Tullow says Kenya oil commercially viable at 25 dollars a barrel

Tullow Oil workers at a drilling rig in Turkana. PHOTO | FILE
Tullow Oil workers at a drilling rig in Turkana. PHOTO | FILE 

United Kingdom explorer Tullow Oil estimates that Kenyan oil can be commercially extracted at a break-even cost of about $25 (Sh2,543) per barrel (bbl), lower than the current global price of $30.

Tullow, which released its 2015 financial results on Wednesday, said studies indicate that the Kenyan oil had relatively low cost of development and production amounting to $25 per barrel.

It means that Kenyan oil reserves, estimated at about one billion barrels, are commercially viable at the current international price of $30 a barrel.

“Studies indicate low full cycle cost circa $25/bbl (capital expense, operating expense and tariff),” said Tullow when it released its full-year results.

The true price will be known once the explorer completes a field development plan which will show if local production is viable, the amount of financing required and will pave the way for an investment decision to be made.

A draft field development plan was submitted to the government in December and Tullow expects that a final plan will be completed by the end of this year.

Tullow is working on a similar plan in neighbouring Uganda. The plan will also include the best route for a pipeline.

The Kenyan and Uganda governments have already agreed to have it pass through northern Kenya though some oil firms have hinted that they prefer the Tanzanian route.

Should the Kenyan resources prove commercially viable Tullow said that it would take at least three-and-a-half years after the project has been sanctioned - extraction given a go-ahead - before Kenya can extract its first barrel of oil.

However the date for the sanction is still unknown.

Analysts say if Kenya’s reserves are commercially viable they will catalyse the various infrastructure projects such as ports, roads and railway lines that have been in the pipeline.

“It means that infrastructure can actually be developed along the proposed northern Kenya pipeline route to the port city of Lamu. Kenya is one of the few low cost developments available in the world. Tullow states that Kenya’s project will be sanctioned in the future when ‘the conditions are right’ but the advantage is that the country has viable low cost oil,” said analysts at Nairobi-based Standard Investment Bank.

The $30 per barrel level is a 12-year low and has discouraged investment in exploring new territories.

The falling price of oil on the international market was the biggest contributor to Tullow’s full-year loss.

Tullow reported losses of Sh102 billion ($1 billion) after tax for 2015 which is an improvement from a loss of Sh158 billion ($1.55 billion) posted the year before.

The oil explorer is still forging ahead with exploration plans in the region despite scaling back in other territories where it operates.

Currently Tullow is drilling the Cheptuket-1 well in Kerio Valley which should be completed by end of February as it works on how best to utilise its other resources.

Tullow’s partner Canada’s Africa Oil is also bullish that prices will recover and has been raising funds for local exploration.

Africa Oil received Sh44 billion ($427 million) from Maersk after selling its stakes on its northern Kenya and Ethiopia blocks.

Maersk bought a 25-per cent stake in all of Africa Oil’s Kenyan based-blocks and an equal stake in the Ethiopia Rift Basin block as well as a 15-per cent in the Ethiopia South Omo blocks.