•Tullow says failure to secure a strategic partner would impact its ability to review its final investment decision.
•Discussions are underway with potential bidders around a range of commercial arrangements
The value of Tullow Oil's Kenya assets risk depreciating further by close to Sh30 billion if the government fails to hand it production license on time.
The firm, in its annual report for the year ended December 31, 2021, says the delay has hampered its efforts to secure a strategic partner, a move that would impact its ability to make a final investment decision.
"Discussions are underway with potential bidders around a range of commercial arrangements. Further steps depends on Kenya's government decision on production license,’’ Tullow said in a statement.
The firm had a successful Early Oil Pilot Scheme in mid 2018, with President Uhuru Kenyatta flagging off the first consignment of 2,000 barrels from Ngamia 1 plant but progress towards final investment decision has been hampered by several hurdles.
This is despite the British firm submitting a technically and commercially compliant Field Development Plan (FDP) in December last year.
Kenya embarked on the exploration of petroleum in Turkana County in 2012.
“In December 2021, as per the license extension obligations provided by Kenya in September 2020, the Project Oil Kenya Joint Venture submitted a field development plan for the 10BB and 13T licences, including the additional exploration and appraisal opportunities within the 10BB and 13T licenses,” Tullow said in the update.
It has appealed to Kenya to expedite the review of FDP and subsequent award of license lest it incurs another impairment cost of $255 million (Sh29.3 billion).
The firm did not incur any impairment cost in the year under review. It, however, incurred a cost of $430 million in 2020.
In line with its accounting policy, it performed a Value in Use (VIU) assessment of its Kenya assets following the identification of triggers for impairment reversal.
This resulted in a Net Present Value (NPV) significantly in excess of the book value of $255.2 million (Sh29.4 billion)..
This will pave way for obtaining financing for the project and government deliverable.
Due to the nature of these uncertainties, the Group was unable to either adjust the cash flows or discount rate appropriately.
It has therefore used its judgment and assessed the probability of achieving FID and therefore the recognition of commercial reserves.
Even so, experts have cast aspersions on the probability of the firm receiving a nod from the Kenyan government this year, saying August general elections are likely to cause more delays.
Analysts at the Kenya Civil Society Platform on Oil and Gas (KCSPOG) says this year’s elections could slow down decision-making within the government, which might further delay oil exploration activities.
“The upcoming elections pose a challenge for the upstream petroleum sector,'' KCSPOG said in an outlook for the local oil and gas industry.
It added that election years are usually marred by delays in government services, especially if there is a leadership change in the respective ministries.
Tullow estimates that Kenya's onshore fields in Turkana hold 560 million barrels of oil and expected to produce up to 100,000 barrels per day from this year for a maximum of 23 years.
It anticipated to earn close to Sh280 billion every year from the project which translates to Sh6.4 trillion at the end of its lifespan.