Kenya’s oil wealth dream has been delayed further after the government rejected a commercialisation proposal by British exploration firm Tullow Oil, citing “gaps” in its field development plan (FDP).
An FDP outlines how an oil company intends to develop an oilfield, manage the impact on the environment and society, as well as give forecasts for production and costs.
The Ministry of Energy and Petroleum said that Tullow had failed to show how it would plug the financial gap given its asset value relative to the billions of shillings needed to fully commercialise the reserves within the oil fields in Turkana.
The ministry also cited gaps in the technical capability of Tullow following last year’s withdrawal of Africa Oil and Total, who unconditionally ceded their combined share of 50 percent.
“There were issues in the FDP, given the book value of Tullow’s assets and the huge investment needed to fully unlock the project, Tullow failed to show us how it will raise this money,” Davis Chirchir said in an interview, two days before he exited his docket as Cabinet Secretary for Energy Petroleum in a purge by President William Ruto on Thursday.
“Tullow also failed to show us how it is filling the gap of the technical gaps left following the exit of Africa Oil and Total. With their exit, there is a huge void in technical ability…. We need them to address these two issues because remember, we do not wish to approve a plan just for the sake of approving it.”
Disclosures by Tullow put the book value of its Kenyan assets at $252.6 million (Sh32.58 billion at current exchange rates) by the end of last year, with the company saying that getting a strategic investor would help unlock a higher valuation of the asset.
Tullow Kenya BV managing director Madhan Srinivasan confirmed the feedback from the government, saying they will review the FDP within the six-month extension granted to it.
“The process has gained momentum in recent weeks, and we have received what we consider to be encouraging review feedback from the regulator seeking some standard updates,” Mr Srinivasan said in an emailed response.
“Having acknowledged the regulatory feedback, we are working to update some of the areas identified to ensure a fine-tuned FDP. At the same time, as the fine-tuning process advances, the FDP review period has been extended for a further six months.”
The developments are likely to derail Kenya’s ambition of commercially tapping the black gold, with Tullow also delaying maiden exports of the commercially viable oil to 2028, from the earlier target of this year.
The approval of the FDP—which will need to be adopted and ratified by Parliament —will enable Tullow to get a government licence to commence commercial drilling of crude oil in the 10BB and 13T oil blocks in Turkana County.
Tullow had earlier been given a deadline of December 2021 to present a comprehensive investment plan for oil production in Turkana or risk losing concession on the exploration fields.
The government hired three consulting firms to review the revised FDP that was submitted in March this year.
“We continue to work with the Government of Kenya and Kenyan energy regulator on the approval of the field development plan and remain focused on securing a strategic partner for the development of the project,” Tullow had said.
Tullow’s revised FDP, which has now been sent back to it by the Energy and Petroleum Regulatory Authority (Epra), followed the revelation that the commercially recoverable oil from the reserves is significantly larger than previously estimated.
An audit by British petroleum consulting firm Gaffney, Cline & Associates led Tullow to revise the production capacity of the oilfields to 120,000 barrels of oil per day (bopd), up from previous estimates of 70,000 bopd.
This saw the revision of the FDP that increased the size of the crude oil processing facility in Turkana and the size of the pipeline to evacuate the oil to Lamu, increasing the projected cost of the project from Sh319 billion to Sh377 billion.
The revised FDP also increased the diameter size of the planned Lokichar-Lamu crude oil pipeline from 18 inches to 20 inches to handle a higher product volume and drilling of additional exploration wells.
Commercially viable oil reserves in Turkana were discovered in 2012 but delays in submission and approval of Tullow’s FDP, uncertainty on getting a strategic investor and last year’s exits by Africa Oil and Total have delayed the project.
Last year, Tullow said the future of the project depended on the company getting a strategic investor. At least Sh469 billion is needed to commercialise the project.
Tullow is currently searching for a strategic investor to provide funds that are needed to unlock the Turkana oil project, on the assumption that the government will finally approve the FDP.
Africa Oil and Total exited the project last year, a move that saw them cede their 25 percent shares each in the blocks to Tullow Oil.
But the government is also yet to approve their exit, further adding to the complications likely to hit any potential deal that Tullow will sign with the strategic investor.
Epra director-general Daniel Kiptoo in May said that the government was still reviewing applications of the duo, in line with the provisions of the petroleum sharing contracts for these blocks, the Petroleum Act 2019, and all other applicable laws.
In 2019, Kenya fetched Sh1.48 billion from the trial export of some 240, 000 barrels of black gold under the Early Oil Pilot Scheme (EOPS). EOPS was meant to test the appeal of Kenya’s oil in the global market, a trial that is key in helping the government gauge potential earnings in case Kenya becomes an oil exporter.
