- The project has had several setbacks since 2012
- It is anticipated to earn close to Sh280 billion every year from the project which translates to Sh6.4 trillion at the end of its lifespan.
Kenya’s dream to join the oil-producing league remains in limbo with the British explorer, Tullow Oil yet to onboard a strategic investor for the project.
The firm which recently announced a merger with Capricorn Energy to create a leading African energy company said it is still working towards the goal in its fiscal note for the first six months of the year.
Although it has expressed optimism about making progress by the end of the year, the firm has highlighted uncertainties to the realisation of the project’s value in use (VIU).
Some of these uncertainties include delays in the receipt and finalizing of an acceptable offer from a strategic partner and the securing of government approvals related to the project.
In April, Tullow said its assets in Kenya risk depreciating further by close to Sh30 billion if the government fails to hand its production license on time.
“These items require satisfactory resolution before the Group can take a final investment decision,” Tullow said on Wednesday.
“Due to the binary nature of these uncertainties, the Group was unable to either adjust the cash flows or discount rates appropriately.”
As such, Tullow has had no impairment or reverse impairment of its assets in Kenya.
Since the start of the year, the firm says it has been in discussions with the government on the approval of its Final Development Plan (FDP) and securing government deliverables.
The FDP is currently under review with the government of Kenya extending the review period to November 6, 2022.
“In addition, the company continues to progress with the farm down the process with approvals being sought,” added Tullow.
Tullow is nevertheless hopeful of progress on the Kenya oil project under the new administration despite the non-change in uncertainties in the last six months.
“A process to secure a strategic partner for the development project in Kenya is ongoing and we are confident that substantial progress will be made before the end of the year,'' Tullow said.
It said it is going to work with the new government to progress the project which has the potential to make a significant contribution to the Kenyan economy through taxation, revenue sharing, employment and local content.
The oil firm estimates that Kenya's onshore fields in Turkana hold 560 million barrels of oil and are expected to produce up to 100,000 barrels per day from this year for a maximum of 23 years.
It is anticipated to earn close to Sh280 billion every year from the project which translates to Sh6.4 trillion at the end of its lifespan.
On previous occasions, Tullow Oil has defended and stood firm on the viability of the project amidst the stay of uncertainties.
Technically, the project remains financially viable with the Net Present Value (NPV) outstripping the asset book value by Sh30.7 billion ($255.2 million).
NPV refers to the present value cash flows at the required rate of return for the project compared to the initial investment and is used to calculate the return on investment (ROI).
Value in use or VIU meanwhile refers to future cash flows expected to be derived from an asset in its current condition while the book value the value of assets according to its balance sheet account balance.