2020 is already looking like a bleak year for Kenya’s oil sector after British firm, Tullow Oil latest setback.
The London-based company is facing governance issues while its partner in Lokichar, Africa Oil is in financial woes.That added to its strings of bad luck in Ghana and Guyana is poised to derail Kenya’s nascent local oil industry.
On December 9th, 2019, Tullow cut forecasts for production from Ghana for the fourth time in 12 months and suspended dividends.
“Production performance has been significantly below expectations from the group’s main producing assets, the TEN and Jubilee fields in Ghana,” said the firm in a statement.
Carapa-1 well off Guyana’s coast in South America which the British firm had been banking its hopes on also came off short and less oil than expected surfaced.
Chief executive Paul McDade and head of exploration Angus McCoss quit and its shares came tumbling down, wiping €1.7 billion off the company’s value.
These challenges that Tullow faces could now haunt Kenya. The Lokichar project has already experienced challenges that have resulted in pushing the date for first oil export from an optimistic 2021 to 2022 and now a doubtful 2023.
The project is currently at a critical stage in the Kenyan project, where Tullow together with its joint venture partners (Total and Africa Oil) as well as the Government, are preparing the Final Investment Decision (FID) in the second half of 2020.
The FID was expected to be signed in the course of last year but pushed to 2020 owing to the project’s failure to achieve key milestones before the partners can commit.
The firm might also have difficulties raising funds to carry forward its work in Kenya after rating agency Moody’s downgraded Tullow’s rating to B2 from B1 and probability of default rating (PDR) to B2-PD from B1-PD.
Tullow has net debt of $2.8 billion (about €2.5 billion), but a dip in production potentially limits cashflow, and thus its ability to repay this.
Tullow and its partner Africa Oil in Lokichar are also having a fight with Kenya Revenue Authority (KRA) over unpaid taxes, which is demanding over Sh10 billion ($100 million) from the two companies. KRA says the two firms did not pay taxes after selling their stake in different oil between 2012 and 2018.
The taxman is demanding Sh5.2 billion ($52 million) from Tullow in Value Added Tax (VAT), which KRA said Tullow ought to have paid following the sale of its 25% interest in Block 12A to Delonex Energy in 2015 and a further 10% in 2018, to the same firm.
Tullow has disputed the demand with the case currently at the tax appeals tribunal.
Kenya’s Early Oil Pilot Scheme (EOPS) commenced in June 2018 marking the beginning of the journey towards full development of Kenya’s oil and gas resources.
Going forward, it is likely Tullow will set its sights and energy on its other oil wells across the continent; These include the Lake Albert rift basin discovery in Uganda which could yield 1.7 billion barrels of oil.
Tullow holds a one-third stake in the project, but wants to sell part of this. The other partners are France’s Total and Chinese player Cnooc.
