Tullow increases Turkana oil field costs to Sh374b

The Cheptuket Wellpad Project site at Chepsigot in Elgeyo Marakwet County. [Kevin Tunoi,Standard]

Tullow Oil has revised upwards the amount it plans to spend in developing the Lokichar oilfields in Turkana County.

This is even as the company, together with its joint venture partners in the project (Total Energies and Africa Oil) restarted the search for a strategic partner to push them through to the commercial phase.

Tullow Oil yesterday said the capital expenditure for the project will increase 17 per cent to Sh374 billion ($3.4 billion) from an earlier estimate of Sh319 billion ($2.9 billion) it had anticipated would be used to bring to fruition Kenya’s dream of being an oil exporter.

The higher costs follow a new plan that scales up the project, resulting in a larger crude oil processing facility and export pipeline.

The firm said the new plan is designed to withstand low crude oil prices following last year’s collapse.

It will also enable the company to take advantage of the economies of scale and lower oil production costs when the project finally starts. The capital investments will develop oil fields in Turkana County, including the construction of a central processing facility and the building of an 800-kilometre crude oil pipeline to Lamu.

“Total gross capital expenditure (capex), which covers both the upstream and the pipeline to First Oil, is expected to be $3.4 billion,” said Tullow when it published its half-year results yesterday.

The larger facility and pipeline will enable the firm to increase the number of oil wells it will drill, leading to higher volumes of oil that will be produced.

This is expected to reduce the cost of production by a third to Sh2,420 ($22) from Sh3,410 ($31) per barrel.

“The increase in capex from the previous design is due to a bigger facility, processing capacity, additional wells to be drilled and larger diameter crude oil export pipeline, which delivers 30 per cent increase in resources whilst lowering the unit cost to $22 per barrel (from about $31 per barrel),” said Tullow.

“The revised concept also allows greater flexibility in adding additional fields into production without significant modifications to the project’s infrastructure.”

In its half-year statement, Tullow also said the joint venture firms are seeking new partners for the project. “Tullow and its JV partners are actively seeking strategic partners for the project,” said the UK-based firm.

“Based on the revised plan, Tullow believes this project is an attractive commercial prospect for investors looking to access the East Africa oil and gas sector in both the upstream and midstream. It is intended that a strategic partner will be secured ahead of a final investment decision.”

The partners had previously indicated the new entrant to the Kenyan project would become the primary financier in the project.

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