14 February 2019

Kenya: Tullow Starts Search for Kenya Oil Buyers

British oil exploration company Tullow has started the search for buyers of Kenya's small-scale crude petroleum exports ahead of the first shipment expected in the next four months.

The UK multinational, in a trading update filed Wednesday at the London Stock Exchange, said it had received interest from unnamed potential buyers of the commodity.

"Tullow has begun to market Kenya's low-sulphur oil ahead of this first lifting with initial market reactions being very positive," Tullow said in a statement.

The exports are intended to test the international markets' reception to Kenya's crude discoveries ahead of commercial production projected to start in about three to four years.

Petroleum Principal Secretary Andrew Kamau had in 2017 told the Business Daily that buyers from Europe, China and India had expressed interest in buying Kenya's oil, but declined to disclose their identities.

More than 70,000 barrels of oil have so far been transported by road to Mombasa where they are being stored.

Tullow uses trucks to move about 600 barrels per day, with the volumes expected to rise to 2,000 barrels of oil per day from April.

Key conditions

The multinational plans to commit to commercial oil production later this year, but has identified key conditions that must be in place before that can be done.

"In 2019, several critical tasks must be completed to reach a Final Investment Decision by year end," the company said.

"These tasks include completing commercial framework agreements with the Government of Kenya and finalising (project planning) studies in the first quarter of 2019 and concluding agreements over land title and water supply with the Government of Kenya and submitting both the upstream and the mid-stream environmental social impact assessments (ESIAs) in the second quarter."

Tullow and its joint venture partners have also proposed to the Kenyan government that the Amosing, Ngamia and Twiga fields should be developed as the foundation-stage of the South Lokichar Development.

This foundation stage includes a 60,000 to 80,000 barrels of oil per day (bopd) central processing facility and an export pipeline to Lamu.

The installed infrastructure from this initial phase is expected to be utilised for the optimisation of the remaining South Lokichar oil fields and future oil discoveries, allowing the incremental development of these fields to be completed at a lower unit cost post the first oil production.

Foundation stage

"Total gross capex associated with the foundation stage is expected to be circa $3 billion (Ksh300 billion), Tullow said. The company had already planned to invest Ksh7 billion ($70 million) in its Kenyan operations this year alone.

Tullow's massive capital expenditure is a signal of the oil revenues that will be eaten up by the capital-intensive business since the company is entitled to recover its expenses over the years.

The company has spent more than $1 billion (Ksh100 billion) to prospect for oil and develop wells.

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