Tullow Oil’s Kenya assets risk depreciating

The value of Tullow Oil’s Kenya assets risk depreciating further by close to US $462M if the government fails to hand it production license on time. According to the firm, 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 its annual report for the year ended December 31, 2021.

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.

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Accounting policy

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.

The firm has appealed to Kenya to expedite the review of FDP and subsequent award of license lest it incurs another impairment cost of US $255M. They did not incur any impairment cost in the year under review. It, however, incurred a cost of US $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 US $255.2M. This will pave way for obtaining financing for the project and government deliverable.

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.