Why Turkana oil billions are stuck underground

Trucks of the first crude oil consignment from Lokichar, Turkana arrived at Mombasa's Changamwe KPRL storage facility in Mombasa County on June 7, 2018. [File, Standard] Frequent changes in the plan outlining how Tullow will develop the oil fields of Lokichar in Turkana County have been the reason that the government has not approved the plan nearly five years after it was first submitted. The approval for the Field Development Plan (FDP), which outlines the strategy and steps for developing the oil fields, has had to be resubmitted several times to the government owing to a mix of factors. This has in turn resulted in delays in the start of the project that has held the promise of ushering Kenya into the league of oil producers. Among the factors that have necessitated the review of the FDP include the scaling up of the project, which led to the expansion of the oil processing facility and pipeline, resulting in higher capital requirements of Sh448 billion ($3.4 billion from an earlier $2.7 billion). The project review however saw the production cost per barrel reduce to Sh2,860 ($22) from Sh4,030 ($31) per barrel. The Energy and Petroleum Regulatory Authority (Epra) said every time the company made changes to the FDP and resubmitted it to the regulator, it would mean restarting the review process. Epra was in 2019 given the mandate to regulate the upstream oil sector following the enactment of the Petroleum Act 2019, which had previously been undertaken by the ministry. "The FDP has been with us since December 2021 but there have been several iterations made by the contractor. The FDP that we are considering now is not the FDP that we received in 2021," said Epra director general Daniel Kiptoo. "Tullow has been making changes and sending it back to us. So they make changes and we start to review again but then it appears that we are running out of time. "We have been mutually agreeing to move forward the statutory timeframe," he said, adding that other factors that have necessitated a review of the plan was the exit of Tullow's joint venture partners in the project, Africa Oil and TotalEnergies. When the FDP was submitted for the first time in 2021, Africa Oil and Total were still in the project but sometime last year, they put in the request to exit. "That request requires government approval, the ministry is still reviewing that and has not given a decision yet," Mr Kiptoo said. "Our target is to close this out by the end of June 2024. We need to move forward with the project. It does not benefit anyone when the oil remains in the ground - Tullow will have a cost that it cannot recover, the government has a resource which cannot benefit the people if it remains in the ground." The delays in approving the FDP as well as other factors that have taken longer than expected including securing a strategic partner for the project could in coming years catch up with the project. Tullow now appears to be in a race against time to bring the oil to the ground with increased concerns about the damage that fossil fuels are causing to the environment. Window closing Epra says further delays could see the window available to the country to exploit the oil closing. This is as the world starts shifting to cleaner fuels, with oil increasingly being shunned and major lenders now starting to scale down lending to oil projects especially those that are yet to get off the ground. Fossil fuels could in the coming years even attract penalties as clamour for electric vehicles gathers momentum and internal combustion engines start losing their place across different economies. "The window is closing because it is not about Kenya only. Taking this South Lokichar development to first oil will require $3.5 billion, it needs funding because it cannot be funded by equity alone, it needs debt. "If all European banks are not funding emerging oil projects, then the window is closing," Kiptoo said. "We need to quickly accelerate so that we can get the finance because when the lenders close the door, we will be left with the resource that we cannot finance." If Epra gives Tullow the go-ahead by approving FDP by the end of this month, the plan will also need approvals from the Energy and Petroleum Ministry and Parliament. This would see Tullow granted an oil production license, setting the stage for the start of the commercial phase of the project. The ministry had previously expected Tullow to get a verdict on the FDP - either approve it or return it to Tullow for modification - by September last year. Tullow in March this year said it had received a notification from Epra extending the review period of the updated Field Development Plan to 30 June 2024. "Once their evaluation is concluded, the FDP will be submitted to the Cabinet Secretary for Energy and Petroleum for review before submission to Parliament for final approval," said Tullow. "The group expects a production license to be granted once government due process has been completed." Government approvals might also not necessarily mean that the project will proceed. Tullow Oil is yet to secure a strategic partner, a process that has taken longer than expected and could cause further delays to the project. The firm has been shopping for a strategic investor for more than two years. In the FDP, Tullow details how it will go about developing the oil fields and producing the resource that it estimates to be in the region of 470 million barrels of oil. The firm has said the development will entail a production facility at Lokichar that will produce 120,000 barrels of oil per day and an 892-kilometer pipeline to transport the crude oil to Lamu Port for export. Tullow's partners in the project, Africa Oil and Total, quit the project last year, although the Ministry of Energy and Petroleum is yet to approve the exit. Tullow in its annual report in March noted that the "withdrawal is ultimately subject to the GoK's consent, at which stage the transaction will be considered completed". Tullow said the exit of the two firms now gives it more flexibility in operating the blocks as well as engaging other firms that may be interested in coming on board as strategic investors. "The increased interest provides us with greater strategic flexibility," said Tullow, whose interest increased to 100 percent from 50 percent following the exit of its joint venture partners, adding that it is in "discussions with prospective strategic partners for this project." Tullow is expected to reach a financial close within a year of the FDP being approved and start developing the fields in Lokichar. This is expected to take three years after which the country is expected to export its first barrels of commercially produced oil. The date for the first oil has always been a moving target and this had recently moved to 2028, which considering the delays now appears ambitious.

Why Turkana oil billions are stuck underground

Loading Article...

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Why Turkana oil billions are stuck underground

Loading Article...

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS