Kenya Oil Company (Kenol) yesterday announced a six per cent profit increase in its half year results for March 2008, as it plans to press on with its expansion drive to regain lost market share.

The oil company's net profit rose to Sh437 million from Sh409 million, reflecting a combined earnings of its trading partner Kobil Petroleum Limited, which it acquired last December, and Kobil Ethiopia.

The oil marketer said it will remain on the expansion path as it seeks to reclaim its number one position in the local oil market.

"The group will continue focusing on expansion and profitable growth opportunities," said the group managing director, Jacob Segman in a statement.

The company's expansion plan sets stage for an intense battle among the top three oil firms-Kenya Shell, Kenol/Kobil and Total Kenya.

Latest figures from the industry lobby-Petroleum Institute of East Africa-indicate that last year, Kenya Shell was ahead of Kenol/Kobil in the industry's market rankings.

Shell's market share stood at 22.74 per cent compared to Kenol/Kobil's 21.1 per cent.

On the results, the oil company said high crude prices, disruption brought about by the political turmoil in the first quarter and pipeline capacity constraints depressed its earnings.

"During the first six months of 2008, the company continued to experience challenging business environment," said Mr Segman. Crude oil prices have risen to about $112 a barrel from $50 in January 2007 and the record high oil prices do not translate to improved profits.

Market dynamics are such that high crude prices not only translate to decreased consumption, but also leave marketers with reduced profit margins per unit of sales since the marketers do not pass on all the additional costs to consumers.

"The inability of the industry to fully pass on price increases to consumers resulted in depressed margins," reported Total Kenya in March while unveiling their end year results.

As the oil marketers continue to face high crude prices, it means their earnings will continue reducing.

Earnings in the oil sector have been sluggish for the past two years, as the pipeline capacity constraints and a high cost business environment eats into the industry earnings.

Total Kenya, for example, posted a 7.8 per cent increase in earnings for its full year ending December 2007.

The single digit growth figures is lower than the growth figures the industry posted in previous years.

The depressed profit outlook at the time saw many big players in oil industry, including Mobil and British Petroleum (BP) leave the Kenyan market, citing the "very difficult market conditions." Kenya Pipeline Company's pumping capacity has been stretched by rising demand for petroleum products in Kenya and export markets such as Uganda, Rwanda and Burundi as the region experiences an economic boom.

The pumping constraints have led to frequent fuel and oil shortages in western Kenya and Uganda as well as push the marketers' costs up as they turn to more expensive road transport.