Tullow is targeting full-scale export of Kenya’s oil to begin in four years time.
Full-blown commercial operations will build on the government’s early oil pilot scheme that is expected to begin small-scale exports of crude later this year.
Tullow’s massive capital expenditure is a signal of the oil revenues that will be eaten up by the business in which it is entitled to recover expenses over the years.
London-based oil explorer Tullow on Wednesday said it will be pumping additional $2.9 billion (Sh293 billion) into the Turkana operation to achieve commercial scale needed to start exporting Kenya’s oil in four years’ time. Tullow, which has already spent more than $1 billion (Sh101 billion) in exploration activities over the past six years, said in a trading update that it plans to invest the additional amount in the development of the oil fields and the building of a pipeline linking Turkana to Lamu.
“After six years of hard work, we can now move forward to commercializing these low-cost resources through a phased development of the basin involving a central processing facility and an export pipeline to the Kenyan coast,” Tullow’s executive vice president for East Africa, Mark MacFarlane, said in a statement.
Tullow put the gross capital expenditure on the enterprise at $2.9 billion (Sh293 billion) -- comprising $1.8 billion (Sh182 billion) upstream investment and $1.1 billion (Sh111 billion) for the 750-kilometre pipeline.
Full-blown commercial operations will build on the government’s early oil pilot scheme that is expected to begin small-scale exports of crude later this year.
Tullow’s massive capital expenditure is a signal of the oil revenues that will be eaten up by the business in which it is entitled to recover expenses over the years.
The Kenya government is expected to hire an independent firm to audit Tullow’s expenses.
Transition to full-scale commercial operations is expected to significantly boost State coffers, especially if the resurgent international oil prices remain at current levels or rise further.
Kenya’s oil has been estimated to be profitable from a price of $34 per barrel, indicating a potential windfall from the current Brent crude price of $66 a barrel.
Tullow said plans to commence early oil exports were almost complete and all upstream contracts awarded after signing a joint venture partners agreement with the government.
“Initial injectivity testing has started at Ngamia-11 and oil production and water injection facilities are being constructed in the field ready to commence production/injection in the first quarter of 2018,” Tullow said.
“Oil produced is being initially stored until all necessary consents and approvals are granted and work is completed for the transfer of crude oil to Mombasa by road.”
Design of full-scale production and a study of its environmental and social impact will start in the second quarter of this year, paving the way for the $2.9 billion final investment decision (FID) in 2019.
Exports are projected to start in 2021 or 2022 with initial production at Amosing and Ngamia wells estimated at between 60,000 and 80,000 barrels per day.
The output could rise to 100,000 barrels per day from further development of the 280 wells, Tullow said, adding that its latest assessment shows Kenya has recoverable oil reserves of 1.2 billion barrels.
Diversify exports
Oil is expected to help diversify Kenya’s exports, helping to fund government expenditure and shoring up the local currency through receipt of dollars.
Loss-making Tullow is expected to partly rely on asset sales to fund its major investments in multiple markets including Uganda.
The multinational recently sold its oil assets in Norway and Netherlands and is seeking to complete a $900 million (Sh90 billion) disposal of part of its stake in its Ugandan oil fields.
Tullow made a net loss of $189 million (Sh19 billion) in the year ended December, narrowing it from $597 million (Sh60 billion) the year before as revenue jumped 36 per cent to $1.7 billion (Sh174 billion).
The company says its outstanding exploration costs in Kenya is $1 billion (Sh107 billion), representing the amount it could recover from oil exports going forward.
This included a pre-development expenditure of $80 million (Sh8 billion) and exploration and appraisal spend of $90 million (Sh9 billion) in the review period when its unsuccessful drilling activities cost it $2.3 million (Sh232 million).
