What entry of Total into Turkana oil basin means

Last week it was announced that Maersk Oil are selling to Total all their global upstream oil business which includes assets in the North Sea, Gulf of Mexico, Central Asia, Algeria and Kenya.

The Kenyan piece is the 25 per cent interest in Turkana that Maersk acquired from Africa Oil. Since this was an “all assets” sale package, it is too early to point out Total’s specific intentions on Turkana assets.

Total will have to make assessment of each Maersk asset and decide on keepers and divestitures, based mainly on value addition to Total global and regional portfolios.

Total is a company with strong investor capacity which includes capital, technology and markets and is the fourth largest global upstream player after ExxonMobil, Shell and BP.

Total Exploration & Production already has several offshore exploration blocks in the Lamu Basin and was in the news early last year when together with the Uganda government they tilted the decision on the route for Uganda oil exports in favor of Tanzania.

The company has become the dominant upstream investor in the Rift oil basins of East Africa.

In Uganda, Total is the main upstream player after it acquired a significant stake from its partner Tullow Oil early this year .The company is currently the key driver for the crude oil export infrastructure project.

Across Lake Albert in the Democratic Republic of Congo (DRC), Total has interests in oil blocks which are geologically similar to those in Uganda. In South Sudan, Total continues to discuss with the government their long-standing interests in Block B.

If oil is ultimately produced in all these prospects it will most likely be transmitted via the Uganda-Tanzania pipeline where Total will have a significant interest.

In respect of Turkana oil, Total may decide to boost their bargaining power by acquiring controlling interests through farm-ins from partners Tullow Oil or Africa Oil both with 50 per cent and 25 per cent interests respectively.

But before Total raises its stake, the company may want to be sure about the Turkana oil export route. And this would take us back to the familiar and not very comfortable debate on pipeline routing options.

It is possible that Total has not changed its views on the Lamu route, especially in respect of perceived insecurity which was the main deal-breaker during the Uganda crude export routing negotiations.

I also do not see Kenya giving ground on the Lamu Port South Sudan Ethiopia Transport (Lapsset) route because this remains the government policy route.

Kenya still sees security as a manageable challenge. Indeed even before Total entry, Kenya has been progressing modalities for development of the pipeline to Lamu.

It is not improbable that Total would be looking at an option of pumping Turkana oil to some location to link up with the UgandaTanzania pipeline. However, this may be an option coming too late.

Unless re-designed, the 216,000 barrels per day (bpd) line cannot take an estimated additional 80,000 bpd from Turkana.

There is also pressure from Ugandan stakeholders to complete the pipeline on time to pump first oil by 2020.

Either Total joins the Lapsset bandwagon and duplicates its pipeline investments in the region, or they persuade the Uganda-Tanzania pipeline stakeholders to accept project delays and accommodate Turkana oil.

I do not see a case where Kenyans accept this latter option. This then leads to a very likely scenario of Total divesting their recently acquired 25 per cent participation in Turkana oil to concentrate their focus on Uganda, DRC, and South Sudan.

Because of their capital and technology, Total participation in Turkana oil is a major value adding opportunity to Kenya and this should be the starting point for any discussions. It is, however, an opportunity with complications.

There is also obvious value for Total to maintain a foothold in Turkana to benefit from current and future potential of the basin. That is why Kenya and Total should weigh their options carefully and with flexibility strive to clinch a mutually accommodating arrangement.

In the meantime, the government should expedite the pending work on the upstream legal, regulatory and institutional systems which will be required to take Turkana oil to the next stage of development and exportation.

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