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Government Rejects Tullow Oil’s Ksh16 Billion Compensation

tullow oil, nock
[PHOTO/ COURTESY]

The Kenyan government has rejected Ksh16 billion compensation claim by Tullow Oil for its eight year works at the Turkana Oil fields.

The money is part of Ksh204 billion compensation bill that the shareholding firms had presented to the Ministry of Petroleum.

The money is meant to compensate firms involved in the oil exploration, payable after Kenya starts full production and exportation of the oil, which in this case is slated for 2022.

“The ministry audit has suggested that eight percent of this expenditure (around $150 million – or Ksh16 billion) does not qualify for Cost Recovery. The partners and the GoK will now work together to agree on a final number. The final audit reports received so far indicate the partners have spent $2.04bn since 2010,” Tullow Kenya Managing Director Martin Mbogo told the Business Daily.

Read: Tullow Oil Mulls Exiting Kenya Over Uncertain Future

This comes a month after Tullow Oil sold its business entity in Uganda to Total, including the East African Crude Oil Pipeline.

Tullow owned about 33.3 percent stake in Uganda’s oil sector, which will cost Total  $575 million (approximately Ksh62 billion).

Tullow Oil is also planning to sell its stake in the Turkana Oil exploration.

Read: Not Now, It’s 2024: Tullow Pushes Kenya’s Full Commercial Oil Export Date

The company in conjunction with Total have hired French bank Natixis to run the joint sale process for blocks 10BA, 10BB and 13 T in the South Lokichar Basin.

Last year Tullow announced that it was willing to sell up to 20 percent of its 50 percent stake in the blocks. Reuters reported that the company is now willing to sell the entire stake after disappointing exploration results in Guyana and production problems in Ghana. The project is valued at between $1.25 billion to $2 billion (approximately Ksh125 billion to Ksh200 billion).

Revisiting the compensation bill could mean that the British firm is ready to exit Kenya, and the compensation is meant to sweeten the sale for willing buyers.

The fields already produce about 2,000 barrels of oil per day as part of an early production system. In August last year, the company announced that it had exported its first cargo of 250,000 barrels.

Read: Massive Job Losses Looming At Tullow Oil As Company Issues Redundancy Notice

Oil in Turkana was discovered in 2012, and it is estimated that the oil fields contain 560 million barrels in proven and probable reserves. Upon full exploration, miners can produce up to 100,000 barrels per day from 2022.

In January 2020, the company wrote off $800 million (Ksh80 billion) of its exploration costs in Kenya and Uganda after lowering its forecast for long-term crude oil prices.

“Exploration costs written off are predominately driven by a write-down of the value of the Kenya and Uganda assets due to a reduction in the group’s long-term accounting oil price assumption from $75 per barrel to $65 per barrel,” Tullow said in a trading update.

The multinational has spent more than $1 billion in exploration and oilfield development in Kenya.

Recently, Tullow Oil declared a force majeure on the project, meaning it could not fulfill its contractual obligation due to unforeseeable circumstances like war, strikes and epidemics.

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Written by Francis Muli

Follow me on Twitter @francismuli_. Email francis@kahawatungu.com

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