Kenya’s oil dream in disarray as Tullow issues fresh notice

Tuesday, May 19th, 2020 00:00 |
President Kenyatta flaggs off the Early Oil Pilot Scheme in June 2018. Kenya’s journey to become an oil exporter began in 2012 when Tullow discovered commercial oil reserves in Turkana county.

Seth Onyango @SethManex

Tullow Oil has invoked force majeure at its Turkana oil fields, putting the final investment decision (FID) that should put Kenya on the path to commercial oil output in disarray.

It cited the crippling Covid-19 pandemic which has triggered the global oil price crash, travel restrictions and tax changes in Kenya for its decision.

 “Tullow and its partners have called Force Majeure because of the effect of restrictions caused by the coronavirus pandemic on Tullow’s work programme and recent tax changes.

Calling Force Majeure will allow time... for the Joint Venture and Government to discuss the best way forward,” Tullow said.

Act of God

A force majeure clause is included in contracts to relieve the parties of liability for non-performance in the event of significant unforeseen circumstances deemed an act of God.

Tullow hoped to reach FID in 2020, after a number of delays, but a force majeure declaration makes this unlikely and could precipitate complete closure of its Kenyan operations.

First step in the FID would see a production of around 60,000-80,000 barrels per day of oil, with an export pipeline to Lamu and should kick in by 2023.

According to Energy Voice, the British oil explorer has assured that its decision will affect the group’s work programme.

“This does not affect the group’s work programme and simply means that the ‘clock has stopped’ on the licences with time accrued under force majeure added to the end of the licence when force majeure is lifted,” a spokesman at Tullow told Energy Voice.

“The declaration should provide time for the operating environment to improve, Africa Oil said, and for the joint venture partners to hold discussions with the Kenyan government on “the best way forward for this strategic project”.

Although coronavirus qualifies as force majeure, Tullow would need to show that it is effectively impossible to perform their contractual duties as a result of the outbreak.

Nonetheless, the firm’s move, if successful, will provide time for the operating environment to improve

Tullow has a 50 per cent stake in Blocks 10BA, 10BB and 13T, which make up the South Lokichar development.

Entire stake

Just last month, the firm sold its entire stake to Total in their joint onshore oil fields in Uganda for $575 million (€531.6 million) fuelling fears it also plans to exit the Kenyan market soon.

The British petroleum explorer sold its shares as part of efforts to raise $1 billion to settle its humongous $2.8 billion debt pile that has shied away prospective investors.

Last Friday, the Ugandan Energy Ministry announced they are waiting for Cabinet approval before the deal cannot be finalised.

Experts had warned that Kenya’s oil dream now sits on quick sand due to geopolitical dynamics in the oil industry, Tullow’s leadership and debt woes.

Investment analyst Aly Khan Satchu had predicted that Tullow was setting the stage for Kenya’s exit after the sale of its stake in Uganda.

“Tullow will either announce a Kenya sale to Total imminently or Total has skipped the opportunity which would be a negative signal for Kenya’s oil dream.

Clearly, Kenya is not sustainable on a ‘stand alone’ basis, especially in the new normal of oil prices,” he told Business Hub.

In January, Tullow told Reuters that it was also trying to sell stakes in undrilled exploration acreage and part or its entire stake in Kenya, where it also partners with Total.

However, Total, the immediate prospective buyer had indicated it was seeking to reduce its Kenyan stake, signalling harder times ahead in Kenya’s bid to become a commercial oil exporter by 2023. - Additional reporting by agencies

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