British oil explorer Tullow has set the capital expenditure for its Kenyan operations at Sh4.06 billion ($40 million) for this year, a reduction of 43 percent compared to last year as the firm continues its shift in focus from exploration to production.
The lower capex points to leaner times for contractors providing services in the Turkana oilfields, with the potential of job losses as the firm scales down its outlay.
In a trading update on the London Stock Exchange (LSE), Tullow said that it would spend a total of Sh35.5 billion in capex this year in its global operations. The company spent Sh7 billion in Kenya capex in 2019, which marked a
trend of declining spending due to scaled down drilling activity.
In 2018, Tullow’s outlay amounted to Sh17.6 billion, while 2017 saw it spend Sh22.5 billion.
Focus has shifted to production in the Kenyan operation, with the government eyeing full commercial output sometime in 2023 having launched an early export scheme to test the market with an initial shipment of 200,000 barrels going out last year.
“2020 capex breakdown (comes to) Sh14 billion ($140 million) in Ghana, Sh8.12 billion ($80 million) on West Africa non-operated, Sh4.06 billion ($40 million) in Kenya, Sh1.52 billion ($15 million) in Uganda and Sh7.6 billion ($75 million) on exploration and appraisal activities,” Tullow said in its trading update.
Tullow’s massive capital expenditure over the years is, however, an indicator of the oil revenues that will be eaten up by the capital-intensive business once petrodollars begin to flow in for Kenya, since the company is entitled to recover its expenses over the years.
The company has spent more than $1 billion (Sh100 billion) to prospect for oil and develop wells in Kenya, whose estimated recoverable crude reserves stand at 560 million barrels.
Tullow earlier said oil production could range between 60,000 and 80,000 barrels per day, with the possibility of rising to 100,000 barrels per day from development of more wells.
The oil explorer reported $85.4 million after-tax profit in 2018, rebounding from $175.3 million loss in 2017.
The company closed 2018 on a net asset base of $2.9 billion, up from $2.7 billion in 2017. It is expected to release its 2019 full year results next month.
Tullow’s disclosure of its spending plans, however, comes at a time when the shipment of crude by road to Mombasa in the early oil pilot scheme (EOPS) remains suspended due to damaged roads in Turkana following sustained heavy rains.
The company uses a fleet of 100 specialised tankers to transport 2,000 barrels per day over the 1,000 kilometres from Turkana to Mombasa.
President Uhuru Kenyatta flagged off the first consignment of crude from Mombasa in August 2019 after a Chinese State-owned oil multinational won the bid to buy the 250,000 barrels that were in place at $12 million (Sh1.22 billion).
“In Kenya, the early oil pilot scheme (EOPS) is suspended due to severe damage to roads caused by adverse weather in the fourth quarter of 2019. Trucking remains on hold until all roads are repaired to a safe standard,” said Tullow. “Work continues with joint venture Partners (Africa Oil and Total) and the Government of Kenya to progress the development project.”
The company and the government had planned to load 500,000 barrels of crude by March in the second shipment under the plan. By the time the trucking was suspended, they had transported 150,000 barrels, equivalent to a third of the target. Given the capacity of 2,000 barrels per day and the suspension of activity, it is unlikely that the partners will have shipped enough by March to hit the shipment target.
In 2018, Tullow was forced to halt the trucking for a month after local community protests demanding that the State beef up security along the Turkana-Baringo border, recover stolen livestock and assure them of their share of jobs and tenders in oil operations.