We don’t have money for Turkana oilfields, says Tullow partner
By Macharia Kamau | March 7th 2017
Africa Oil Corporation, Tullow’s partner in the oilfields of Turkana, might slow its operations in Kenya due to a lack of funds.
This could substantially affect the country’s plans to start oil production.
The Canadian company, which has been a key player in the march to making Kenya an oil producer, said it might not be able to internally raise the funds required to support planned activities.
It is also reluctant to borrow, noting that lenders might advance the money on unfriendly terms that it would not be willing to accept.
It also indicated it might sell a portion of its interests in the oil-rich blocks of South Lokichar.
The firm is among Joint Venture Partners working with the Government on a number of programmes that are critical in Kenya’s path to producing oil.
These include the Early Oil Pilot Scheme through which the country expects to start production of 2,000 barrels of crude oil a day, with the first export to be made mid this year.
The Government, together with its other partners – Maersk Oil and Tullow Oil – are also in plans to develop a pipeline that will move crude oil from Turkana County to the Lamu Port.
Africa Oil could, however, slow all these plans due to what it said were financial constraints.
“The company’s current working capital position may not provide it with sufficient capital resources to complete development activities being considered in the South Lokichar Basin (Kenya),” said the firm in a disclosure to shareholders last week.
“To finance its future acquisition, exploration, development and operating costs, Africa Oil may require financing from external sources, including issuance of new shares, issuance of debt or executing working interest farmout, or disposition arrangements.
“There can be no assurance that such financing will be available to the company or, if available, that it will be offered on terms acceptable to Africa Oil.”
According to its financial statements, Africa Oil’s working capital increased to $434.9 million (Sh44 billion) in the financial year to December 2016 from $49.5 million (Sh5.1 billion) in 2015.
It attributed the increase to money received after the sale of its interests in the South Lokichar oilfields to Maersk Oil.
Last year, however, the firm incurred a net loss of $17.7 million (Sh1.8 billion), which was an improvement from a loss of $87 million (Sh8.9 billion) in 2015.
It has other obligations in markets like Ethiopia.
The firm’s indication that it might sell a stake in the exploration permits it holds in Kenya through a farmout comes after it concluded the transaction with Maersk Oil in February last year. In the deal, the company sold 50 per cent of its interests in blocks 10BB, 13T and 10BA to Maersk, making $426.6 million (Sh43 billion).
Tullow is the operator – which means it oversees the actual civil works – of the blocks, with a 50 per cent stake. Africa Oil retained a 25 per cent stake and Maersk Oil holds a 25 per cent share.
Africa Oil also announced it would be withdrawing from Block 12A. The block is among the lucrative areas with potential for oil, with the operator, Tullow Oil, having announced it had drilled the Cheptuket-1 exploration well and encountered good shows of oil.
“During February 2017, the company notified its partners of its decision to withdraw from Block 12A (Kenya). The company wrote off $2.0 million [Sh205.2 million] of previously capitalised intangible exploration assets related to Block 12A,” said Africa Oil in its statement to shareholders.
The only block in which Africa Oil is the operator is Block 9 in Northern Kenya. The company was partnering with Delonex Energy on this, but Delonex has given a quit notice, effectively handing Africa Oil 100 per cent working interest in the block.
In the year to December 2016, Africa Oil said it incurred $46.6 million (Sh4.66 billion) in intangible exploration expenditure in Kenya.
These costs include the drilling of the Cheptuket-1 exploration well in Block 12A, where it has just withdrawn from, as well as testing the Amosing-3 well in Block 10BB and the drilling of Erut-1 in Block 13T.
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