NEGOTIATION

Tullow says Kenya force majeure allows time to resolve tax issue

Last month, the firm struck a deal to sell its entire stake in Uganda’s Lake Albert projects to Total for $575 million.

In Summary
  • Tullow Oil has been contesting a $50.2 million tax claim by Kenya Revenue Authority’s (KRA) in court.
  • Progress in Kenya has been taking longer than expected in part because of difficulties in securing access rights to land and water.
Tullow oil
Tullow oil

British oil firm Tullow Oil has declared force majeure on its main licenses in Kenya; a move that might further delay a final investment decision expected this year.

Tullow’s statement confirms an earlier one by the partner, Africa Oil, who said the clause, might delay FID decision, pushing hopes to reach first oil beyond 2022 timelines.

Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties.

 

Progress in Kenya has been taking longer than expected in part because of difficulties in securing access rights to land and water.

Trial production began in May 2019, with around 2,000 BPD of oil trucked to Mombasa. This was suspended in late 2019 because of the poor state of the roads.

According to Reuters, the company that is working under an early production scheme in Turkana invoked the law, ostensibly to discuss coronavirus restrictions and tax changes with the Kenyan government.

''Calling Force Majeure will allow time... for the Joint Venture and Government to discuss the best way forward,” Reuters quoted a statement from the oil firm that has been cutting activities in the developing world.

In February reports indicated that Tullow and Total were looking for ways to sell down their stakes in the Kenyan project. The two companies are also working together in Uganda, where Total has agreed to buy out Tullow’s stake.

Last month, Tullow Oilstruck a deal to sell its entire stake in Uganda’s Lake Albert projects to Total for $575 million.

Tullow Oil has been contesting a $50.2 million tax claim by Kenya Revenue Authority’s (KRA) in court.

 

The taxman is demanding the billions from Tullow Oil for the transfer of 25 per cent of its interests in 2015 and a further 10 per cent in 2018 both in Block 12 A in South Lokichar Basin to the UK-based Delonex Energy.

The matter currently before the tax appeals tribunal was last heard in October last year.