Kenya puts Tullow, Africa Oil Turkana buyout deal on ice

Tullow Oil tanks at its Turkana field.  

Photo credit: File | Nation Media Group

Kenya is yet to approve Tullow’s buyout of TotalEnergies and Africa Oil Corp in the South Lokichar oil project, a decision that could delay the entry of a strategic investor to fund the plant for oil drilling.

Africa Oil and TotalEnergies separately submitted notices to relinquish their 25 percent stakes each in May last year, a move that was expected to allow Tullow to assume full ownership of Blocks 10Bbb, 13T and 10BA.

Delays in approving the exits of the duo mean that Tullow must seek their approval to sell the stakes to a strategic investor who is needed to inject billions of shillings into the project and enable the commercialisation of the oil wells.

Tullow is looking for a strategic investor and this could entail the selling part of the stakes in the blocks.

“The government is reviewing the applications in line with the provisions of the Petroleum Sharing Contracts [PSCs] for these blocks, the Petroleum Act 2019 and all other applicable laws,” Daniel Kiptoo, the director-general of the Energy and Petroleum Regulatory Authority (Epra), told this publication on Tuesday.

“The companies are required to comply with the PSC for the respective blocks, the Petroleum Act of 2019 and all other applicable laws,” he added.

Sole ownership of the oil fields gives Tullow a more flexible proposition for a strategic partner but also leaves it liable for all costs except for those TotalEnergies and Africa Oil Corp remain liable for.

Upon their announcement to exit the Turkana oil project, the two firms wrote to the Ministry of Energy requesting to be allowed to unconditionally transfer their rights and responsibilities of the blocks to Tullow.

“The company has concurrently submitted notices to the Ministry of Energy and Petroleum, requesting the government’s consent to transfer all of its rights and obligations under the PSC to its remaining joint venture partner,” Africa Oil said in May last year.

Typically, offering part ownership of an oil field is one of the bargaining chips that oil exploration firms use to woo potential investors to inject capital into a project. Tullow estimates that it needs at least Sh493 billion to develop infrastructure at the South Lokichar basin, paving the way for commercial production. The British oil firm last year wrote off $17.9 million (Sh2.53 billion at current exchange rates) worth of its assets over uncertainty linked to getting a strategic investor and commercial exploitation of the oilfields.

Africa Oil said its exit from the Kenyan project would allow the firm to concentrate on areas with higher oil potential while TotalEnergies did not disclose the reason behind its exit. The billions are needed to build a pipeline, refinery or storage facilities in Mombasa and drill the oil wells.

Tullow discovered the Turkana oil wells a decade ago and estimates that the reserves have the potential to produce 120, 000 barrels per day.

ONGC Videsh, the overseas investment arm of the Oil and Natural Gas Corp of India and Oil India had in May last year said that they were in talks with Tullow to buy an undisclosed stake in the three blocks.

It, however, remains unclear what became of the talks between Tullow and the Indian firms even as the British oil firm holds that getting a strategic investor is key to Kenya’s dream of commercialising the oilfields.

Tullow has since last year stepped up efforts to get a strategic investor for the project with Energy Cabinet Secretary Davis Chirchir saying the government is helping the British oil exploration firm to get an investor.

Tullow is meanwhile set to know the fate of the project next month when the government makes a final decision on the field development plan (FDP) for the project. The firm submitted a revised FDP last year, ending delays given that it had been earlier given up to December 2021 to submit the plan.

“The FDP is under review by Epra in line with Section 30 (3) of the Petroleum Act 2019. The review process is expected to be completed by June 30, 2024,” Mr Kiptoo said.

An FDP outlines how an oil company intends to develop a petroleum field, manage environmental impact and give forecasts for production and costs.

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