State, Tullow to set pipeline loan terms

The Kenyan government and energy multinationals Tullow Oil, Total S.A. and Africa Oil have approached international lenders to set the terms on which they will finance the pipeline to be used to export the country’s crude oil.

The pipeline will be a key infrastructure in the oil production venture, with the government also accelerating the process of acquiring land where the pipeline will pass.

“The joint venture partners and the Government of Kenya are set to commence discussions with prospective lenders for the project financing of the export pipeline that will run from Turkana to the new Lamu Port at Manda Bay,” Tullow said in a trading update.

Identity of the lenders was not disclosed but they could include global investment banks and development finance institutions.

Ahead of the pipeline financing agreement, the government is finalising the process of acquiring land from private owners.

The National Lands Commission has now completed over 75 percent of the midstream land surveys and valuations, Tullow said.

“This work is now complete in four out of six counties affected. A draft framework agreement for use of water from the Turkwel Dam has been prepared and is currently being negotiated,” the multinational said.

Other processes including issuance of construction tenders and applications for approvals from the National Environment Management Authority (NEMA) are ongoing and Tullow expects to make a final investment decision in the second half of 2020.

Small-scale oil exports meanwhile continue as Tullow maintains its daily production rate of 2,000 barrels of oil which is transported by road to the port.

The first shipment of crude oil was on August 26 when a cargo of 240,000 barrels was flagged off from the port of Mombasa by President Uhuru Kenyatta to the international market.

The exports are intended to test the international markets’ reception to Kenya’s low-sulphur oil ahead of commercial production that is now estimated to start in the second half of 2023.

The government has said Kenya’s oil production is profitable from $34 (Sh3,500) per barrel, indicating a potential windfall from the current international crude oil price of $62.69 (Sh6,400).

Tullow says the recent agreements it signed with the government and ongoing regulatory and infrastructure works gives it confidence that the project will be profitable even at low oil prices.