Lower prices put Turkana oil in limbo

Tullow Oil is taking a more cautious approach to the development of Kenya’s oil project.

This follows a sharp drop in crude oil prices this year.

The firm yesterday said it was reviewing its plans for the development of the Lokichar oilfields, factoring in lower crude oil prices.

It had initially worked on a plan that indicated the breakeven point for the Turkana crude oil could be achieved at $50 (Sh5,400) per barrel. It is now considering a scenario where crude oil prices might stay low for a longer period.

Low demand

In its new plan, the company said it would work with a plan where oil prices could stay longer at below $45 (Sh4,905) per barrel.

Oil prices crushed earlier this year following a drop in demand, as governments put in place measures to slow the spread of Covid-19.

While it has slightly recovered in the recent months from an average of $17 (Sh1,836) per barrel in April to $45 in October, it is still below Tullow's target.

“In Kenya, Tullow is in the process of re-assessing Project Oil Kenya to design an economic project at low oil prices whilst preserving the phased development concept,” said Tullow Oil Chief Executive Officer Rahul Dhir, who spoke to investors during the firm’s capital markets day.

“The original development plan was meant to work at oil prices of at least $50 per barrel. The world has significantly changed in 2020, with continued low oil prices of less than $45 per barrel, and hence, there is a fundamental need to redesign the development so that we can deliver an economic project at 'lower for longer' oil price world.”

The company noted that the focus on oil production at high yielding wells as well as drilling more wells would lower the per-unit cost.

These are the areas it said would achieve savings to break even in a low crude oil price environment. “The main areas that will improve the project economics will be to optimise the reservoir performance such that we can deliver higher initial production rate by drilling at the most productive part of the fields in the earlier phase,” said the company.

“This, along with optimisation of the capital costs and life cycle operating spend, will have the potential to accelerate more resources within the licence period."

Dhir said a team comprising of Tullow, joint venture partners and external consultants were working closely to deliver a Field Development Plan (FDP).

This is in line with the government's requirement to submit the FDP by the end of next year.