Economy

Kenya’s crude pipeline, plant to cost Sh373bn

Tullow2002zzm

Tullow Oil tanks at its Turkana field in February 2020. FILE PHOTO | NMG

brianngugi_img

Summary

  • British exploration firm Tullow Oil has presented its long-awaited revised development plan for oil production in Turkana County.
  • The company, which entered Kenya in 2010, said it has recommended changes to its initial design to incorporate a bigger processing facility and oil pipeline.

British exploration firm Tullow Oil has presented its long-awaited revised development plan for oil production in Turkana County, raising the project’s gross budget to about $3.4billion (Sh373.6 billion).

The company, which entered Kenya in 2010, said it has recommended changes to 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),” Rahul Dhir, Tullow Oil plc’s chief executive officer, said in a statement.

The British firm now expects to recover 585 million barrels of oil (mmbo) from the project over the full life of the field—which Reuters said is 14 percent higher than an earlier estimate by analysts at JPMorgan.

“The revised concept also allows greater flexibility in adding additional fields into production without significant modifications to the project’s infrastructure,” Dhir said.

Approval of the plan will see Tullow commence the construction of a pipeline, which is estimated to take three years. Tullow said it expects to produce up to 120,000 barrels per day once production starts.

Tullow, which struck oil in the Lokichar basin of Turkana nine years ago, is yet to develop the field for commercial production amid growing frustrations for Kenya over delayed petroleum wealth benefits.

The firm has attributed the production delay has been attributed to several factors, including unfavourable global oil prices, approval delays for land and water rights, a tax dispute, and Covid-19 disruptions.

Tullow is eyeing a strategic investor for the project ahead of possible approvals for its investment plan. “Tullow and its JV Partners are actively seeking strategic partners for the project,” said Tullow.

“Based on the revised plan, Tullow believes that this project is an attractive commercial prospect for investors looking to access the East Africa oil and gas sector in both the upstream and midstream. It is intended that a strategic partner will be secured ahead of a final investment decision.”

Kenya had set a December 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.

Petroleum and Mining Principal Secretary Andrew Kamau told the Business Daily earlier this year the December deadline would be enforced.

“Conditions are always there in the PSC (Production Sharing Contract),” he said in April about the ultimatum.

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

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.