Tullow seeks rapid FID for Kenya oil project
The London-based firm, which made an operating profit in 2017 for the first time in three years, says it is in talks with the government over a $1.1bn pipeline
Tullow Oil says it wants to make a final investment decision on the development of reserves in Kenya's South Lokichar Basin in 2019, as it seeks to take advantage of prevailing low industry costs to keep project expenditure down.
The development has been in limbo for several months, hamstrung by disputes with communities around the oilfields close to Lake Turkana in northern Kenya over revenue sharing and by uncertainty surrounding last year's disputed Kenyan
Chief executive Paul McDade said the company's relationship with both the Kenyan government and the population in the Turkana region had improved.
"We are really back heavily engaged with the government in Nairobi and the local government in Turkana and we will see progress on this project in 2018," McDade told a news conference on the company's 2017 results in London.
Tullow says it is targeting the launch of front-end engineering and design in 2018 ahead of FID in 2019, with the hope of producing first oil by 2021, or, more likely, 2022. This first phase of the project will develop reserves in Tullow's Ngamia and Amosing acreage, estimated at around 210m barrels, using one central processing facility.
Initial output from this "foundation" stage is forecast to be 60,000-80,000 barrels a day, with possible plateau production of more than 100,000 b/d later, as more oil from the surrounding area is fed into the processing facility. Tullow estimates 2C proven and probable resources for the entire acreage at 560m barrels and 3C resources at 1.23bn barrels.
Capital expenditure for the foundation stage is estimated at $2.9bn, comprising $1.8bn for the upstream development and $1.1bn for the pipeline that needs to be built to get the oil to the Kenyan coast for export.
Uncertainty over the cost and timetable for building the pipeline, which would run 820km to the northern coastal town of Lamu, has dogged the development. McDade said discussions with the government over the route were progressing, and that the joint venture group members were aligned both on resource levels and "the way forward", despite the cost of the pipeline.
Tullow holds a 50% stake in the acreage, alongside partners including
Africa Oil and also Total, due to its acquisition of Maersk Oil & Gas. McDade said Tullow would consider reducing its stake in the project once FID had been taken.
The company hopes to bring the expertise accrued in neighbouring Uganda to the Kenyan operation. It farmed down some of its stake in Ugandan acreage, where it was a pioneering explorer, to France's Total for $900m in 2017, as part of efforts to put the company on a more secure financial footing.
Tullow made an operating profit of $22m in 2017, its first for three years, having made a loss of $755m in 2016. Badly hit by the effects of the fall in oil prices since mid-2016, the company is now seeking to beef up its exploration portfolio again, notably taking acreage in offshore Côte d'Ivoire, adjacent to its TEN production development across the maritime border in Ghana, and also in Peru.
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