Tullow Oil said Thursday it would slash its global exploration budget by Sh9.1 billion ($100 million), but added that it will continue focusing on its East African business.
Oil exploration is capital-intensive, with large chunks of money spent with the hope of striking commercially viable oil at the risk of incurring losses where none is found.
Tullow has persistently stated that its East African projects are “long-term and multi-decade” explains why the firm has spared Kenya from budget cuts.
London-listed energy firm Tullow has spared Kenya from its sharp exploration budget cuts caused by collapsing global oil prices.
The British company says it will write off $2.2 billion (Sh200 billion) of its exploration business in Ethiopia, Mauritania and Norway as a result of the plunge in crude oil prices to below $50 per barrel.
Tullow Oil said Thursday it would slash its global exploration budget by Sh9.1 billion ($100 million), but added that it will continue focusing on its East African business.
“The reduced exploration programme will predominately focus on a number of high-impact, low-cost exploration opportunities in East Africa,” said the firm’s chief executive officer Aidan Heavey in an operational update on Thursday.
“Tullow has already taken steps to strengthen the business to adapt to current market conditions.”
The budget cut reduces Tullow’s projected exploration expenditure for this year to Sh18.2 billion ($200 million) from the Sh27.3 billion ($300 million) it announced in November.
The company is also considering laying off some of its staff to cut costs.
Oil exploration is capital-intensive, with large chunks of money spent with the hope of striking commercially viable oil at the risk of incurring losses where none is found.
The cost of drilling a deep offshore well is up to $150 million (Sh13.6 billion), while drilling an onshore well – which is the case in Tullow’s East African activities – costs between $20 million (Sh1.8 billion) and $25 million (Sh2.27 billion).
Tullow, Britain’s fourth-largest oil and gas firm, and its partner Africa Oil have struck commercially viable oil deposits so far totalling about 600 million barrels in Turkana’s Lokichar basin.
This promising resource and the fact that Tullow has persistently stated that its East African projects are “long-term and multi-decade” explains why the firm has spared Kenya from budget cuts.
“The South Lokichar Exploration and appraisal programme continues with drilling recently completed at the Ngamia-5 and Ngamia-6 wells,” Tullow noted in its latest operational update.
“The Amosing Wells are being prepared for the first extended well test in Kenya. The Lekep-1 well, testing the Kerio Valley Basin, is expected to be drilled in the second half of 2015.”
Oil companies across the globe have been hit by a 60 per cent drop in crude prices in seven months, putting them under pressure to find new areas of their businesses where costs can be trimmed.
The Energy Regulatory Commission (ERC) on Wednesday announced sharp cuts in pump prices of petrol, diesel and kerosene (paraffin); the lowest drop in costs over the past 48 months.
Tullow employs more than 2,000 people across 22 countries in Africa accounting for half its total workforce.
International media Thursday also reported that British Petroleum (BP) is to lay off 300 workers, including 100 contractors in North Sea operations— highlighting the severity of the problem.
“Tullow will be a smaller company,” Reuters reported on Tuesday, quoting an unnamed source who did not give an indication on the number of jobs likely to be cut.
Kenya has so far licensed 44 out of its 46 oil exploration blocks and to date Tullow Oil is the only explorer to have made commercial discoveries.
The list of global explorers scouring for oil and gas in Kenya includes Texas-based CAMAC Energy, American firm ERHC Energy and Australian company Swala Energy.
Others are Canadian firm Vanoil Energy, Statoil from Norway, London-based Ophir Energy, Italian multinational Eni, Edgo from Jordan, Nigerian firm A-Z Petroleum and State-owned National Oil Corporation of Kenya (Nock).
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