Tullow exit puts Kenyan firm Gulf Energy in driver's seat for oil riches

Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling site in Lokichar, Turkana County, Kenya, February 8, 2018. Picture taken February 8, 2018. [Courtesy] Influential Kenyan energy and infrastructure group Gulf Energy has agreed to acquire Tullow Oil's entire Kenyan holdings for a minimum of $120 million (Sh15.4 billion). The landmark move positions the local firm-which has risen to prominence in recent years following lucrative State-backed business deals-as the key player in the long-stalled Turkana oil project and its potential future riches. The deal announced on Tuesday by the London-listed Tullow marks a significant shift in the landscape of Kenya's long-held ambitions to become a commercial oil producer. The transaction will see Gulf Energy take over Tullow Kenya BV, encompassing the British firm's working interests in the South Lokichar Basin. The payment structure includes an initial $40 million (Sh5.1 billion) upon completion, a further $40 million tied to the earlier of field development plan (FDP) approval or June 30, 2026, and the final $40 million to be paid over five years starting in the third quarter of 2028. Additionally, Tullow will receive undisclosed royalty payments under certain conditions and retains a 30 per cent back-in right for future development phases at no cost. Tullow chief financial officer and interim chief executive Richard Miller hailed the sale as a crucial step in the company's deleveraging strategy, following a recent $300 million asset disposal in Gabon. He expressed confidence in the transaction's benefits for both Tullow's financial position and Kenya's energy development prospects, noting Gulf Energy's expertise in the regional petroleum supply chain. Gulf Energy's emergence as the primary stakeholder in the Turkana project comes at a time when President Ruto's government is intensifying efforts to unlock Kenya's oil and gas potential after years of setbacks. Notably, Gulf Energy is among the local firms involved in the Kenya Kwanza government-to-government (G2G) fuel supply deal with Middle Eastern entities, handling local distribution and payments. The firm was also among the firms that bagged numerous tenders to import fuel on behalf of the industry under the open tender system (OTS), where firms competed on freight and premium costs. OTS was replaced by G2G. Gulf's entry into the Lokichar oilfields follows years of futile attempts by Tullow to move the project to commercial phase. The firm has also been trying to interest strategic partners and there was talk of Indian and Chinese firms showing interest and even engaging in negotiations but this never yielded anything. Other than the lack of funds and failure to secure a strategic partner, the approval of Tullow's field FDP has faced delays. There has been a back and forth between the Kenyan energy regulator and Tullow, with the regulator citing gaps but the company pushing back and claiming unnecessary delays. The plan needs to get approval from the Energy and Petroleum Regulatory Authority, Cabinet and parliament. In moving oil and gas forward, the government plans to acquire extensive geo-scientific data and conducting geological surveys across 3,600 square kilometers to identify new hydrocarbon reserves. Evaluations of gas potential in Blocks 9, L4, and L8 in eastern and coastal regions are also underway. Crucially, the Kenya Kwanza government has been pushing to reactivate the Turkana oil project, with plans to complete land acquisition for oil fields and essential infrastructure like water supply and crude oil pipelines. A review of the South Lokichar Field Development Plan is also a priority, aiming to finally bring the long-anticipated production phase closer to reality. These efforts follow a challenging period for Kenya's oil ambitions. Two years ago, French giant TotalEnergies and Canada-based Africa Oil Corp withdrew from the Turkana project, leaving Tullow solely responsible for the significant investment required. A potential strategic partnership with IndianOil and ONGC Videsh also fell through, further stalling progress. The departure of key partners dealt a significant blow to Kenya's hopes of becoming a commercial oil producer more than a decade after Tullow's initial discovery in the South Lokichar sub-basin. The multi-billion-dollar project, including a crude pipeline and processing facilities, has remained uncommercialised, hindering the potential fiscal windfall that could boost Kenya's development and living standards. While Tullow consistently emphasised the need for a deep-pocketed strategic investor to mitigate risks, the acquisition by Gulf Energy, a local player with government backing in the fuel supply chain, signals a new chapter for the Turkana project.

Tullow exit puts Kenyan firm Gulf Energy in driver's seat for oil riches

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