Two joint partners in Kenya’s quest for oil in Turkana have quit the project, exerting new pressure on the main operator Tullow Oil, which has been unable to take the exercise off the ground after the British oil explorer ran out of cash.
Africa Oil says it abandoned the Kenya project, opting to concentrate in regions with high petroleum potential while Total withdrew barely months after it said it was considering other options to monetise its stake.
The duo owned a 25 percent stake apiece in blocks 10BB, 13T and 10BA in the South Lokichar Basin, and their exit leaves the cash-strapped Tullow Oil to solely continue with the venture.
The twin exits have left Tullow with full ownership of the three blocks at a time when concerns over its viability are mounting.
“We have taken the decision to exit our Kenya concessions as our strategy has shifted to focus on production and high potential exploration opportunities, including our Orange Basin portfolio where we are now appraising the exciting Venus discovery, offshore Namibia,” said Africa Oil President and chief executive Keith Hill on Tuesday.
TotalEnergies had at the end of last year indicated plans to dispose of its stake, as doubts lingered on Kenya’s ambition to join the league of oil exporting nations.
“In Kenya, TotalEnergies holds interests in onshore permits (10BA, 10BB and 13T). On Blocks 10BB and 13T, TotalEnergies is studying the different options to monetise the oil discoveries made,” the firm said in a trading update last December.
The two developments are the closest that major stakeholders in Kenya’s oil project have come to question the volume of the country’s oil reserves, which Tullow and Africa Oil discovered in 2012.
Tullow Oil had last year disclosed plans to exit the project amid funding hitches, problems that are likely to worsen given that Africa Oil and Total have been funding the initiative.
Even worse for Tullow, two firms owned by the government of India have reportedly backed out of plans to buy into the multibillion shilling project, throwing the country’s ambition of becoming a major oil producer into limbo.
The two government-owned oil firms, the Oil and Natural Gas Corporation Videsh of India and Sinopec of China are reportedly in talks with Tullow Oil to acquire stakes in the Turkana oil project.
Tullow Oil remained bullish despite these upsets saying it is hopeful of closing a deal before the end of this year, which will provide cash to finance the next stage of development and unlock value.
“The prospective strategic partners have been informed of current development and remain engaged as the detailed farm-out discussions continue with a number of companies,” said Tullow in a response to Newszetu.
Energy Cabinet Secretary Davis Chirchir was yet to respond to our questions on the impact of the exits and whether Kenya’s oil project was viable by the time of going to press.
A deep-pocketed strategic partner would enable Tullow to cushion its risks for the multi-billion shilling project that includes setting up a crude pipeline from Lokichar to Lamu and processing facilities for the oilfields.
Plans for the final investment decision (FID), first projected to be in 2020, have been delayed several times. Tullow has blamed the government for dragging its feet while the latter is suspicious of the development cost that Tullow provided.
FID— or the point in the capital project planning process when a decision to make major financial commitments is taken—is now set to be approved in 2024.
Production from the South Lokichar Development conventional oil development project is expected to begin in 2026 and is forecast to peak in 2027, at approximately 120,000 barrels per day of crude oil.
Analysts, however, doubt that there are better prospects for Kenya’s oil finds, especially after Uganda decided to use the Tanzania route for its oil.
“The project was always going to be high cost. Once that became clear, Uganda and Kenya should have cooperated to build the extraction infrastructure as quickly as possible, that is the pipeline,” said Deepak Dave, a financial analyst who has some experience in de-risking such projects.
“That would have made the total cost of extraction cheaper. Instead, today construction costs make the pipeline, and the pipeline untenable, and reputational issues of Uganda taking through the sensitive areas makes financing very expensive.”
Tullow has a reputation for exploring areas where oil and gas behemoths such as Shell, BP, Exxon, Total and Chevron, avoid in what is known as wildcatting.
This includes onshore fields such as in Turkana where these oil giants only found traces of oil while the British explorer found relatively high deposits of the mineral.
Tullow, which is listed on the London Stock Exchange, has had enough of the wildcatting, venturing into countries like Kenya, Uganda and Ethiopia, painstakingly looking for the black gold.
In 2020, a drop in prices of oil and poor oil finds in Guyana and problems in the production of oil in Ghana, led to a major change in the company’s management as its share price plummeted.
Credit: Source link