Tullow revs up oil pipeline project as it eyes 2020 completion date

Tullow Oil has announced it will begin laying the groundwork for construction of the Kenya crude oil export pipeline from Turkana to Lamu from mid this year.

The company said it expects to start development of the Front End Engineering Design (FEED) programme in the second half of the year, setting the stage for the actual construction of the 890-kilometre pipeline from next year and complete it by about 2020, when the country expects to start commercial production of oil.

The cost of the pipeline will depend on the studies that will be undertaken under the FEED programme, although Energy Cabinet Secretary Charles Keter has in the past given an estimate of Sh210 billion.?

The programme will entail a study on the design that the pipeline will take and basic engineering and is expected to inform technical requirements and the investments needed to put up the pipeline.

“Preparations for the upstream development FEED are underway, with FEED expected to commence in the second half of 2017,” said Tullow Wednesday when it released financial results for year to December 2016.

“Good progress was made during 2016 on a standalone development in Kenya with an export pipeline to Lamu. Life-of-field development costs (comprising operating expenditure, capital expenditure and potential pipeline tariffs) are expected to be in the region of $25 to $30 per barrel.”

During the period under review, the firm reported a loss of $597 million (Sh61.3 billion, which was a 42 per cent improvement compared to a $1 billion (Sh103 billion) loss reported in 2015.

It is the third consecutive year that the firm has reported losses.

Tullow and its joint venture partners in the project (Africa Oil and Maersk Oil) are still in negotiations with the Government on a Joint Development Agreement.

Signing delays

The agreement once signed will give a more clearer direction on the development of the pipeline.

“The joint venture (JV) partners and the Government of Kenya are also in the final stages of negotiation for a Joint Development Agreement (JDA), which sets out a structure for the Government of Kenya and the JV partners to progress the development of the export pipeline.

“This agreement will ultimately enable important studies to commence such as pipeline FEED, Environmental Social Impact Assessment, as well as studies on pipeline financing and ownership.”

The signing of the agreement has been characterised by delays and was initially slated for signing by the end of last year.

In an operational update in November last year, Tullow had indicated that negotiations were complete “with execution of the JDA expected before year-end.”

Wednesday, the firm also said it is on track with the implementation of the Early Oil Pilot Scheme (EOPS). Under the pilot scheme, Tullow will move crude oil from Turkana to Mombasa by road where it will be stored and exported.

It will produce 2,000 barrels of oil per day (bopd) for about two years under the pilot scheme, which is expected to inform the full field development.

“The various agreements are in the final stages of negotiations with the Government of Kenya. The EOPS will use existing upstream wells and oil storage tanks to initially produce approximately 2,000 bopd gross in 2017. The EOPS will provide important information which will assist in full field development planning,” said Tullow.

The firm in January said it had sold a substantial stake in Uganda Total for Sh90 billion. Tullow, which discovered substantial amounts of oil in the Lake Albert region more than a decade ago, sold 21.5 per cent of its 33.33 per cent stake in four exploration areas for Sh90 billion ($900 million). The move gives Total a controlling stake (54.9 per cent) in Uganda’s upstream industry.

Tullow will receive $200 million (Sh20 billion) in cash and a further Sh70 billion ($700 million) in “deferred consideration” that will go into the development of the infrastructure, including the export pipeline.