Canadian firm makes Sh426m from sale of Turkana crude oil

Kenya has sold its latest consignment of crude oil, earning one of the three Turkana Oil project firms nearly half a billion shillings.

The sale, whose details had not been made public until now, comes over three years after Kenya announced plans to export its maiden crude oil shipment in 2019.

Canadian exploration company Africa Oil revealed on Tuesday it had, together with its partners, sold 174,627 barrels of crude oil between July and September this year, earning it a total of Sh426.75 million.

It was not immediately clear how much the other partners or the Kenyan government earned from the sale of the shipment, or whether they had sold any other consignment since the first in 2019.

This is considering that the Kenyan government and the joint venture partners have not made public their production-sharing contract.

British multinational Tullow Oil is the current operator of the project with a 50 per cent stake, while its joint venture partners Africa Oil and French giant Total Energies SE hold 25 per cent each.

"The joint venture sold 174,627 bbls from its oil inventory in quarter three of 2022 with a net receipt to the company of $3.5 million (Sh426 million)," said Africa Oil in regulatory filings seen by The Standard.

The cash from Kenya's new oil resource revenue, could help the new Kenya Kwanza administration boost development and improve the standards of living for citizens at a time when the country is grappling with drought and a high cost of living.

The Petroleum Act, 2019 provides for profit sharing between the national government (75 per cent), host county government (20 per cent) and the local community (five per cent).

The amount to be shared was to be known after the cumulative cost of the Early Oil Pilot Scheme is calculated and a formula agreed upon on how the cost will be recovered.

In its own filings, Tullow did not reveal much, only saying it is seeking more time from the government.

"The process to secure a strategic partner for the development project in Kenya continues to make progress," the company said.

"Tullow and its JV partners are seeking an extension of the filed development plan (FDP) review period, while constructive discussions with the Energy and Petroleum Regulatory Authority and the Ministry of Energy and Petroleum are ongoing."

Tullow owns a 50 per cent interest in blocks 10BB and 13T in the South Lokichar basin in Turkana County, where the company discovered about one billion barrels of crude in 2012.

Africa Oil and Total, on the other hand, each own a 25 per cent stake.

Africa Oil did not reveal the buyer of the crude sold in its latest update. Efforts by The Standard to get additional details by press time were unsuccessful.

A Chinese State-owned petroleum multinational won the deal to buy Kenya's maiden shipment of 200,000 barrels of crude oil in 2019 for Sh1.2 billion.

ChemChina UK Ltd, which is the oil trading arm of ChemChina Petrochemical, is engaged in crude oil trading, storage and procurement for ChemChina's refinery companies.

"The Kenyan government and Tullow Oil together with its joint venture partners in Kenya (Total and Africa Oil Corp) are pleased to announce that ChemChina UK Ltd has been selected as the buyer for Kenya's first crude oil export," officials said in August 2019.

Tullow, which struck oil more than 10 years ago, has been under pressure from previous administrations to develop the Turkana oil wells that it expects to yield up to 120,000 barrels per day once full production starts.

Kenya first announced the discovery of oil in Block 10BB and 13T in Turkana in March 2012, raising hopes of petro-dollars needed to fuel economic growth.

But the country is yet to fully commercialise crude oil production.

Africa Oil now says in its latest filings it expects the proposed sale of its stake and that of its partners in the Turkana oil project to close next year.

"In 2021, the Company and its partners initiated a farmout process for Project Oil Kenya. Advanced discussions are ongoing with the interested parties," said Africa Oil.

The government had set a December 2021 deadline for Tullow to present a comprehensive investment plan for oil production in Turkana or risk losing concession on two exploration fields in the area.

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.

"A successful farmout is viewed by the company as a critical step towards the FID (final investment decision) for Project Oil Kenya being achieved over the course of the next year," said Africa Oil.

"There is no guarantee that the company can successfully conclude a farmout to new strategic partner(s) on favourable terms."

A farmout is the assignment of part or all of an oil, natural gas, or mineral interest to a third party for development.

A deal would pave the way for necessary approvals from the State and subsequently the planned development of a pipeline and oil processing facility in the basin that includes $3.4 billion (Sh414 billion) investment for upstream activities.

Two Indian State-backed companies have been in talks to acquire a stake in the Turkana oil project held by Africa Oil and its partners in a deal earlier estimated to surpass Sh365 billion ($3 billion).

Executives of Indian Oil Corp, which is India's top refiner, and ONGC Videsh - the country's second-largest oil and gas firm - in August met outgoing top officials of Kenya's Energy ministry to finalise the deal.

At the earlier estimated value of over Sh365 billion, it will be one of the biggest deals in Kenya's history.

The companies had initially planned to reach a final investment decision in 2019 and production of the first oil between this year and 2023.

From an earlier plan, the waxy crude oil will be shipped from the fields via a 20-inch, 825-kilometre heated pipeline to the new Lamu port.

"The submission of the FDP (field development plan) is followed by a period of review by the Government of Kenya, during which time the licences remain in good standing," said Africa Oil.

Tullow and its partners expect to recover 585 million barrels of oil from the project over the full life of the field.

The commercially extractable volume climbed to 585 million barrels from the previous estimate of 433 million barrels, according to an audit by British petroleum consulting firm Gaffney Cline Associates.

"The revised development plan is a more economically beneficial and sustainable development plan," said Africa Oil.