State to audit Tullow Oil spending

Tullow Oil tanks at its Turkana field.  

Photo credit: File | Nation Media Group

The State will audit Tullow Oil’s spending on its oil project amid a review of a plan submitted by the British firm on plans to develop the petroleum deposits found in Turkana more than a decade ago.

Mohamed Liban, Petroleum Principal Secretary, said the new audit by an independent consultant will cover costs Tullow incurred on blocks 10BB and 13T from 2021 until the end of the 2024 calendar year as well as Early Oil Pilot Scheme (EOPS) from 2021 to the end of 2023. “In so doing, the consultant will evaluate whether the expenditures are in line with contractual obligations and if the claimed costs are entitled to cost recovery,” the official said.

Similar independent cost recovery audits for blocks 10BB and 13T for 2010-2016, 2017-2018, 2019-2020, and EOPS for 2017-2020 have been run.

“Determine whether transactions between related parties were carried out in accordance with arm’s-length principle. Ascertain whether petroleum costs are reasonable, value for money expenditures and attributable to an output, and assess the potential risk to government revenue in the future,” the department further said.

Tullow Oil in January revealed plans to retain its annual spending on Kenya’s oil project at $10 million (Sh1.3 billion), pointing to a continued interest in the project that has dragged on for years since its discovery in 2012.

The British firm’s Kenya budget for this year is the same as that spent in 2023 and will be equal to four percent of Tullow’s planned overall capital spending.

Tullow and its joint-venture partners TotalEnergies and Africa Oil, had in March 2023 submitted a final field development plan (FDP) on the Kenya project for approval by the parent ministry and the Energy and Petroleum Regulatory Authority before the two partners pulled out.

The FDP outlines how Tullow intends to develop the oil fields, forecasts for production and costs, as well as how it plans to manage environmental impact. The plan was based on a life of field resource of 585 million barrels gross, initial plateau production of 120,000 barrels of oil per day, and capital investment of $3.4 billion (Sh442.44 billion) for the first oil.

Tullow was expecting the approval, including ratification by Parliament, to conclude last year to no avail with the evaluation of the FDP pushed to March and then June 2024.

Following the delays, Tullow has written off $ 17.9 million (Sh2.23 billion) of its Kenyan assets on the uncertainty over their sale to a strategic investor and commercial exploitation of the Turkana oil deposits.

Tullow revised the value of its Kenya holdings downwards from $260.1 million (Sh33.8 billion) in December 2022 to $242.2 million (Sh31.51 billion) at the end of 2023.

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