release outside USG channels. 
 
¶1.  (SBU) Summary: Despite coming up dry in a $100 million test well 
drilled earlier this year, Kenya's national oil company is pursuing 
additional exploration for oil and gas in the country.  China's 
national offshore oil company is currently a big player, but has to 
decide soon whether to move from the study phase to actual drilling. 
 Australian companies are also in the hunt for oil and gas. 
Meanwhile, the Kenyan government is prudently planning for improved 
transparency and accountability in revenue flows in the event of a 
major oil or gas strike.  End summary. 
 
--------------------------------- 
Trying to Recover From a Bad Well 
--------------------------------- 
 
¶2.  (U) As reported refs A-B, prospects for a significant oil or gas 
discovery in Kenya were dealt a serious blow earlier this year when 
a $100 million ultra-deepwater test well drilled by Australia's 
Woodside Energy came up completely dry.  The failure may lead 
Woodside to abandon further efforts to find oil or gas in Kenya, and 
the its failure to find hydrocarbons cast a pall generally over the 
sector. 
 
¶3.  (SBU) In a briefing May 16 for Government of Kenya (GOK) 
officials, attended by Econ/C, officials of the GOK-owned National 
Oil Company of Kenya (NOCK) refuted the perception that further 
exploration has stalled following the Woodside failure.  NOCK Senior 
Geologist Peter Thuo noted the presence of surface oil seep near 
Wajir in the Mandera Basin, as well as small oil discoveries in the 
Tertiary Rift Basin and the Anza Basin (the latter is believed to be 
linked to the Central Rift system of hydrocarbon deposits extending 
into Sudan).  While all of these are non-commercial discoveries, 
they strongly indicate the presence of additional hydrocarbon 
deposits, according to Thuo.  Kenya, he said, is pushing ahead in 
search and exploration, and NOCK is currently negotiating 17 
applications to perform exploration on 13 different blocks.  Other 
salient points from Thuo's briefing follow below. 
 
------------------------------------------ 
Who's In The Market and What They're Doing 
------------------------------------------ 
 
¶4.  (SBU) The Chinese: The China National Offshore Oil Company 
(CNOOC) has one-year study agreements in six blocks and a full 
production sharing contract (PSC) in a seventh.  The study 
agreements will expire shortly, at which time CNOOC will have to 
negotiate PSCs or abandon the blocks.  Thuo said if CNOOC exits, 
there are other companies interested in exploring the blocks.  Under 
the PSC CNOOC has for block L-4, it is obligated to acquire 500 km 
of seismic data and drill two wells within two years, followed by 
another two wells in the subsequent two years. 
 
¶5.  (SBU) The Australians: Origin Energy of Australia has PSCs for 
two blocks and has already acquired 3,758 km of seismic data. Under 
its PSCs, it is obligated to drill one well in each of the two 
blocks within two years.  Separately, Gippsland Petroleum has a 
contract on offshore block L-6 and has acquired 1,214 km of seismic 
2D survey data.  Fugro Airborne is also conducting an airborne 
gravity survey on Gippsland's behalf to acquire 4,474 km of 
additional seismic data in the shallow offshore and onshore portions 
of the block.  Gippsland is obligated to either acquire additional 
seismic data or drill two wells over the next four years.  Finally, 
Woodside Energy retains exploration rights in its two offshore 
blocks and will drill one additional well in each within three 
years, according to Thuo.  (Note: As noted ref A, however, it's 
possible Woodside will re-evaluate its position in Kenya and opt to 
pay a penalty to the GOK to avoid having to drill any additional 
wells.  End note). 
 
¶6.  (SBU) Others: Houston-based GX Technology (GXT) completed in 
March a large regional 2D seismic survey offshore Kenya, Tanzania, 
Mozambique, Madagascar, and the Seychelles.  The survey is 
non-exclusive and GXT is selling the results to any interested oil 
and gas exploration companies.  Norwegian firm Petroleum 
Geo-Services has been awarded a contract by NOCK to acquire 3,000 
kilometers of seismic and magnetic data offshore in the Lamu 
sedimentary basin.  Thuo noted that data accumulation is critical to 
attracting interest in exploring for hydrocarbons in Kenya.  In the 
past year, he said, NOCK has hosted visits from 18 scientists from 
 
NAIROBI 00002144  002.2 OF 002 
 
 
10 companies at its data center, and sold data packages worth close 
to $50,000. 
 
-------------------- 
Moving Ahead on EITI 
-------------------- 
 
¶7.  (SBU) The GOK, meanwhile, continues admirably to make 
preparations to submit itself to the disciplines of the Extractive 
Industries Transparency Initiative (EITI - see ref C) in the event 
of a major hydrocarbon discovery.  In opening the May 16 briefing, 
Investment Secretary Esther Koimett of the Finance Ministry spoke of 
"the new scramble for Africa" in which the competition is not over 
land or colonies, but natural resources.  To avoid the "resource 
curse," she and NOCK officials advocated persuasively for adoption 
and implementation of EITI systems and standards in Kenya to assure 
transparency and accountability in revenue flows stemming from any 
future oil or gas find.  This, said Koimett, is a necessary first 
step in making sure any future oil wealth is used to enhance 
long-term economic development that benefits all Kenyans.  She and 
NOCK officials repeatedly contrasted success stories, such as the 
United Arab Emirates and Botswana, with the failures, such as 
Nigeria, to point out the risks and opportunities Kenya would face 
in the event oil or gas is discovered.  Kenya, they argued, needs to 
have the institutional framework in place before the money starts to 
roll in. 
 
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Comment 
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¶8.  (SBU) NOCK is a small parastatal with few resources and even 
less political clout.  However, its leadership is sophisticated and 
principled.  The company appears to be doing a commendable job in 
attracting new interest in oil and gas exploration after the 
Woodside debacle, and it is also doing the right thing by pushing 
for implementation of EITI.  The only thing missing now: An actual 
oil or gas discovery. 
Ranneberger