Tullow woes scuttle Kenya’s oil dream

Tullow woes scuttle Kenya’s oil dream

Tullow Oil is shifting its focus and over 90 percent of its resources to West Africa, the company recently announced. The firm’s chief executive Rahul Dhir said the firm will be channeling resources to projects it considers to be productive in a bid to cut costs.

“After a year of significant change for Tullow, we are now executing a robust, cash generative business plan, which is focused on our most productive assets,” said Dhir.

The announcement came as Tullow, once again, watered down the value of its stake in the Kenyan oil project by Sh46.8 billion owing to low global oil prices, casting doubt over the future of its Kenya project.

The firm has also reduced capital injections in Kenya, and allocated Sh548 million for the project this year compared to Sh4.4 billion last year and Sh7.6 billion in 2018.

The Africa-focused oil explorer said it is buying time to see if its efforts to drill oil in Kenya would still be worthwhile at low global oil prices as it assesses options on whether it will have to discard the initiative entirely.

Tullow has already disposed of its assets in Uganda to Total for Sh62 billion ($575 million), leaving Kenya as the only country the firm has an interest in outside of West Africa.

Tullow owns a 50 percent stake in two blocks in the oil-rich South Lokichar basin, blocks 10BB and 13T, while French oil firm Total and Canadian-based Africa Oil hold the remaining stake.

Economist Churchill Ogutu says when the valuation of an asset drops, companies owning it take their time to decide on what to do with it, but that they would be reluctant to dispose of the asset on lower prices and instead wait for the value to rise.

“If they (Tullow) were to sell their stake in the project now, it would mean they would do so at lower prices due to the lower valuation. This means that if they want to bail out and fetch a good price for their assets, they might wait until oil prices recover to do so,” Ogutu said.

Kenya had identified the South Lokichar basin as the anchor of the onshore oil drilling project, a region Tullow estimates to contain 560 million barrels in oil reserves with a capacity to produce up to 100,000 barrels per day.

Tullow, which is facing liquidity issues even as it records year-on-year losses and mounting debt, termed the pilot scheme a “success” at its end last year despite continually missing targets to make a final investment decision on the project which would secure its future.

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