Citi sees Tullow selling Kenya oil ahead of Uganda output
An oil rig at Ngamia-1 site in Turkana County. FILE
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Uganda has faced hurdles in its bid to exploit its oil despite having made discoveries in 2006 due to disagreements on production sharing laws, lack of an export pipeline and a refinery.
Kenya is likely to take its first oil to the international market before Uganda, which discovered hydrocarbons six years earlier, Citi investment bankers say.
While Tullow Oil Kenya has previously given 2017-2018 as the likely date of production for Kenya, the analysts said this can only happen towards the end of 2020 while for Uganda it will start by 2021.
Kenya’s production and export would help Uganda as a pipeline will be ready by the time its oil is ready for sale, the analysts said.
Uganda has faced hurdles in its bid to exploit the resource despite having made discoveries in 2006 due to disagreements on production sharing laws, lack of an export pipeline and a refinery.
According to Citi, most growth in revenues for Tullow Oil after 2018 will come from Uganda and Kenya.
“Beyond 2018, further production growth will be driven by the delivery of the Ugandan export development and the development of the recent discoveries in the Lokichar Basin in Kenya,” said Citi.
The analysts said commencement of Kenya oil exports and a pipeline will provide guidance on how to proceed with exports in Uganda.
“Progress with the Kenya export development will provide greater clarity and viability to the Uganda export project, which will tie into the Kenya pipeline,” says Citi.
In its recently released annual report for 2014, Tullow Oil management said the final decisions on the export pipeline will be made this year.
“The governments of Kenya and Uganda are also working together on the export pipeline and have recently appointed a joint technical adviser,’’ noted the Tullow annual report.
‘‘It is expected that a final decision on the route and commercial structure for the pipeline will be determined in 2015 allowing the regional project to be jointly sanctioned around the end of 2016,” the report read in part.
Citi analysts said Tullow Oil could sell (farm out) stakes in its Uganda and Kenya developments to help finance production in the discovered reserves and also reduce the amount of debt or leverage.
“We see borrowing levels peaking in 2016…The successful farm-out of future developments (Uganda and Kenya) could bring forward the value from these projects and see Tullow de-lever more quickly,” said Citi.
US-based investment bank Goldman Sachs was reported by London’s Financial Times saying Tullow Oil was a candidate for a takeover because of its exposure to strategic hydrocarbon assets at low costs in Africa.
Goldman’s “buy” advice sent Tullow 8.7 per cent higher on Wednesday. But the story also quoted analysts at Jefferies, another US-based investment bank, as saying that Tullow Oil shares was too expensive to attract buyers.
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