Companies

Tullow races for Kenya oil partner

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Rahul Dhir, CEO of Tullow Oil plc. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • Tullow, which struck oil nine years ago, has been under pressure from Kenya to develop the Turkana oil wells.
  • Kenya first announced the discovery of oil in Block 10BB and 13T in Turkana in March 2012, raising hopes of petro-dollars needed to fuel economic growth.
  • A deep-pocketed strategic partner would enable Tullow to cushion its risks for the multibillion project that includes setting up a crude pipeline and processing facilities for the oilfields.

British exploration firm Tullow Oil has stepped up a search for a strategic partner to help implement a development plan for oil production in Turkana County.

The company, which entered Kenya in 2010, last month presented its long-awaited revised development plan for oil production in Kenya for approval.

“We are looking to bring a strategic partner for the project,” said Rahul Dhir, chief executive officer of Tullow Oil plc, in a press briefing in Nairobi yesterday.

According to the revised plan, the construction of the pipeline is expected to take about three years. Tullow’s latest oil development project will cost a higher gross budget of about $3.4billion (Sh373.6 billion) owing to changes in its initial design to incorporate a bigger processing facility and oil pipeline.

“The increase in capex (capital expenditure) from the previous design is due to a bigger facility processing capacity, additional wells to be drilled and larger diameter crude oil export pipeline, which delivers 30 percent increase in resources whilst lowering the unit cost to $22 (Sh2,417.8)/bbl (previously c.$31(Sh3,406.9)/bbl),” Mr Dhir said in a statement in September.

Tullow, which struck oil nine years ago, has been under pressure from Kenya to develop the Turkana oil wells that it expects to produce up to 120,000 barrels per day once production starts.

Kenya first announced the discovery of oil in Block 10BB and 13T in Turkana in March 2012, raising hopes of petro-dollars needed to fuel economic growth. But the country is yet to fully commercialise crude oil.

Kenya had set a December 2021 deadline for Tullow to present a comprehensive investment plan for oil production in Turkana or risk losing concession on two exploration fields in the area.

Tullow and its partners in the project, Africa Oil and Total, had initially planned to reach a final investment decision in 2019 and production of the first oil between this year and next year.

A deep-pocketed strategic partner would enable Tullow to cushion its risks for the multibillion project that includes setting up a crude pipeline and processing facilities for the oilfields.

Tullow, which operates the project, announced earlier it plans to sell a significant chunk of its 50 percent stake in the blocks, having hit financial hurdles of its own.

Yesterday, the Ministry of Energy played down concerns of delays on Kenya’s oil dreams saying the plans had finally taken shape.

“The project is more investable,” said Petroleum Principal Secretary Andrew Kamau.

Kenya’s contract with Tullow signed for the concession of the two blocks in the Lokichar Basin—the 4,719 square kilometre 13T and 6,172 square km 10BB—contained a clause allowing the government to exercise a back-in right, which essentially means buying back a percentage of the ownership before production kicks in.

These rights allow Kenyans to own part of the oil-producing blocks once they are certified to hold reserves, protecting taxpayers from the highly risky initial exploration stage.

Mr Kamau, who had indicated earlier that the government held the right to buy back 15 percent stake in one block and 20 percent in the other, said yesterday the government does not necessarily have to exercise that option.

The British firm expects to recover 585 million barrels of oil (mmbo) from the project over the full life of the field.

The commercially extractable volume climbed to 585 million barrels from the previous estimate of 433 million barrels, according to an audit by British petroleum consulting firm Gaffney Cline Associates (GCA).

At the current crude price of $75.50 a barrel, the potential crude in the reservoir would be valued at Sh23.66 trillion ($215 billion) — equivalent to two times Kenya’s GDP — while the proven commercially viable reserves are valued at Sh4.86 trillion ($44.1 billion).

Kenya would not, however, earn the whole amount when production starts, with a big percentage going to production and shipping costs.

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