Tullow eyes over Sh1.6b from sale of Turkana oil

Tankers transport crude oil from the Ngamia 8 Oil Well in Turkana to the Kenya Petroleum Refineries Limited in Changamwe. [File, Standard]

Tullow Oil is planning to take advantage of high oil prices to offload crude oil drilled from the Turkana oilfields during the pilot project.

The crude oil is lying at the Kenya Petroleum Refineries Ltd (KPRL).

The firm says the commodity, which is part of the cargo trucked to Mombasa from Lokichar by road during the Early Oil Pilot Scheme (EOPS), would fetch a higher price following the recent rally in crude oil prices.

The cost of crude has risen to $85 (Sh9,300) a barrel, from the pandemic lows of about $17 (Sh1,800) per barrel in April last year. Global demand for crude oil is also expected to rise as the winter approaches in Europe.

Tullow said it is in talks with the Petroleum Ministry on the sale of the oil.

The cargo exported in August 2019 under the EOPS project fetched about Sh6,600 ($60) per barrel.

Tullow Oil Kenya Managing Director Madhan Srinivasan said there are 180,000 barrels of crude oil at the KPRL tanks. If the company can find a buyer at current prices, it could make about Sh1.68 billion ($14.4 million). This would be in comparison to the Sh1.2 billion made from the sale of the first EOPS cargo of 200,000 barrels, which sold at about Sh6,600 ($60) per barrel.

“We are in the final stages of discussions with the government and as soon as we are done, we will sell it,” said Srinivasan. The pilot project to test some aspects of Kenya’s oil including market reception commenced mid-2018 and ran through to June 2020. Tullow’s only export cargo was sold to ChemChina in August 2019.

There were expectations that there would be another export cargo and Tullow had continued trucking crude oil to KPRL. By the time the EOPS two-year window lapsed last year June, it had not exported the second cargo.

The EOPS has been criticised by lobby groups and some analysts, claiming it was an unnecessary and expensive undertaking that would reduce Kenya’s earnings once the commercial production starts.

Both the government and Tullow, however, say the project offered valuable insights on the Kenyan oil, including reaction by the market. The insights will come in handy in the rollout of the commercial phase of Project Oil Kenya.

Tullow says it is focusing on developing a field development plan that will be ready next month as well as the search for a strategic partner.

Tullow Oil Chief Executive Rahul Dhir said the two are key for the project to move to its commercial phase.

The search for the partner is expected to be finalised next year.

“What we are looking for is somebody who will bring a complementary skill,” said Dhir, who together with senior officials from Africa Oil and Total Energies – Tullow’s joint venture partners in the Turkana project – were in Kenya last week presenting the project’s revised development to key government stakeholders.

The partners said they are still evaluating how much stake to cede to the strategic partner, but Dhir noted that it would be a “material stake”.

Tullow holds a 50 per cent stake in the Lokichar blocks while the other two firms hold a 25 per cent stake each.

“If we were looking for a financial partner, we would be looking at between five and 15 per cent but in the case of a strategic partner, then the word that we use is the material stake. It is not 10 to 20 per cent,” he said.