Tullow Oil to sustain Kenyan operations despite investment cutbacks

Tullow Oil says it will sustain its Kenyan operations despite investment cutbacks and restructuring the firm is currently undertaking.

The firm plans to reduce its global capital expenditure by up to 30 percent to 35 billion shillings with investments in Kenya expected to total 4 billion shillings.

However, the firm warns of reduced financial performance in 2020 if oil continues trading at below 60 dollars a barrel and Coronavirus reaching pandemic levels.

Early February, Tullow Oil Kenya announced plans to let go off 260 employees through a restructuring plan aimed to save the firm at least 2 billion shillings.

Already, its capital expenditure is expected to reduce 43 percent locally and 30 percent globally to 35 billion shillings.

The firm targets a production output of about 80,000 barrels per day. While exploration expenditure is expected to reduce by 45 percent to Kshs 7.5 billion globally, the firm plans to continue with its investment in Project Oil Kenya.

The firm says the upstream Environmental Social Impact Assessment is technically complete and will be submitted to NEMA in the second quarter of 2020 after final consultation.

According to the firm, over 95% of the reserves and resources have been independently audited, and the results underpin the quality of the asset base. The firm further backs Project Oil Kenya to be commercially viable.

” Good progress on Project Oil Kenya was made in 2019. Front End Engineering Design (FEED) studies for the upstream and midstream parts of the project were finalised, the tendering process for wells is now complete and upstream tendering for Engineering, Procurement and Construction (EPC) has commenced. The midstream Environmental and Social Impact Assessment (ESIA) was submitted to the National Environmental Management Agency(NEMA) in November 2019. The upstream ESIA is now technically complete and publicly available and will be submitted to NEMA in the second quarter of 2020after final consultation work in Turkana. The land acquisition work led by the Government of Kenya for the upstream development has commenced in the field. Progress has been slower on some work streams such as access rights to land and water andthe long-form commercial agreements to be entered with the Government of Kenya.This slow progress means that the target of reaching FID by year-end 2020 becomes more challenging.” said a statement.

Under the Early Oil Pilot Scheme, 240,000 barrels have been tracked to Mombasa and sold though it remains on hold due to road rehabilitation. The firm will make a final investment decision on Project Oil Kenya by the end of the year.

Adding that: ” In May 2019, the Early Oil Pilot Scheme (EOPS) production reached 2,000 bopd. Production performance tested during EOPS demonstrates that the reservoir remains consistent with expectations, and no further reservoir data is expected to be required to de-risk the project. The first export of oil from East Africa, a cargo of 240,000 barrels, was flagged off from the port of Mombasa by H.E. Uhuru Kenyatta, the President of Kenya in August 2019.Following adverse weather in the fourth quarter of 2019 which caused severe damage to the roads used by the crude export tankers, EOPS was suspended.Trucking operations remain suspended until all roads are repaired to a safe standard.”

Tullow Kenya 2020 Outlook

  • Tullow remains fully committed to Kenya, and the Board has approved the requisite 2020 budget targeting a Final Investment Decision (FID) at the end of 2020.
  • Tullow Kenya will focus Capex on only those critical path items necessary to get the project to FID. Some of the critical path activities towards achieving FID will include submission of the Field Development Plan (FDP), securing Environmental and Social Impact Assessment (ESIA) licences for upstream and midstream, work with the Government to secure access rights to land and water, and project financing among others.
  • Project Oil Kenya (POK) is commercially viable and is underpinned by substantial underlying reserves.
  • There is enough Oil in Kenya and the business fundamentals remain intact: recent independent reserves audits demonstrate that we have a substantial underlying reserves and resources base in East Africa. Throughout 2019, over 95% of the Tullow’s reserves and resources have been independently audited, and the results underpin the quality of the asset base.
  • Tullow Kenya is in the process of farming down some of its equity before FID. Reducing equity is a normal, portfolio management activity. Tullow does not plan to exit Kenya
  • The Early Oil Pilot Scheme (EOPS) remains suspended due to severe damage to roads caused by adverse weather in the fourth quarter of 2019. Trucking remains on holduntil all roads are repaired to a safe standard. Work continues with Joint Venture Partners and the Government of Kenya to progress the development project.

Tullow Oil targets to shed 20 billion shillings from general and administrative expenses over the next three years.

The group also on Thursday announced its full year results for the year ended 31 December 2019.


  • Group working interest production averaged 86,800 boepd; capital investment of $490 million
  • Revenue of $1,683 million; gross profit of $759 million; loss after tax of $1,694 million
  • Loss after tax driven by exploration write-offs and impairments totalling c.$2.0 billion including revised Uganda write-off
  • Free cash flowof $355 million; year-end net debt of $2.8 billion; gearing of 2.0x net debt/EBITDAX
  • Commenced exploration campaign in Guyana; Carapa-1 well confirms the extension of Cretaceous play into Tullow’s acreage
  • Continued project progress in Kenya towards FID; first-ever lifting of Kenyan crude
  • Departure of CEO and Exploration Director by mutual agreement following disappointing business performance

Dorothy Thompson, Executive Chair,Tullow Oil plc, said: “This has been an intense period for Tullow as we have worked hard on a thorough review of the business which has led to clear conclusions and decisive actions. We are focused on delivering reliable production, lowering our cost base and managing our portfolio to reduce our debt and strengthen our balance sheet.Even with recent events in oil markets, Tullow’s assets remain robust: we are a low-cost African oil producer, with a strong hedging position, substantial reserves that underpin our business and a high potential exploration portfolio.”



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