The joint venture partners that Kenya is relying on to delivery petrodollars are reading from different scripts, which could further slow down the project.
The project has already experienced numerous delays, the latest being a three-month pause on the project occasioned by Covid-19 before the State stepped in with major concessions.
And there could be a further delay after French oil major Total protested to the Petroleum Ministry, which turned down a 15-month extension on the firm’s exploration licences on the Lokichar oil blocks.
The joint venture partners – Tullow, Africa Oil and Total – had applied for a 33-month extension on the exploration licence, which they argued would be ample time to get the oil fields ready for the commercial phase of the project.
While lengthy, the firms had argued, the extension would also enable them to recover time wasted during a number of stoppages when there was no work taking places, including the recent suspension of operations between May and August owing to restrictions that had been placed to contain the spread of Covid-19.
- 1 Historic oil price collapse worries head into new year
- 2 Oil price rally builds steam as coronavirus vaccine rollouts begin
- 3 State extends Tullow's licence
- 4 Lower prices put Turkana oil in limbo
The companies invoked force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract) clauses in May, which was lifted in August. It is against this backdrop that Total has protested the 15-month extension and instead demanded more time and reportedly threatened to withdraw from the project should the ministry fail to grant it its wishes.
According to an insider familiar with the development, Total protested the licence extension to the ministry without consulting its other partners - Tullow Oil and Africa Oil - raising concerns whether all is well within the partnership.
Ideally, the three companies are supposed to consult among themselves and present a united front not just to the government but also shareholders and the public.
The Petroleum Ministry said it had received a letter from Total Oil but clarified that the firm had not made any threats to ditch the Kenyan oil project.
Principal Secretary Andrew Kamau said despite the concerns raised by Total, the matter had been concluded since Tullow and Africa Oil had accepted the licence extension given by the government.
Tullow, as the operator of the block, communicates on behalf of the partners.
“They (Total) wrote and said they would have liked more time,” he said, adding that the ministry may not review the request as Total’s other partners had already accepted the 15-month extension and the terms. Such communication, the PS noted, should also come from the blocks’ operator, in this case, Tullow, after the joint venture partners have discussed and agreed, hence more grounds why the government may not consider the request by Total for more time.
“It is not true (that they threatened to withdraw from the project) … they have even said that they had been misconstrued. They are not leaving,” said Kamau.
Total owns a 25 per cent stake in the oil blocks, while Tullow Oil, which doubles up as the operator, has 50 per cent and Africa Oil 25 per cent.
The French firm has always seemed to be pulling in the opposite direction when it comes to the Kenyan oil project.
It has been among the stakeholders that pushed Uganda hard to construct the export pipeline through Tanzania.
This is as opposed to the initial plans of developing a pipeline jointly with Kenya, which would have come from Western Uganda, traversed the country and linked up with the planned crude oil pipeline in Lamu.
In mid-September this year, Tanzania and Uganda signed an agreement for the construction of a Sh378 billion East African Crude Oil Pipeline from Hoima in western Uganda to the port of Tanga.
Total, which is the operator of the Uganda project, has in the past, however, expressed its support for the Lokcihar-Lamu pipeline. In 2018 after a State House visit by the company’s senior officials, it committed to playing part in building the pipeline.
When the firm joined the Turkana oil project after buying out Maersk, it was expected that its presence would be a shot in the arm for the project.
Being one the global oil majors, the company was expected to lend its vast knowledge in oil as well as financial muscle to the project.
In the year to December 2019, Total paid the government Sh43.2 million in licence and infrastructure development fees. Of this, the Energy Ministry got Sh38 million in licence fees, while another Sh5.5 million was paid the National Oil Corporation (Nock) as fees for infrastructure development, according to the company’s annual report.
In the report, the firm is unclear as to how much was pumped into the development of the Lokichar oil fields.
Reached for comment, Total’s local office declined to comment on why it had opposed the 15-month extension on the licences as well as its investments in the Turkana blocks and its planned disposal of its 50 per cent stake in the project.
The joint venture partners will need to meet certain conditions between October 1 and December 31 this year for them to be allowed to carry on with activities between January 1 and December 31, 2021.
When it published its half-year results in September, Tullow noted that while the pandemic and the resulting stoppage of works had slowed down the project, it had tasked the joint venture partners to look into how best to progress.