Why Tullow, Total are shipping out of Kenya’s oil project dream

Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling site in Lokichar, Turkana County. [File, Reuters]

Tullow Oil is in the next six months set to sell the entire stake in the Lokichar oil blocks a move that could present major challenges for the country. Kenya expected to start the commercial phase of the project later this year, leading to first oil in 2022.

Reports indicate the firm, which has been steering development of the Project Oil Kenya as the operator of the blocks, could be selling its entire stake in the blocks. This may throw a major curve ball for the country’s ambition to commercially produce oil.

The firm, together with its other partner in the project Total Oil, have contracted French bank Natixis to run the joint sale process for Blocks 10 BA, 10 BB and 13T in the South Lokichar Basin.

According to a Thursday Reuters report, Tullow is eyeing to sell its entire stake in the oil blocks. It holds a 50 per cent stake in the three blocks.

The news report, which cited sources, said while Tullow has in the past said it planned to reduce its stake by up to 30 per cent, it could be selling its entire stake.

The decision may be due to “disappointing exploration results in Guyana and production problems in Ghana”, which led to resignation of the company’s chief executive and the exploration director in December.

The Ministry of Petroleum downplayed the development and noted that the company has always had its intentions to reduce the stake in the three oil blocks.

Petroleum Principal Secretary Andrew Kamau said both firms planned to off-load half of the stakes they have in the blocks. This would mean Tullow will offload a 25 per cent stake in the blocks while Total, which has a 25 per cent stake, will sell about 12.5 per cent.

“They made the announcement in November last year. It is not new… what they are saying now is that Natixis will do the sale,” said Kamau.

He added that the two firms will be “selling 50 per cent of what they have… in the first half of this year”.

The new development is on the background of delayed Final Investment Decision (FID), which Tullow said would take place later this year, having pushed it forward from an earlier date of 2019.

At FID, the joint venture partners are expected to commit resources as well as agree on award of key construction contracts. Only after FID can the partners award contracts for such critical aspects such as pipeline construction.

The Petroleum PS is still optimistic that despite the delays in reaching FID amid the challenges that Tullow faces, the project will not experience any delays.

“It will not necessarily affect us… it takes 18 months to build a pipeline. I do not think that it affects us,” said the PS.

His position could however be from a point of high optimism. Reports indicate that 18 months could be too ambitious and that the pipeline construction might take as much as three years.

“The Lokichar to Lamu Crude Oil Pipeline (LLCOP) Project is anticipated to take 33 to 36 months to construct from EPC contract award and the operational life is expected to be 25 years,” said the Environmental Impact Assessment report for the crude oil pipeline, which Tullow lodged with Nema in November.

Assuming the contracts are given in the course of 2020, the earliest the pipeline can be ready in late 2023.

Total Oil has not exactly been a fan of the Kenyan project, having played a role in convincing Uganda to ditch earlier plans of a joint pipeline with Kenya and instead build an export pipeline through Tanzania.

The pipeline project has since been suspended. The French oil major got to own a 25 per cent stake in the Lokichar blocks after acquiring Maersk Oil globally in 2017, which had acquired the stake from Africa Oil in 2015.