Another setback for Turkana oil project as key partners exit

Kenya's oil export dream suffered another major setback yesterday after French giant TotalEnergies and Canada-based exploration company Africa Oil Corp abandoned the much-delayed Turkana oil project.

British oil producer Tullow Oil said on Tuesday the two minority partners of its licences in the Turkana project have withdrawn from the oil blocks in the South Lokichar Basin, leaving the London-listed oil and gas explorer to handle the entire investment.

The exit of Total and Africa Oil from Project Oil Kenya came a day after it emerged that one of the Indian firms that had been considering coming on board as a strategic partner had backed out of the deal and had called off talks with Tullow.

IndianOil (IOC), together with ONGC Videsh, had been expected to buy a 50 per cent stake in the Lokichar oil fields.

The consortium of the two State-owned Indian firms was also expected to take over the operations of the block from Tullow and see the project through its commercial production phase.

They had met top officials of Kenya's Energy ministry to smoothen the deal last year.

Tullow said TotalEnergies' withdrawal from blocks 10BB, 13T and 10BA was due to "differing internal strategic reasons," which it did not name, adding it remains focused on securing a strategic partnership this year.

The fallout leaves the project in limbo and deals a blow to Kenya's hopes of being a commercial oil-producing country in the near term.

The development has dimmed Kenya's chance at becoming an oil producer, over a decade after Tullow Oil made Kenya's first oil find in Turkana County's South Lokichar sub-basin.

Ten years later, the oil project is yet to be commercialised.

Tullow Oil is the current operator of the project and had a 50 per cent stake, while partners Canada's Africa Oil Corp and French Total Energies SE held 25 per cent each.

As a result of the restructuring, Tullow's working interest in these blocks will increase from 50 per cent to 100 per cent, the firm said.

Tullow told investors that owning the whole project now creates "more optionality" and flexibility in the ongoing process of finding strategic partners.

"Tullow Oil (Tullow) announces that Tullow Kenya BV, as operator of its licences in Kenya, has been informed by its two minority partners of their intention to issue notices of withdrawal from Blocks 10BB, 13T and 10BA in the South Lokichar Basin for differing internal strategic reasons," said Tullow in the notice.

But the company acknowledged the process of securing strategic partners was taking "longer than expected".

"The board considers that owning 100 per cent of the project creates more optionality, gives Tullow more flexibility in the ongoing process to secure strategic partners, creates a simpler Joint Venture Partnership and streamlines project delivery," said Tullow.

"This is a low-cost development project that has the potential to unlock material value for Kenya."

Following the withdrawal of IndianOil and ONGC Videsh, reports by Indian media, however, said the former, which is the country's second-largest oil and gas firm, will partner with another Indian firm (Oil India Ltd) in its quest to get into the Turkana project as a strategic partner.

Chinese giant Sinopec is also said to have expressed interest in becoming a strategic partner.

"The prospective strategic partners have been informed," Tullow said. "They remain engaged and detailed farm-out discussions continue with a number of companies."

The farmout deal had been earlier estimated to surpass $3 billion (Sh411 billion).

Delays in getting a strategic partner and the subsequent exit of Tullow's partners mark a huge blow to Kenya's aspiration to export oil on a commercial scale since Tullow discovered crude in the East African country in 2012.

Tullow said yesterday following the restructuring, it plans to spend Sh2 billion this year on the project up from the earlier slated Sh1.37 billion.

"Net capex guidance for 2023 in Kenya will increase from (about) $10 million to (about) $15 million, less than five per cent of Group capital expenditure," said Tullow.

"Tullow looks forward to continuing its work with the government of Kenya and its host communities to make the region a significant energy-producing province."

A deep-pocketed strategic partner would enable Tullow and its partners to cushion its risks for the multi-billion-shilling project that includes setting up a crude pipeline and processing facilities for the oilfields.

The future of Kenya's Turkana oil project has been dependent on the British oil explorer Tullow and its partners getting a strategic investor, the firms have maintained.

This would pave the way for the planned development of a pipeline and oil processing facility in the Turkana oil basin that includes a $3.4 billion (Sh465.8 billion) investment for upstream activities.

Failure to secure a strategic investor and now the exit of the minority shareholders now look set to further delay Kenya's hopes of petro-dollars needed to fuel economic growth as the project would face an uncertain future.

The large fiscal windfall associated with new oil resource revenue could help the new Kenya Kwanza government boost development and improve the standards of living for citizens through access to key services and amenities such as roads, health, food security and education.

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