Besides Kenya, Tullow is investing heavily in multiple other countries this year.
The multinational plans to commit to commercial oil production this year in a process that will include signing contracts with the Kenyan government.
London-based Tullow Oil Plc plans to invest Sh7 billion in its Kenyan operations this year as the multinational steps up preparations for commercial production starting 2022.
The additional capital, Tullow said Wednesday in a trading update, will be spent on developing wells in Turkana County where the multinational discovered an estimated 1.2 billion barrels of oil reserves.
Besides Kenya, Tullow is investing heavily in multiple other countries this year.
“The group's 2019 capital expenditure is expected to total approximately $570 million (Sh57.5 billion), comprising … Kenya pre-development expenditure of circa $70 million (Sh7 billion),” Tullow said.
The company continues to transport crude oil, an estimated 600 barrels per day, by road to Mombasa ahead of the planned small-scale (early oil) exports in the coming months.
“This is expected to increase to 2,000 barrels of oil per day from April 2019. Currently, there are 60,000 barrels of oil stored in Mombasa with a maiden lifting expected in the first half of 2019.”
It is not clear if a buyer for the limited oil stocks has been identified.
The multinational plans to commit to commercial oil production this year in a process that will include signing contracts with the Kenyan government.
Final investment decision
“Tullow made substantial progress in Kenya in 2018 and continues to target final investment decision (FID) in late 2019 and First Oil in 2022,” the company said.
“This will require several key milestones to be achieved throughout 2019 including land acquisition, commercial frameworks and contract awards.”
The move to full commercial operations is expected to give a significant revenue boost to State coffers and help diversify the country’s economy.
Oil receipts, denominated in US dollars, are also expected to shore up the local currency.
The government has said Kenya’s oil production is profitable from $34 (Sh3,400) per barrel, indicating a potential windfall from the current international crude oil price of $58.
Crude oil prices rallied from lows of $27.1 in January 2016 to peak at $85 in October last year from where they have dropped 31.7 percent to the current levels.
Tullow’s massive capital expenditure is a signal of the oil revenues that will be eaten up by the capital-intensive business since the company is entitled to recover its expenses over the years.
The company has spent more than $1 billion (Sh100 billion) to prospect for oil and develop wells.
Tullow earlier said oil production could range between 60,000 and 80,000 barrels per day, with a possibility of rising to 100,000 barrels per day from development of more wells.
Minimal earnings
The government’s earnings from the oil discovery have so far been minimal, mainly in the form of fees paid by Tullow.
The State was paid Sh64.6 million in licence fees and infrastructure improvement payments by the multinational in 2017.
The sum had risen marginally from Sh61.4 million in 2016 when Tullow paid the Kenyan government licence fees of Sh61.4 million.
The company did not pay income taxes or royalties in the two years but these revenue items are expected to rise significantly once commercial production starts.
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