Exhibitors from over 22 countries participating at Kenya's Biggest Int'l. Trade Exhibition

South Sudan, which split from Sudan in July under a 2005 peace deal that ended decades of civil war, is an oil producer, while commercial oil deposits were found in Uganda, and there are vast natural gas deposits in Tanzania and Mozambique.

President Mwai Kibaki said in a statement read on live television that Tullow had encountered in excess of 20 metres of net oil pay, and would drill more wells in the area to ascertain the commercial viability of the find. "This is the first time Kenya has made such a discovery and it is very good news," Kibaki said. "It is however the beginning of a long journey to make our country an oil producer, which typically takes in excess of 3 years." Shares in Tullow jumped 2.5 percent in London immediately after the announcement of its oil find in Kenya.

At a joint news conference with Tullow executives, Kenya's Energy Minister Kiraitu Murungi displayed a glass bottle of the "light waxy crude oil" found by the company. "We will make sure that the oil in Kenya is a blessing for the people of Kenya and not a curse," Murungi said, in reference to other countries whose people remained mired in poverty despite having struck oil. Analysts said although it was still too soon to tell the significance of Tullow's discovery, with the exact quantity or deposits as yet unknown, it was worth noting that Tullow had stated that the find went beyond their expectations.

"This is likely to attract interest from other explorers in the coming months, keen to take advantage of this early find," London-based Marc Mercer, Africa associate at the Eurasia Group, a political risk consultancy, said. "If considerable reserves are found along the quantity discovered in Uganda, then this is somewhat of a game changer for Kenya and they are well placed to develop the industry for export given their geographic location."

Kenya is positioned on Africa's east coast, which could be a hub serving fast-growing Asian markets through its Mombasa port and the Lamu port, now in the initial stages of construction. MORE DRILLING TO FOLLOW Tim O'Hanlon, Tullow's vice president for Africa told reporters his company had been drilling the well since January this year, and it was the first prospect to be tested as part of a multi-well drilling campaign in Kenya and Ethiopia.

Tullow Oil operates Kenya's block 10BB with a 50 percent working interest and Canada's Africa Oil Corp. (AOI.V), which holds the remaining stake. Africa Oil's shares also rose after the announcement. Tullow said it had been drilling the Ngamia-1 well on block 10BB, in the Lokichar basin in Turkana County. The well had reached a depth of 1,041 metres at the time of discovery.

"We have many other prospects to drill of this size and even larger ones, and we will do that," O'Hanlon said. "We have had similar discoveries in Uganda... I guarantee you that Tullow will now accelerate its efforts to make the dream come true for everybody." Tullow discovered oil in Uganda to the west of the country, along the border with the Democratic Republic of Congo, in 2006.

UK's BG Group (BG.L) said on Monday it discovered more gas than estimated off the coast of Tanzania. Kenyan officials told Reuters Nairobi would include a tax break for firms exploring for oil and gas in a new law, in a bid to attract even more investments in the sector.

Kenya has a need to reduce its own energy imports by converting its oil-fired electricity generators to indigenous clean gas. Its proximity to the expanding energy markets of East Africa and the Asian sub-continent mean there are additional markets available for immediate product uptake.

Industry News
Offshore Kenya is becoming very active for oil exploration, with the recent entry of major companies including BG Group, Apache, Tullow and Anadarko.

Tullow Oil Plc (TLW), the London-based explorer with the most licenses in Africa, plans to sink two test wells in north- western Kenya this year and early 2012, while U.S.-based Apache Corp. (APA) may drill offshore next year, Heya said in an interview yesterday in Nairobi, the Kenyan capital. Spending on exploration and drilling is estimated at $126 million, and other companies may follow as more plans are approved, he said.

"The level of activity is at a high and we think once Tullow starts drilling we must prepare ourselves for even more interest," Heya said. "The more wells that are drilled, the faster a discovery will be made."

Exploration companies are increasing spending in Kenya as neighboring Uganda, with an estimated 2.5 billion barrels of oil reserves, prepares to become a crude producer next year when Tullow expects to start pumping from the Lake Albert Basin. Only 32 exploratory wells have been drilled in Kenya. That compares with 480 in East Africa, 14,500 in the west of the continent and 19,000 in north and central Africa.

These two companies have also brought down size of their license in Block L8, which lies next to Block L9. This has been a part of a reviewed agreement with National Government of Kenya. They have identified areas that have been retained by them as being rich in oil and gas resources. This includes Mbawa structure, which is capable of containing 5 billion barrels of oil.
Origin Energy Limited is also providing financial backing to a three dimensional seismic program, which is worth $10 million. It is well known that Kenya does not have any oil reserve. This is why Kenya oil and gas industry has been supporting any overseas company that wants to look for oil and gas resources in Kenya. Upstream oil industry of Kenya is just about modest but is still very important as petroleum is a major fuel source for Kenya.

Following the two finds, Shell lodged a $1.6 billion bid for Cove Energy plc, the owner of an 8.5 percent stake in the Area 1 offshore block operated by Anadarko that is estimated to hold as much as 30 tcf of gas.

Shares in the Irish company jumped by just over 25 percent in the immediate wake of the announcement, with the offer price tendered by Shell representing a 26 percent premium on the average price of shares in Cove over the preceding five days.

A Total spokeswoman declined comment, but said it's normal for the company to look at opportunities in place where it hasn't yet explored.
Total's approach comes as Kenya attracts increasing interest from international oil giants in light of its proximity to other hot East African countries that have seen major oil and gas discoveries in recent years.

Africa is never an easy place to operate, given challenges of weak infrastructure and a reputation for corruption. But oil companies continue to view African countries—and increasingly, the relatively unexplored Kenya—as good options for new drilling.

In May, BG Group PLC signed production sharing agreements on two offshore blocks in Kenya, covering an area of 10,400 square kilometers in the Lamu basin. Tullow Oil PLC will start drilling in the fourth quarter of 2011. U.S. independent Anadarko Petroleum Corp. also has a big presence.

Nick Copeman, an analyst at Oriel Securities, said Kenya could be especially well positioned if there is success in neighboring Tanzania.
Despite the race from companies to gobble up acreage in Kenya, companies say it's too early to tell how much oil Kenya could hold. Mr. Heya described the current scramble for oil in Kenya as unprecedented. Kenya doesn't currently produce oil.

Andrew Cochran, the chief executive of London-listed Dominion Petroleum Ltd., said Dominion has been in talks with other companies interested in joining its Kenya venture, but that the company is still in early stages. Dominion will sign its second exploration agreement with the Kenyan government in the next six weeks, but it won't start drilling until it acquires seismic data.

Founder Hassan Hassan of British Columbia-based Simba Energy Inc., which last week joined the growing number of companies exploring in Kenya, said there's huge opportunity because some of its geology in Kenya mirrors that of Uganda, which has quickly risen following high-profile discoveries.