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Cablegate: Kenya: China Drilling for Oil in Isiolo

VZCZCXRO8323
RR RUEHGI RUEHRN
DE RUEHNR #2408/01 3291118
ZNR UUUUU ZZH
R 251118Z NOV 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 1636
INFO RUCPDOC/USDOC WASHDC 3245
RUEHRC/USDA FAS WASHDC 1872
RHEBAAA/USDOE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0501
RUEHGH/AMCONSUL SHANGHAI 0038
RUEHGZ/AMCONSUL GUANGZHOU 0005
RUEHSH/AMCONSUL SHENYANG 0020
RUEHCN/AMCONSUL CHENGDU 0025
RUEHHK/AMCONSUL HONG KONG 0101

UNCLAS SECTION 01 OF 02 NAIROBI 002408

STATE ALSO FOR AF/E AND AF/EPS

STATE PASS USAID/EA

COMMERCE FOR BECKY ERKUL AND USPTO OFFICE OF ENFORCEMENT

SIPDIS

E.O.: N/A
TAGS: ECON EINV EFIN ETRD ENRG SENV KE
SUBJECT: KENYA: CHINA DRILLING FOR OIL IN ISIOLO

NAIROBI 00002408 001.2 OF 002


This cable is not/not for internet distribution.

1. (SBU) Summary: The China National Offshore Oil Corporation
(CNOOC) is drilling for oil in the Isiolo region of Kenya. Kenya
won't realistically know until January 2010 if they have struck a
commercially viable deposit. To date, oil exploration in Kenya has
been unsuccessful. Kenya has no oil development framework in place
to deal with local communities and the environment although
preliminary work on a national framework has begun. The local
pastoralist group impacted by the oil drilling in Isiolo was not
consulted and is developing a grassroots organization to encourage
the creation of the national framework which should protect local
interests. In addition, questions remain as to whether an
environmental impact study was ever approved by Kenya's
environmental agency - the National Environment Management Authority
(NEMA). We have significant concerns that -- if not transparently
managed in an environmentally and socially sound fashion -- the
discovery of oil in Isiolo could be disastrous for Kenya, given the
culture of impunity here. End summary.

2. (SBU) The China National Offshore Oil Corporation (CNOOC) is
performing exploratory drilling for oil in the Isiolo region of
Eastern Province Kenya. The exploratory well will cost $26 million
and be five kilometers deep. The drilling started on October 28th
and will complete in April 2010. Per an engineer with the Kenya
National Oil Corporation (KNOC), the results should be known in
January 2010. CNOOC is making a serious effort to find oil in
Kenya. CNOOC was given six exploration blocks in Kenya after a
visit by President Kibaki to China in 2005 although they only retain
two blocks.

3. (SBU) Oil drilling to date in Kenya has been entirely
unsuccessful. Various private sector companies have drilled 31
exploratory wells from 1960 through 2007 and all have been dry or
shown only trace amounts of oil or natural gas. A U.S. Geological
Survey from 1993 established the possibilities of Kenyan oil and gas
deposits. In the survey, the Coast province was given the potential
for 100 million barrels of crude and 600 billion cubic feet of
natural gas. The GOK has mapped 38 blocks of land available for
exploration and still has 15 blocks available for oil companies.

4. (SBU) The last major effort involved Woodside, an Australian
firm, which abandoned offshore drilling near Lamu in 2007. That
block and four other offshore blocks are held by an American oil
firm, Anadarko Petroleum. Anadarko signed a production sharing
contract in April and will begin exploration activities in Spring
2010. Origin Energy, another Australian oil firm, is planning three
dimensional seismic mapping off the coast of Malindi. CAMEC
International, Platform Resources, and Africa Oil, a UK and two
Canadian firms respectively, are currently surveying the northwest
portion Kenya for drilling possibilities.

5. (SBU) Kenya's oil exploration and production contracts fall
under the Petroleum Act of 1986. The GOK does not provide oil
contracts for public review nor does it consult with the impacted
local communities. Civil society is very concerned about the
potential for corruption and the completion of the reform agenda
should oil be found. Comment: We share their concerns. End
comment. Questions concerning benefits to local communities and
environmental protection in the event oil is found go unanswered by
government officials. Procedures for rehabilitating the site in the
event drilling is abandoned have not been clarified. These issues,
in turn, are tied to reforms proposed for land ownership in Kenya's
draft National Land Policy. An energy sector contact told us that
oil would not be beneficial to Kenya until the creation and
implementation of a true national framework that would incorporate
local communities and environmental issues. KNOC is working on a
Kenya specific framework which would be compliant with the
Extractive Industries Transparency Initiative (EITI).

6. (SBU) The local Borana people impacted by the Isiolo drill site
were not consulted by the GOK about the details of the contract with
CNOOC or the use of the trust lands on which they reside. The land
is used by the pastoralist community as dry-season grazing and is
very much in demand as communities contend with the long-running

NAIROBI 00002408 002.2 OF 002


drought. A Borana leader reached out to the Embassy for help in
networking with organizations that could help them. They are
networking with local and regional government as well as civil
society to advocate for a national framework that will protect local
interests. They are also meeting with the Ministry of Energy to
learn more details about the agreement signed with CNOOC and to
frame the process moving forward. The Borana leadership reached out
to the EITI program but were rebuffed as the GOK must initiate the
process to participate in EITI. A representative of KNOC noted that
the local people had misunderstandings as to the national nature of
the oil contract and after it had been explained, the issue was
resolved.

7. (SBU) The environmental impact of the drilling, development of
the site, and production could be substantial. While the
representative from KNOC stated that an environmental impact study
had been completed, neither NEMA's Compliance and Enforcement
Department nor the local Borana community, both of whom would have
been consulted in the normal course of the assessment, were aware of
it. If oil were found, an environmental study addressing further
development, such as storage tanks, pipelines and roads, would need
to be approved by NEMA. The construction of additional wells and
infrastructure could have serious environmental and land impacts for
the Borana.

8. (SBU) Comment: If not transparently managed in an
environmentally and socially sound fashion, the discovery of oil in
Isiolo could be disastrous for Kenya. Corruption surrounding this
new-found wealth could add to an already highly corrupt government
at the expense of both the reform agenda and an already fragile
local community in an area where competition over land, pasture, and
water regularly leads to violent conflict. While the government's
attempt to create an EITI-compliant framework for Kenya is good
news, the total lack of transparency in oil deals to date does not
bode well for the future of oil development in Kenya. End comment.

RANNEBERGER

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