Next Up On Africa's Oil Parade...Kenya?

Todd Shriber
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Oil production may shrinking around the world, but give the continent of Africa credit for trying to do something about that situation. Already home to OPEC members Nigeria, Angola and Libya, the continent's top three producers, other African nations are looking to make their presence felt in the petroleum industry as well.

Over the past 12-18 months here on OilSlick, we have had a fair amount of news stories about new discoveries throughout Africa and major Western oil producers looking to expand their footprints in countries such as Ghana, Liberia, Mozambique, Sierra Leone and Uganda, among others. And last month, I highlighted the profit/peril situation faced by newly independent South Sudan as the country looks to attract foreign investment in an effort to tap a pretty decent haul of recoverable reserves. That commentary can be read (HERE).

Africa is the epitome of a double-edged sword for Western oil companies. Yes, there is oil there. A fair amount of it, too, and a place like Nigeria has light sweet crude, also known as the ''good stuff.'' The risks of operating in Africa are also heightened and not just because of environmental concerns. As if it is not bad enough that most African political regimes are far from hospitable to Western interests, they also have little control over violence targeted at oil assets and industry workers in their own countries.

How else does one explain Nigerian asset sales by Royal Dutch Shell (RDS-A) this year? Big oil companies are always selling assets they deem non-essential, but the primary reason Europe's largest oil company is reducing its Nigerian footprint is because of rebel violence there.

That makes the risks some Western oil companies are willing to take on Kenya nothing short of interesting. U.K.-based Tullow Oil is planing to drill two wells in Kenya between now and early next year and Apache (APA), the largest U.S. independent oil and gas producer, may drill off Kenya's coast next year, according to Bloomberg News. Earlier this week, Total (TOT), Europe's third-largest oil company, said it was looking to bolster its Kenya exposure, something you can read about (HERE).

Count BP (BP) and Anadarko Petroleum (APC) among the other Western majors that see some potential in Kenya. Again, all of this is very interesting and the fact that Western oil companies are eying Kenya underscores the peak oil argument for one very simple reason: Kenya does not have a single barrel of proven oil reserves.

The aforementioned companies are banking on Kenya showing some evidence of hydrocarbons because neighboring South Sudan has abundant oil reserves and another neighbor, Tanzania, is home to natural gas reserves. Uganda, another Kenya neighbor, has an estimated 2.5 billion barrels of oil reserves.

Oil companies spend lots of money on geologists and seismic studies, so Kenya is an educated risk. The neighbor has oil theory works...sometimes. Texas is major U.S. oil-producing state. So are Louisiana and Oklahoma. On the other hand, North Dakota is soaring up the oil totem pole in the U.S., but the same cannot be said of neighboring South Dakota.

The bottom line with Kenya is that oil companies are not doing anything new in terms of gambling on a location that does not yet show proven reserves. That has been done before. Same gamble, different country. That is what the oil industry is in Kenya at this point.

Todd Shriber