British oil explorer Tullow has valued its Kenya operation at more than Sh32.4 billion ahead of a possible sale of the stake to a strategic investor, the latest disclosures by the firm show.
Tullow said in its financial report for the year ended December 2022 that the book value of its Kenyan assets stands at $252.6 million (Sh32.4 billion) but added that a positive outcome of its current efforts to gain a production licence and attract a new strategic investor would unlock higher valuation of the asset.
The firm, however, faces the possibility of having to write off the entire value of the asset should it fail to resolve uncertainties surrounding the project, which include finding an acceptable investment offer and government approval of the same, obtaining financing for the project and meeting government demands for a viable field development plan (FDP).
On the other hand, meeting these obligations will result in Tullow writing back into its books an impairment of $410 million (Sh52.6 billion) that it had included in its 2020 financial results.
“In line with its accounting policy, the group has performed a value assessment of the Kenya asset following the identification of triggers for impairment and impairment reversal. This resulted in a net present value significantly in excess of the book value of $252.6 million,” said Tullow.
“Should the uncertainties around the project be resolved, there will be a reversal of a previously recorded impairment. However, if the uncertainties are not resolved there will be an additional impairment of $252.6 million.”
The firm has, however, taken a significant step towards gaining a production licence from the government—which would ease the process of attracting an investor—after submitting an updated field development plan (FDP) for the Turkana oil fields.
Tullow and its joint venture partners Africa Oil Corporation and TotalEnergies had submitted an initial plan in December 2021 but were asked to revise it as a condition for receiving the go-ahead to production.
The British oil explorer owns a 50 percent operated interest in blocks 10BB and 13T in the South Lokichar basin in Turkana while the two JV partners each own a 25 percent stake.