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Kenya says aims for small-scale crude oil production by 2017

By George Obulutsa

NAIROBI, March 9 (Reuters) - Kenya aims to start small-scale crude oil production from fields in its northwest next year and has commenced work on road and rail infrastructure that will be used to transport it, Energy and Petroleum Minister Charles Keter said on Tuesday.

Africa Oil (LSE: 0QVL.L - news) and partner Tullow Oil (LSE: TLW.L - news) first struck oil in Lokichar in northwest Kenya in 2012. The recoverable reserves total an estimated 600 million barrels, which will feed into a crude pipeline from Uganda when built.

Africa Oil and Tullow were 50-50 partners in blocks 10 BB and 13T where the discoveries were made. Africa Oil has since sold a 25 percent stake in those blocks to A.P. Moller-Maersk .

Keter said they were proceeding with plans to start small scale production by next year, and that roads connecting the oilfields to Eldoret, in the west, were being improved, along with a railway from Eldoret to the port city of Mombasa.

"The production which we have talked with Tullow, with oil prices at $30, they will be able to produce about 2,000 barrels per day. But they are not going to go into full-scale production for commercialisation," Keter told a news conference.

Tullow said in 2014 production could start as early as 2016, but it would have to be initially trucked out by road and rail.

Last week, Tanzania and Uganda's presidents said the two countries were planning to build a pipeline from Ugandan oil fields to the Tanzanian coast, a move that could strike a blow to Kenyan pipeline plans.

Uganda, which has yet to start oil production, raised the possibility of a Tanzanian pipeline route last year.

Uganda's President Yoweri Museveni and Kenyan President Uhuru Kenyatta made a joint call in August to implement a pipeline via Kenya's northern region "without further delay".

Keter said they were still negotiating the best pipeline route, and the final decision will be made at the next meeting of presidents of the East African Community.

Resolving the pipeline route is vital in helping oil firms involved in Uganda and Kenya make a final investment decision on developing oilfields.

Tullow, Africa Oil and A.P. Moller-Maersk aim fore a final investment decision for commercial production in early 2017. (Reporting by George Obulutsa; editing by Edith Honan and David Evans)

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