US-based ERHC, an international oil and gas exploration firm, has disclosed plans to start drilling at its block located in Turkana next year. This moves comes amid growing fears on the future of crude as prices continue to plummet.
The explorer said that it had completed seismic surveys on its Block 11A and together with its partner Cepsa, a Spanish multinational, intends to drill a well in the next 12 to 16 months. The company however admitted that the condition of the oil market is making it harder for exploration companies to secure funding.
Peter Ntephe, Chief executive of ERHC, noted that global oil markets are, “experiencing a downturn that has sharply constricted potential sources of funding for exploration companies and work generally.”
Current oil dilemma
Industry analysts believe that to guarantee a viable future for the Kenyan oil and gas industry, the commodity must sell for at least $90 per barrel. But global prices have fallen below $70, raising scepticism over the profitability of any present investment, including that of ERHC. Other oil and gas exploration firms have started cutting investments and are prioritising savings.
“In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success,” said chief executive of Tullow Oil, Aidan Heavey in mid-November.
Swala Energy, an Australian oil and gas explorer with interest in Nyanza region of Kenya, has dropped plans to raise AUD 5 million ($4.2 million) due to what it described as an unfavourable market. The company had planned to use the funds for further exploration in its Kenya and Tanzania blocks.
Kenya’s Institute of Economic Affairs (IEA) however says that the emergent oil and gas industry is expected to bring Kenya a revenue of about Sh360 billion ($4 billion) annually, although the current state of the oil market poses the greatest threat to this potential windfall.