GoK and KJV Sign a Joint Development Study Agreement for Lokichar-Lamu Crude Oil Pipeline.

pipeline

By Tullow Oil

The Lokichar-Lamu crude oil pipeline on 24th October took a significant step forward following the signing of a Joint Development Study Agreement (JDA) between the Government of Kenya and Tullow Oil, Africa Oil and Maersk Oil (KJV Partners), to carry out a study for the proposed 820 km crude oil pipeline.

The study includes Front End Engineering and Design (FEED) for the crude oil pipeline consisting of drafting engineering designs, timelines, specifications, costing, standards, local content requirements, route optimisation, Environmental and Social Impact Assessment (ESIA) process, financing options among other items.

“This is an important step forward for the Kenya Joint Venture and the future of oil and gas in Kenya. We look forward to getting to work and reporting our findings following the completion of this critical study,” said Tullow Country Manager Martin Mbogo on behalf of KJV partners.

“The Government of Kenya is committed to the development of a modern midstream infrastructure to evacuate Kenyan crude oil to the international markets and this agreement marks a significant milestone to realising this goal,” MoEP CS Charles Keter said.

JDA FAQs

Are you trying to “lock in” preferred contractors for this project?
No. This not a contract award. The focus of the JDA is on starting the process of tendering two major pieces of work – the Environmental and Social Impact Assessment (ESIA); and the Front-End Engineering Design (FEED).

What consultations have been done with the stakeholders in Turkana, Lamu and the other 3 counties that the pipeline will traverse?
This Agreement engages the Ministry of Energy and Petroleum in order to conduct ESIA which includes detailed stakeholder engagements with all stakeholders.

You postponed EOPS to allow for the Petroleum Bill to be passed by next parliament, why couldn’t this Agreement wait as well?
This is a study agreement on the pipeline project. It is not tied to EOPS implementation nor the Petroleum Bill.

What is the Joint Development Agreement (JDA)?
The JDA is an agreement between Government of Kenya, Tullow Oil, Maersk Oil, and Africa Oil concerning the planned 820km Lokichar-Lamu crude oil export pipeline and terminal. This represents a regional first where all relevant stakeholders – the Government of Kenya and foreign investors alike – have agreed the respective roles, rights, and responsibilities to support the successful delivery of the multi-billion dollar crude oil export pipeline. It is a strong step forward in the progression of the oil industry in Kenya.

So what’s next?
The immediate focus of the JDA is on progressing the tendering of two major pieces of work – the Environmental and Social Impact Assessment (ESIA); and the Front-End Engineering Design (FEED). As part of the pipeline design process, an experienced third-party contractor is needed to conduct a robust ESIA that will comply with Kenya NEMA regulations & international best practice standards

What is FEED? What happens and where?
FEED stands for Front End Engineering & Design. This comprises detailed engineering work conducted after the completion of an initial feasibility study on any large project. FEED studies are critical to identifying (and providing potential solutions for) any major technical issues that a project is likely to face; and to help further define the total cost of a project.

When will the ESIA and FEED contracts be awarded? To Kenyan companies?
The contractors participating in the FEED and ESIA tenders have been shortlisted through an Expression of Interest (EoI) process managed and implemented by the Government of Kenya through the Ministry of Energy and Petroleum earlier this year. The JDA parties will adopt the identified shortlist. The parties now plan to progress with the respective tendering processes.

What roles? What rights? What responsibilities?
The JDA specifically establishes a Pipeline Project Management Team, overseen by a Pipeline Steering Board. Both the Management Team and the Steering Board will be composed exclusively of representatives from the Government of Kenya and the KJV.

Contracts/ownership

What about contracts for the pipeline construction?
The JDA lays out some key principles for the development of the pipeline and storage terminal to occur in an optimal manner for Kenya and for investors. No contracts related to its construction have yet been tendered or awarded; this will be subject to a separate process at a time closer to FID.

Who will own the pipeline?
The JDA outlines the path towards the creation of a Pipe Company (“PipeCo”), which would own and operate the pipeline. In due course, the creation of the PipeCo will be accompanied by further discussions on ownership.

Where is the upstream investment coming from? GoK? Partners? Somewhere else?
The JDA only concerns the Kenya pipeline and does not talk to the future capital requirement. Largescale Oil & Gas developments typically utilise a range of capital investment sources. The financing solution for the upstream FFD in Kenya is still being finalised.

How much will the pipeline cost?

This is still to be determined [as per FEED reference above].

Doubles-down? What does that mean in this context?
The KJV have already invested a significant amount of capital (>$1.5bn) in exploration and appraisal activities in Kenya. The JDA – together with concurrent activities in the upstream development – allows Kenya and the KJV to realise the potential of this investment to date by progressing Full Field Development plans.

Routing/regional pipeline

What’s the pipeline route? How will it be defined?
The planned pipeline route is yet to be defined by the ESIA and FEED work but will broadly be in alignment with that defined by the LAPSSET project from Lokichar to Lamu.

Have you completely ruled out a pipeline connection to Uganda?
The Government of Uganda elected to choose a Tanzanian route earlier this year. This JDA explicitly underlines our focus on the Kenyan pipeline project.

Transparency

Is the JDA a public document? If not, why not?
Now that the Access to Information Act 2016 is operational, the parties to the JDA will be guided by the provisions of Sections 5 (Disclosure of Information by Public Entities) and 6 (Limitations of right of access to information) of the Act that provide guidelines on the nature of information to be released.

Market conditions

Does the recent rise in the oil price mean that this project is now financially viable?
The typical production timeframes of large-scale oil & gas developments – normally lasting anywhere from 20 to 50 years – meaning that the cyclical troughs of the oil price) can be mitigated by focusing on robust, cost-conscious developments. This being said, we welcome the recent rise in the oil price.

When is 1st Oil expected in Lamu?
The project is still in the planning phase and specific project timelines will be given at a later date.

What economic contribution/impact will this Project deliver to Kenya?
This piece of work is ongoing and details will be provided at a later date.

Source: Extractives Baraza

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