NOC/MOE MEDIUM SIZED RESEARCH PROPOSAL - [PROJECT] BRIEF

RESEARCH PROPOSAL - [PROJECT] IDENTIFIERS 1. Research Proposal [Project] name: Pre-Drill Targeting using a Petrophysical Joint Inversion of Magnetotelluric and Gravity Data for Enhanced Subsurface Imaging of Sub-Basalt and Sedimentary Environments for Hydrocarbon Reservoir Assessment 3. Block or area in which the project is being implemented: Kenya Block 14T 5. MOE focal area: Reduced Cost of Finding/Exploration & Development [$/bbl.] of Hydrocarbon Resources 2. MOE Implementing Agency: NOC
NOC: - from 1981; in charge of matters to do with Kenya Oil & Gas exploration and production function on an agency basis on behalf of the Government of Kenya through the Ministry of Energy & Petroleum until it signed a PSC with the Government on 15/11/2010

4. NOC eligibility: NOC-Kenya signed the PSC and is the eligible operator for Block 14T 6. Operational program: Promoting the Development of Block 14T through Basin Evaluation/Analysis; Maturing Drilling Prospect by Removing Barriers and Reducing Implementation Costs.

7. Project linkage to national priorities, action plans, and programs: Kenyas national interests are served through increasing and active participation in the exploration and developments of petroleum resources cost effectively. Government participation through NOC is critical to unlocking information asymmetry - lack of access and/or weakened negotiation position especially cost data thus leading to value retention locally and reserve value optimization. The project is urgent from the point of view that there is a need for a significant increase in reservoir assessment [initially using the available FTG & some MT data] of the northern part of block 14T to mature drilling prospect ahead of drilling exploratory test well planned for 2016. This will complement the reservoir assessment efforts on-going in the south of the block and which will include the integration of FTG, MT and Seismic data. The targeted exploratory drilling location of one well in the whole block will be selected on a priori basis contingent on the availability and technical success rate of prospect ID in any of the blocks three depocentres [one in the south, one in the central and one in the north]. Problems caused by the (complex geology) thick cover of volcanic ash that is concealing central to northern part of block 14T resources, difficult terrain and high population density are compelling NOC management to seek further assurance that the stratigraphic test well is actually targeting a zone of potential hydrocarbon deposits based on enhanced subsurface imaging of the sedimentary environment. Cost effective and less pervasive resource assessment limitations will thus present many challenges and may prevent NOC from drilling at these sites. The project is intended to overcome this barrier by providing the opportunity for use of pre-drill targeting using a petrophysical joint inversion of magnetotelluric and gravity data. The proposed project will accelerate and broaden a cost effective work programme in block 14T north through the transfer and adaptation of an advanced geophysical exploration methodology. A basic capacity for petroleum resource assessment exists at the National Oil Corporation - Kenya (NOC) through a team of engineers and geoscientists. The activities of this team have, however, been primarily focused on the southern part of 14T. While major hydrocarbon resources are anticipated elsewhere in the northern part 14T and the Kenyan Rift Sedimentary Systems [NOC future operations acreages], without further geophysical information hydrocarbon development costs will be prohibitive to small risk profile investors

like NOC/MOE. The proposed project seeks to remove this barrier to exploration investment by expanding NOCs geophysical exploration capacity and effort beyond 14T south. The expansion will include new MT geophysical equipment [optional contingent on NOCs accessibility to MT data from GDC/KenGen on affordable terms], practical training in advanced data analysis, and a field and drilling study of the new petroleum resources resource at 14T north. NOC plays a public role as the as Executing Agent for Petroleum Exploration and Development in block 14T for the Kenya Ministry of Energy and Petroleum under the current PSC. The knowledge base and services of the NOC Exploration and Production group are available to the public and private sector through consulting agreements. Initially, the advanced exploration methodology will be available to the East African petroleum community through these channels. Ultimately, under a separate initiative, NOC intends that such agreements would be extended or supplanted through an African Rift Sedimentary Basin Centre open to other countries in the region, financiers, financial mechanisms and technology providers. Plans to test drill for new petroleum resources in areas [in the north] other than 14T south are not being pursued due to lack of high-quality assessments. The proposed transfer of advanced methodology for location of zones of high/potential hydrocarbon deposits based on enhanced subsurface imaging of the sedimentary environment within hydrocarbon reservoirs would remove this barrier. With this methodology the cost of exploration can be reduced considerably by additionally involving limited/targeted deployment of seismic method and/or avoiding/replacing the seismic method completely if deemed unnecessary. In 2013, MOE/NOC and JOGMEG [a farm-in partner in 14T] completed an FTG and NOC supported pilot study of reservoir location and assessment in block 14T. The study focused on improving geological studies and potential mapping methods and interpretation in the block. A new higher-resolution, joint geophysical data collection and interpretation method based on this study should yield the high-quality assessments needed for further petroleum development. The method combines high-resolution [FTG] and electrical resistance [MT] measurements into a Joint Geophysical Imaging or JGI map of a potential reservoirs subsurface characteristics. The JGI methods will be used with existing FTG and the ongoing MT and seismic data acquisition to be completed Q2 2014 to develop a conceptual model of the 14T south. Its results will assist in the development and management of this known depocentre leading to prospect ID with the possibility of a replication in 14T north. The proposed JGI project will put into practice the lessons learned in the MOE/NOC and JOGMEG-supported study. The project will include the use of new types of instruments [optional contingent on quality, quantity and cost of MT data from GDC/KenGen], deployment schemes, and data interpretation methods to overcome the difficulties associated with Rift complex geology in 14T north, field conditions and/or difficult terrain. By combining the MT and FTG and possibly limited/targeted seismic exploration approaches, the JGI method will enhance the value of all these data and improve the targeting of high production wells by identifying high/potential reservoir zones. Fast tracking the development of the block 14T conveniently and cost effectively, is a NOC priority.
8. MOE national operational focal point and date of PSC endorsement:

CEO, National Oil Corporation - Kenya, 15 Nov 2010 PROJECT OBJECTIVES AND ACTIVITIES
9. Goal: Indicators:

Reduced cost of exploration and development [$/bbl.] Fast tracked exploration and development petroleum resources. of

Lowered exploration risk by increasing the deployment of inexpensive and a new highresolution methodology.

10. Project outcomes:

Indicators:

Accelerated petroleum exploration and development in 14T, Kenya, East Africa possibly including extension to other East African Rift Sedimentary Basin countries through private investor co-financed program for the region.

Improved assessments of petroleum resource potential for areas [14T north and future NOC operations acreages in the greater Kenya Rift Sedimentary Basin] outside of the known depocentre at [14T south].

A sustained capacity for improved petroleum Test well results improve so that average well technical success rate is greater than 65%. reservoir assessment in Kenya. Up front finding and drilling costs for petroleum resource development are reduced. Share of inexpensive and high resolution integrated non seismic methods gains over seismic methods in Rift complex geology and difficult terrain and densely populated areas in Kenya NOC consulting services in demand with subsequent involvement in regional expansion of similar projects.
11. Project activities Outputs:

1. The construction of a dedicated, electrical A dedicated MT instrument and expertise pool for resistance-MT instrument set, support laboratory, advanced petroleum exploration and reservoir transport, and field logistics capacity for expanded assessment. petroleum exploration and well-siting. [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] 2. The completed development and adaptation to Reports on a newly adapted JGI method that is 14T north and Kenya Rift sedimentary Basin of a focused on 14T north and Kenya Rift geology. combined or joint geophysical imaging electrical and FTG and possibly limited/targeted seismic data collection, analysis, and interpretation method. 3. The application of the JGI analysis and interpretation to the data collected with data from the new MT instrumentation. The siting of wells based on the JGI mapping.

4. NOC test drilling based on the results of the A drilling test demonstration of the new methods. joint inversion map of subsurface conditions. Potential reservoir zones will be targeted. 5. Technology transfer from French Institute of Advanced JGI training for a nominated NOC Petroleum [IFP] to NOC at both the scientist and exploration and production team and practical JGI technician levels. training for NOC technical staff members. Published petroleum journal papers and reports.

6. Development of a strategy for replication A strategy document for involvement of through technical assistance, policy development multilateral and national agencies in petroleum and financial instruments in the Kenya and Africa resources investment locally and in the region. Rift Sedimentary Basins. 12. Estimated budget (in US$): MOE : [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] $ 250,000 NOC & JOGMEG in-kind contribution to strategy development: NOC & JOGMEG (technical staff and vehicles/facilities) [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] Total Co-financing (in kind and cash) PROJECT TOTAL: INFORMATION ON INSTITUTION SUBMITTING PROJECT BRIEF 13. Information on project proposers: Proposer: $320,000 $570,000 $150,000 $50,000

Co-financing IFP School [equivalent French university] contingent on tuition budget (in kind): $ 120,000

National Oil Corporation - Kenya (NOC) as Executing Agent for Petroleum Exploration and Development for the Ministry of Energy & Petroleum. General Manager Upstream [Chief Projects Development Manager] AON Minet House Mamlaka Rd, Off Nyerere Rd 7th Floor P.O. Box 58567 - 00200, Nairobi, KENYA Phone 254-20-6952000 Fax 254-20-6952400 E-mail knyagah@nockenya.co.ke, http://www.nockenya.co.ke

Collaborator I:

IFP [or equivalent] PhD - Higher Degree Research Supervisor [TBC] School/Faculty Department Box ------------------ France City -----------------Phone ----------------Fax -----------------Email: --------------------http://www. -----------------Tsar Philip M. National Oil Corporation - Kenya Exploration and Production AON Minet House Mamlaka Rd, Off Nyerere Rd 7th Floor P.O. Box 58567 - 00200, Nairobi, KENYA Phone 254-20-6952000 Mob : +254722538737 Fax 254-20-6952400

Collaborator II:

Email: pagumbah@nockenya.co.ke ; tsar.philip2010@gmail.com, http://www.nockenya.co.ke 14. Information on proposed executing agency : NOC will manage and execute the monitoring and analysis operations of the project. IFP School [or equivalent] will provide technical leadership and advice on scientific aspects of the project. NOC/JOGMEG will execute the development of a strategy for the region. 15. Date of initial submission of project concept: Draft Concept Paper to Kivuti Nyagah : March 11, 2014 INFORMATION TO BE COMPLETED BY IMPLEMENTING AGENCY: 16. Project identification number: to be assigned 17. Implementing Agency contact person: Kivuti Nyagah, NOC Nairobi knyagah@nockenya.co.ke 18. Project linkage to Implementing Agency programs: The overarching goal of the proposed project is to reduce the cost and impacts of Kenyan petroleum resource development through deployment of inexpensive integrated technology in targeting highpotential exploratory test wells. The cost saving of eliminating even 1 or 2 less productive and/or dry wells will dramatically reduce petroleum resources development costs. The improvements in resolutions and interpretation promised by the JGI method will allow the targeting of highly productive wells and/or eliminating dry wells in potential reservoir zones. Thus, assessing potential of 14T north and the greater Kenya Rift sedimentary Basins with the JGI methods could dramatically increase petroleum exploration & development investment in Kenya. Whereas the 14T south has been nearly fully explored, this project supports exploration moving out to 14T north, as the next most highly ranked prospect. The value of the JGI method will be demonstrated by the drilling of a test well at 14T north by NOC/JOGMEG and other financiers. The projects direct outputs of resource information and test well results could assist efforts at broader exploration and development on the other prospects in Kenya and the East African region. The details of the JGI method and the results of the test will be published in peer-reviewed publications to support broader adoption. The project will also result in a modern instrument pool at NOC [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] to sustain future assessment activities. This proposed JGI project is consistent with MOE Operational Program 6: Promoting the Development of Block 14T through Basin Evaluation/Analysis; Maturing Drilling Prospect by Removing Barriers and Reducing Implementation Costs. The general objectives of the project are: Reducing the risk of petroleum exploration through transfer and adaptation of the JGI methodology Accelerating development and reducing the cost of petroleum resources extraction Establishing the capacity to provide JGI services.

The exploration and development costs associated with petroleum resources in the 14T north and the greater Kenyan rift sedimentary basin provide the rationale for the facilities and activities to be completed under this project. NOC/JOGMEG has successfully mapped by FTG potential basins in the 14T. The southern depocentre/prospects at Magadi have had some surface [geochemical micro-seeps survey; gore-sober] studies but no wells have been drilled at these sites. The sizes and full potential of the northern 14T other petroleum resources are not accurately known. Given the high costs of drilling, expansion of petroleum exploration and development in 14T north has thus been limited by its high risks. The goal of the project is to substantially reduce these barriers to rapid and low-cost petroleum development. This goal will be achieved by developing facilities and geophysical methods for

mapping high potential reservoir zones that are known to yield high-production wells. From past research, it is apparent that the number of wells drilled and risks in petroleum exploration can be reduced through a combined, or joint, geophysical mapping approach. This approach is based on seismic, electrical, and potential [gravity] measurements and analysis that also include geological information. The projects major tasks are threefold: Improve the existing capacity for making such measurements, Improve their joint data collection, analysis, and interpretation methods. Using the resulting knowledge to improve on reservoir assessment, monitoring and management.

The specific methods to be combined are magnetotelluric profiling (MT) and FTG - [potential] profiling and possibility of additional limited/targeted seismic profiling.

PROJECT SUMMARY SUSTAINABILITY ANALYSIS AND RISK ASSESSMENT The aim of this project is to provide a sustainable, value-added approach to petroleum exploration studies in the 14T north, including the potential new study areas in the greater Kenya Rift Sedimentary Basins. If this project is successful, the use of the method can be sustained through crude oil and/or natural gas sales and consultancy services. The commonly cited risks apply including the prohibitive cost of unconstrained seismic data acquisition in the rift complex geology, economic stability, and continuity of human resource capacity. The more specific risks involved in this project relate to whether or not the equipment pool [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] and the joint mapping campaign can improve resource location. Experience in petroleum development in the world [from analogous basins] shows that the geophysical methods proposed here will provide the most cost-effective subsurface information for drilling high production wells. The methods have been useful in identifying petroleum fields in Shetland Basin UK. We seek to improve on targeting potential reservoir zones so more accurate well-siting can cut petroleum development costs. STAKEHOLDER INVOLVEMENT NOC is the primary energy stakeholder in the project. Several members of the NOC Geophysics group will work on an in-kind basis on this project. NOC will keep the Kenya Ministry of Energy informed of progress in this project. The information and technical results generated by this project will be available to the public and private sectors through consultancy services. The Kenya Government will use the exploration results to attract foreign investment in the petroleum sector. NOC and IFP School will submit scholarly and summary papers to peer reviewed journals. IFP School, through its affiliate faculty, and NOC will be the primary publishers of information to scholarly stakeholders in the petroleum resource community. The indigenous peoples of the area are being employed in the field program for security [optional contingent on quality, quantity and cost of MT data from GDC/KenGen].

INCREMENTAL COST While the test of longer term impact of this work will be the relative cost of petroleum exploration and development based on methodology, incremental cost of the alternative activities proposed versus baseline activity in the specific domain of resource assessment relates to dedicated use of higher resolution equipment [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] by NOC exploration and production team. Advanced training of a local expert will enhance the ability to use and interpret the data, and provide this capacity in Kenya. Hydrocarbons can be found in volcanic rock sometimes in significant quantities. Geophysical and petrophysical methods originally developed for sedimentary accumulations are being used to evaluate these unusual reservoirs. Imaging of sub-basalt sediments with reflection seismic techniques is limited due to absorption, scattering and transmission effects and the presence of peg-leg multiples. Although many of the difficulties facing conventional seismic profiles can be overcome by recording long offset data, resolution of sub-basalt sediments in seismic sections is typically still largely restricted. Therefore multi-parametric approaches in general and joint inversion strategies in particular are considered as alternative to gain additional information from sub-basalt structures. The primary aim of the project proposed here is to help find drilling sites with greater reservoir potential, thereby reducing the number of dry exploratory test wells needed to explore the potential of 14T. If the technical success rate of exploratory drilling can be increased from 45% to 65%, then the development risks can be reduced, making the investment attractive and sustainable. The improvement of cost benefit ratio of well drilling will be accomplished through the JGI technique.

INCREMENTAL COSTS Baseline 1. Establish instrument pool Global Alternative Increment

[optional contingent on quality, quantity and cost of MT data from GDC/KenGen] Weak and sporadic support to advanced assessment No activity due to non availability of eequipment and facilities Ill equipped NOC laboratory and petroleum exploration & production team State of the art equipment Incremental costs and measurement associated with new techniques accelerate equipment/ facilities successful exploration National expertise and Capacity for advanced facilities become resource assessment recognized and competitive Laboratory upgrade with New equipment and new equipment operationalizing costs

Domestic

Cost

2. Methodology development Global

International research continues to be focused on developed country geologies

State of the art methods accelerate successful exploration

Transfer and testing of methodologies

Domestic

Techniques are not adapted to Rift Valley geologies; often facing volcanic rock [subbasalt] challenges Staff time in Kenya

Adapted methodologies and domestic capacity to further apply them

Knowledge of local geologies and experience in the region

Cost 3. Methodology application Global Advanced techniques applied to deep volcanic rock [sub-basalt] structures in other countries Techniques are not fully tested on Rift Valley geologies Continued lower level efforts

International technical cooperation

Partial costs of International expertise

State of the art methods applied to rift conditions

Transfer and testing of methodologies

Assessment results

Improved knowledge

Domestic

Cost

Focussed effort on new techniques and additional geographic areas

Enhanced assessment activity

4. Test Well Global Well drilling may not proceed NOC uncertain as to risks of drilling outside 14T south Drilling effort planned but not approved Resource assessment reduces the risk of drilling dry wells 14T north drilled Transfer and testing of methodologies Reduced risk bolsters confidence in drilling plans None

Domestic

No cost

Cost 5. Technology transfer Global

Domestic

Assessment capacity enhancement opportunity Interest and attempted replication of advanced techniques with existing data [no facilities] NOC staff efforts

Capacity in place to address opportunities in Kenya State of the art capacity

Extra costs of technology transfer Continued support to staff involved in the project Training costs

Cost 6. Regional Strategy Development Global One-off projects are not being replicated

Training costs and continued research effort

Replication of petroleum development investment will magnify cost benefit

Extra costs of regional meetings, consultation, strategy development

Domestic

Many countries in the region have experienced few investments NOC staff efforts

ration driving value addition & retention Regional expertise is recognized Training costs and continued research effort

Extra effort to participate in the strategy development Training costs

Cost

BUDGET Activity 1.Test facility setup [optional] 2.Methodology development 3.Field Application 4.Well drilling [optional] 5.Technology transfer 6. Regional Strategy Development Project Total (Project Costs): Component Equipment and expendables NOC Training for NOC Ph.D. IFP School [or equivalent] technical assistance: Field work Travelling, Transport Drilling costs one well in 14T Regional Meetings, travel, consultants Project Total (Project Costs): IMPLEMENTATION PLAN

MOE (US$) 0 55,000 45,000 0 47,500 102,500 $250,000 MOE (US$)

Other sources and in kind (US$) 0 128,000 22,400 0 118,400 51,200 $320,000

Project Total (US$) 0 183,000 67,400 0 165,900 153,700 $570,000 Project Total (US$) 0 165,900 183,000 67,400 0 153,700 $570,000

Other sources and in kind (US$) 0 0 47,500 118,400 55,000 128,000 22,400 0 51,200 $320,000

45,000 0 102,500 $250,000

The IFP Joint Geophysical Imaging Team and NOC will carry the primary responsibility for implementation of the proposed project. The plan is to begin the work with data acquired [optional contingent on quality, quantity and cost of MT data from GDC/KenGen] using the newfield deployment techniques to assist in siting one appraisal well in 14T north. In this phase, several training and methodology workshops and exchanges will be held. The responsibility for the research and development of the joint geophysical equipment [optional] and field methods will rest with the JGI Team both at NOC and IFP School. The primary responsibility for the proposed field campaign will rest with NOC. The training will include further graduate work on the JGI method by Tsar Philip Mitchel A. of NOC who will enroll in graduate studies at IFP. The Ph.D. research-and-development sandwich of field and office work will involve data collection and development of a joint inversion analysis software program for FTG, MT and possibly seismic data interpretation. The available commercial deployment and software analysis programs are not sensitive to the unique East African Rift geological setting and as such, they are not suitable in defining accurately the rock layers. We will collect and analyze a short run of data for use in identifying sites for appraisal drilling in 14T north. These results will then be used as a basis for developing the theory and instrument design.

Once the instrument pool is in place and the initial JGI field methods are established at NOC, a major field campaign will begin at 14T north. The information will also be useful for the long-term reservoir appraisal, development and management. It is important to confirm a viable resource in this area before drilling because of the high infrastructure costs. It is anticipated that the field campaign of data collection/analyses will extend over the second year of this project. The data from the field campaign will be analyzed both at IFP and at NOC. Exchanges and workshops with petroleum exploration and development experts will be held both at IFP and in Kenya. A subsurface geophysical map will be created to site exploration and appraisal wells, will take place at the end of the 2nd or beginning of the 3rd project year, or as soon as an acceptable map is available. The plan is to write up and submit several scholarly and informational papers and articles based on the results of the JGI studies, field campaign, and drilling tests. These efforts will be completed in the 3rd year of the project. Whereas ownership of non-expendable equipment/data remains the property of MOE unless transferred to the project executing agency, it is MOEs intention to transfer at least one half of the equipment /data (by value) to NOC for ongoing exploration and field maintenance in Kenya on completion of the project. The rest of the equipment/data may be reassigned to a regional nonprofit petroleum resource Centre serving Africa or a similar institution. MOE will execute the strategy development with the involvement of Kenya, Ethiopia, Djibouti, Uganda, Tanzania, and other countries along the Rift Valleys. The execution of financial mechanisms (risk guarantees) will be considered and mandated to the right agency. Other investors and technology providers will be included and would have access to the financial instruments and as co-financiers. A meeting at the beginning of the project will assess the barriers and instruments that would combine into a comprehensive program to facilitate investments.
ACTIVITIES Completion of project activities PROJECT-MONTHS 0 6 12 18

24

30

36

1. Facilities/Data 2. Joint imaging development 3. Joint imaging field campaign 4. Joint imaging guided drilling 5. Technology transfer and training 6. Regional strategy development MONITORING AND EVALUATION PLAN

xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx xxx - xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx xxxxxxxxx

IFP School and NOC will have primary responsibility for monitoring and evaluating the technical and managerial progress of this effort to further petroleum development in 14T north and Kenya. In addition to research and development exchanges between IFP and NOC, IFP will make several project monitoring visits to Kenya. These reviews will include preparation of quarterly Project Notes for the Stakeholders and biannual reports for the MOE. Feed back and involvement of other geothermal experts will be sought throughout the project. Outside the project budget monitoring (reviewing reports) and evaluation (independent evaluation) for this project is by the NOC as per MOE Implementing Agency requirements. IFP and NOC will monitor and evaluate all publications for their scientific and technical contents, and assure timely publication and distribution of the results of this project.

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MILESTONE / REPORT 1. Project organization 2. MOE Semi Annual Reports 3. MOE Final Report 5. Joint imaging Field Reports 6. Drilling Plan Reports 7. Drilling Results Reports 8. Technology Transfer Papers 9. Strategy document and project brief

RESPONSIBLE IFP & NOC IFP & NOC IFP & NOC Field Team NOC NOC & IFP IFP & NOC

PROJECT-MONTHS 0 6 12 18 x x x x x x x x x x

24 x x

30 x

36 x x x

x x

x x x x

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