Delay costs pile on Kenya’s $5 billion Turkana oil project

The project is currently battling environmental approvals from the National Environment Management Authority (NEMA) for the planned Sh10 billion oil pipeline from Turkana to Lamu

In Summary

• Principal Secretary petroleum Andrew Kamau revealed the project has so far incurred Sh50 million in delay costs.

Tankers that transported crude oil from Turkana County at the Mombasa Oil Refinery in Changamwe, June 6, 2018.
Tankers that transported crude oil from Turkana County at the Mombasa Oil Refinery in Changamwe, June 6, 2018.
Image: ANDREW KASUKU

Delays and disruption of Tullow Oil activities in Turkana could see Kenya take longer to earn dividends from the investment.

Speaking at a media briefing ahead of the inaugural shipment of Kenya’s crude oil scheduled for end of August, Petroleum Principal Secretary  Andrew Kamau said the project has so far incurred Sh50 million in delay costs.

"The longer it takes to recover costs, the longer it will take to earn returns on investment,’’ Kamau said.

 

Last year, the firm was forced to halt operations for more than a month following a standoff between the government and the Turkana community over revenue allocation structure and local content.

They had demanded for a total revenue allocation of 30 per cent: 20 per cent to counties and 10 per cent to community and the remaining to the national government.

However a sharing formula of  70: 25: 5 ratio for national government, county and community was struck.

Just weeks after Uhuru flagged off first 600 barrels of oil under the Early Oil Pilot Scheme (EOPS), the community issued fresh demands, halting transportation of oil to Lamu.

Tullow Oil had to seek the backing of the government, Turkana leadership and elders to resolve the standoff that saw the firm evacuate its employees.

The project is currently battling environmental concerns from the National Environment Management Authority (NEMA) for the planned Sh10 billion oil pipeline from Turkana to Lamu.

Yesterday, Tullow Oil Kenya managing director Martin Mbogo said the firm will be submitting the improved Environmental and Social Impact Assessments for the proposed heated crude oil pipeline in two weeks time to Nema.

 

This is after the environmental agency raised questions on the initial report.

In June, the British multinational Tullow Oil pushed its target for making the critical Final Investment Decision to 2020 after it emerged that, among other issues, the Nema had delayed its issuance of licenses.

Speaking during East African Petroleum Conference and Exhibition in Mombasa in May, Tullow executive Vice president in charge of East Africa Mark MacFarlane asked the Kenyan Government to hasten decision making in the nascent upstream oil sector, failure to which its oil could hit the market too late.

“These projects are good but further delays will do nothing except erode value and delay the positive impact that these projects could be having on the country and communities,” MacFarlane said.

In May this year, crude oil production under the Early Oil Pilot Scheme was increased from 600 barrels per day to 2,000 barrels per day.

Last week, President Uhuru Kenyatta announced that the country had sold first 200,000 barrels of crude oil at $12 million (Sh1.2 billion) to a UK based Chinese firm ChemChina UK Limited. The shipment of the oil is set for end of this month.

Kenya discovered commercial oil in 2012 in its Lokichar basin, which Tullow Oil estimates contains an estimated 560 million barrels in proven and probable reserves.

Since 2012 then, the country has struck 750 million barrels of commercially viable oil, with ongoing exploration showing that the number could potentially increase to over one billion barrels.