Kenya oil uncertainty risks Sh29 billion Tullow assets
Tullow Oil facility at Ngamia 8 in Lokichar, Turkana County, on February 18, 2020.
What you need to know:
- British explorer warns of serious impairment charges if situation is not addressed.
- Tullow said it expects to recover 585 million barrels of oil from the project over the full life of the field.
British explorer Tullow says it could book an impairment charge of Sh29.1 billion ($255 million) on its Kenya assets if uncertainties over oil production in the country are not resolved.
An impairment charge is a process used by businesses to write off assets whose value drops or is lost completely, rendering them worthless. These charges can be used to determine the financial health of a company.
“Should the uncertainties around the project be resolved there will be a reversal of previously recognised impairment. However, if the uncertainties are not resolved there will be an impairment of $255 million,” Tullow said in release for its full-year results yesterday.
Tullow, which struck oil in the Lokichar basin of Turkana close to a decade ago, is yet to develop the field for commercial production amid growing frustrations for Kenya over delayed petro-dollars wealth benefits.
Tullow and its joint venture partners presented their long-awaited revised development plan for oil production in Kenya for approval last December.
If it gets the nod from State and Parliament, this will pave the way for the planned development of a pipeline and oil processing facility in the basin that includes $3.4 billion (Sh388.1 billion) investment for upstream activities.
Construction of pipeline
In its plan, Tullow said it expects to recover 585 million barrels of oil from the project over the full life of the field.
Approval of the plan will see Tullow start construction of a pipeline, which is estimated to take three years. The firm said it expects to produce up to 120,000 barrels per day once production starts.
Tullow has previously attributed production delays to several factors, including unfavourable global oil prices, approval delays for land and water rights, a tax dispute, and Covid-19 menace.
Kenya had set a December 2021 deadline for Tullow to present a comprehensive investment plan for oil production in Turkana or risk losing concession on two exploration fields in the area.
The country first announced discovery of oil in Block 10BB and 13T in Turkana in March 2012.
