Markets & Finance

Tullow’s Sh600m tax to Treasury signals oil windfall


An oil rig in Turkana County. FILE

British exploration firm Tullow Oil paid to the government more than half a billion shillings in taxes last year, signalling a cash windfall that could come with discovery of commercial deposits.

In its annual report released last week, Tullow Oil said that it paid $6.3 million (Sh538 million) for what it classified as “other taxes”, which include value added tax, pay-as-you-earn, withholding tax and other government payments of $950,000 (Sh85 million), which include land rentals and training allowances.

The firm spent $28 million (Sh2.4 billion) on local suppliers and it expects the amount to rise to $800 million in the next phase of its investments.

“The challenge for Tullow is to manage this expenditure in terms of transparency, supplier due diligence and standards, while maximising local content,” said the company in the report.

The amount spent in the country is, however, dwarfed by that spent in Uganda and Ghana, which are already involved in commercial production of Oil.

Tullow paid Sh14 billion ($175.4 million) to the Ugandan government in taxes with Sh12 billion being corporate tax and Sh47.4 billion ($557.8 million) to the taxman in Ghana. This underlines the magnitude the commercial viability of the oil find in Kenya could have on the government revenues and local business activity.

Last year, the banking sector contributed Sh35.6 billion to the taxman.

Tullow has a total of 59 employees in Kenya, with 51 being locals compared to 281 in Ghana and 177 in Uganda. In what will further heighten speculation of the commercial viability of the wells in Kenya, Tullow Oil is set to bring its board of directors for a visit in Kenya.

The company raised issue with water availability stating that they have already started assessing sources of water for mining should they reach the commercial development phase.

“We are mapping local water sources through a hydro-geological survey which will establish a baseline of water sources in the region,” said the firm.
Last month, Tullow said it had achieved close to commercial quantities of oil in Twiga South-1 well.

In February this year, the company said it had “successfully completed (tests) with a cumulative flow rate of 2,812 barrels per day…the first potentially commercial flow rates achieved in Kenya.”

(Read: Tullow eyes commercial oil production in Kenya)

At the Ngamia-1 well in Block 10BB in Kenya, the first of six drill stem tests have now been completed but further tests are ongoing to determine commercial viability.

The International Monetary Fund has projected that Kenya is likely to start producing oil in six to seven years. Last year, the company experienced two oil spills in the country, which were, however, classified as insignificant.