Kenya: Tullow Oil Financial Crisis Threatens Oilfields
Tullow Oil, the British firm exploring oil in Turkana, is in deep trouble abroad, which may put Kenya’s oil wealth dreams in jeopardy.
The company’s troubles come after its decision to downgrade its production outlook, and the exits of the company’s chief executive and exploration director.
The problems affecting the firm are expected to affect its operations worldwide.
The share price of the London listed firm went on a free fall, cutting its market value by over Sh130 billion after its shares crashed by 72 per cent to 70 pounds, a 16-year low.
On Tuesday, Tullow revealed it was open to receiving offers to be bought “at the proper value”. It also scrapped its dividend, making a bad situation worse, in what will make it harder to raise the billions it needs to continue with exploration.
It has been a bad year for Tullow that started with technical difficulties in Ghana, its projects in Uganda and Kenya have faced delays and results from its wells in Guyana have been below expectations.
However, it is a weak performance by its flagship assets in Ghana that appears to have turned its fortunes upside down.
The firm’s new executive chairperson, Ms Dorothy Thompson, said the ousted officials, chief executive Paul McDade and the exploration director Angus McCoss had made great strides by delivering two major offshore developments in Ghana and significant discoveries in Kenya and Uganda.
“The board has, however, been disappointed by the performance of Tullow’s business and now needs time to complete its thorough review of operations,” she said.
The firm has also slashed its capital expenditure and cut costs at its operating fields, decisions that are likely to affect Kenya, where it is still having problems with locking down a final investment decision.
“In light of these new production forecasts, there will be a thorough reassessment of the Group’s cost base and future investment plans in order to allocate appropriate capital to the Group’s core production assets, development projects and continued exploration,” it noted.
Given that Kenya is not one of its most important oilfields, any cuts in exploration activities are likely to be felt here in Nairobi and in the Turkana oilfields.
However, Kenya has downplayed Tullow Oil’s problems abroad, saying, they are a “non-issue” here with Petroleum Principal Secretary Andrew Kamau saying the country has nothing to worry about.
“We’re not in Ghana and this is a non-issue. Do your own research and do not just take my word for it. What happens in Ghana may not affect us,” Mr Kamau said
Kenya completed its first shipment of the controversial early oil pilot scheme with 200,000 barrels of crude oil sold to a Chinese company for Sh1.2 billion.
Tullow says it has invested more than Sh300 billion in Kenya and hopes to make the first commercial sale in 2022.
The firm has prepared over 400,000 square kilometres of oilfields. However, it is drilling on only 10,000 square kilometre at the moment.
Given the fact that exploration is a capital-intensive exercise, investors need to be assured that there are future prospects in a company before they pump in money.
As it is, Tullow will find it hard when it goes out to look for money to fund the expensive venture.
But of most urgent attention for the Kenya project is building of the 890-kilometre pipeline from Lokichar to Lamu, which is critical in making Kenya’s oil viable.
The firm will now be temporarily run by Ms Thompson, while Mark MacFarlane, who was East Africa Executive Vice-President is now chief operating officer.
Tullow said it would provide a full financial and operational updates on February 12 when it releases its full year results, with an update on progress to be given in the Group’s Trading Statement on January 15.
In 2020, the Group’s production is forecast to average between 70,000 and 80,000 barrels of oil per day (bopd), down from the 87,000 bopd.
Production for the following three years is expected to average around 70,000 bopd.
Various factors had been identified that caused reduction in production guidance.
“On the Jubilee field, these factors include significantly reduced offtake of gas by the Ghana National Gas Company, which Tullow makes available at no cost and lower facility uptime,” it said.
Other factors cited include mechanical issues and there is faster-than-anticipated decline in one of its oilfields.