Oil curse: Tullow Oil slaps Kenyan government with a $2 billion bill for tapping Turkana’s light and sweet crude oil but Kenya says can't pay, won't pay

President Uhuru Kenyatta flanked by Deputy President William Ruto flags off the crude oil trucks during the Inauguration of the Ngamia 8 Early Oil Pilot Scheme, Turkana County. (The Standard)
  • Cash-strapped British oil explorer Tullow Oil and the Kenyan government are embroiled in a pay dispute that is threatening to go south and see sparks fly.
  • Tullow Oil wants the Kenyan Kenyan government to commit to paying up $2 billion as compensation for its six-year works in the Turkana oilfields.
  • The Ministry of Petroleum has rejected Tullow’s compensation bill, arguing it was excessive and not justified.

The proverbial ‘oil curse’ may already be knocking on the Kenyan door even before the country starts commercially exporting its light and sweet crude oil.

Cash-strapped British oil explorer Tullow Oil and the Kenyan government are embroiled in a pay dispute that is threatening to go south and see sparks fly.

Tullow Oil wants the Kenyan Kenyan government to commit to paying up $2 billion as compensation for its six-year works in the Turkana oilfields but the government is having none of it. Tullow, which has a 50 percent stake in blocks 10 BA, 10 BB and 13T in the South Lokichar Basin, submitted the compensation bill last week.

The Ministry of of Energy and Petroleum has rejected Tullow’s compensation bill, arguing it was excessive and not justified.

“We have written back to them demanding for justification on the $2 billion dollars’ bill. Our own audit points to a lower figure,” said a top official at the Petroleum ministry, who spoke on condition of anonymity, Business Daily reported.

“Tullow is in serious need of cash and they are rejecting the government’s position that the compensation bill is lower.”

The British oil explorer is currently in a dire financial crisis which has seen it slashed its spending on Kenya’s oil exploration operations in what is turning out to be a hard year for the oil firm. The firm now plans to cut a third of its staff to save about $20 million as it struggles to remain afloat.

Kenya’s spending cut follows Tullow trend in Ghana where the british firm has also made some drastic budget cuts in recent months after being hit by weak output. 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.

On top of all its troubles, the London-based company is also facing governance issues while its partner in Lokichar, Africa Oil is in financial woes.

Kenya plans to start exporting its crude oil commercially in 2022 and that’s when Tullow Oil hopes to recover their exploration costs totalling $2 billion. Tullow estimates the Turkana oil fields contain 560 million barrels in proven and probable reserves and expects them to produce up to 100,000 barrels per day from 2022.

Tullow requires a commitment from the government that Kenya owes the firm $2 billion (Sh204 billion) so has to use the pledge to sweeten the offer for sale of its stake.

Tullow, which operates the project, last year indicated it intended to sell up to 20 percent of its 50 percent stake in the blocks.

However, it is now reportedly willing to sell the entire stake after disappointing exploration results in Guyana and production problems in Ghana that prompted the ousting of its chief executive and wiped out nearly half of the company’s market value.

The exploration bill has been the subject of speculation for years following delays by the Kenyan government to hire a firm to audit the costs.

In 2016, Kenya hired an undisclosed firm for the audit, whose findings are to be used to challenge the Tullow bill.

In 2019, Kenya flagged off its first consignment of 200,000 barrels of low sulphur crude worth Shs1.2 billion destined for the international market to test the uptake before it embarks on large scale commercial production of its oil.

A lack of agreement on the compensation could force Kenya and Tullow to go for arbitration in the UK in line with the crude oil exploration contract.

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