Tullow Oil's mounting financial concerns are impacting on its projects in East Africa. Tom Collins reports how this could affect oil production in the region
Kenya's President Uhuru Kenyatta was filmed last August jubilantly celebrating Kenya and East Africa's first ever crude oil exports along with county governors and oil executives at the port of Mombasa.
The oil had been transported by truck from Kenya's northwestern Turkana region where London-listed Tullow Oil discovered moderate reserves at the Lokichar basin in 2012. The small-cap oil company, which mostly operates in Africa, estimates the Kenyan field to hold 560m barrels of oil and had expected to produce up to 100,000 barrels per day from 2022.
In neighbouring Uganda, the firm has been a key partner in the Lake Albert project which is estimated to hold i.7bn barrels of recoverable oil and could reach up to 230,000 barrels per day when it reaches full capacity. Though both projects had suffered serious delays due to regulatory issues and pipeline concerns, final investment decisions (FIDs) had been nearing and the region was anticipating commercial production in the mid-2020s.
These hopes have dimmed after Tullow Oil's mounting financial concerns led it to seek either a partial or complete exit from both projects as it plans to restructure and strengthen its balance sheet. Production problems in Ghana and poor exploration results in Guyana triggered a share price collapse of more than 70% and the untimely departure of Tullow's CEO Paul McDade.
Those woes have been exacerbated by an international oil price collapse that has seen Brent crude crash to less than $30 a barrel following the Saudi-Russia price war and the global economic impact of the coronavirus pandemic.
Kenya and Uganda are now looking for already invested entities or new partners to buy out Tullow's stakes in the projects, but the international situation makes this uncertain, meaning that East Africa's oil-exporting hopes are once again in doubt.
"There's good deposits in both Kenya and Uganda but if you can't get them out of the ground and onto the market then they have no value," says Ed Hobey-Hamsher, senior Africa analyst at global risk consultancy Verisk Maplecroft.
Tullow posted a $1.7bn after-tax loss in 2019, down from an $85m profit the year before, citing production issues in Ghana and failure to make progress on projects in Uganda and Kenya. Calling the collapse of crude prices a "perfect storm", the...