A truck loaded with crude oil en route to Mombasa from the oilfields in South Lokichar. FILE PHOTO | NMG
Trucking of Kenya’s crude from Turkana to Mombasa will remain
suspended until sections of roads severely damaged by heavy rains are
repaired.
British oil explorer Tullow on Wednesday said
the early oil pilot scheme (EOPS) was put on hold after adverse weather
in the fourth quarter of 2019 posed security risks.
“Trucking remains on hold until all roads are repaired to a safe standard,” Tullow said in its trading update.
Tullow uses a fleet of 100 specialised tankers to lift 2,000 barrels per day over the 1,000 kilometres.
The
suspension derails the Ministry of Petroleum’s shipment target of
500,000 barrels of oil. In December, Tullow said only 150,000 barrels of
oil had been ferried to Mombasa for pre-shipment storage.
WRITE-OFFS
Tullow said it expects to report a $1.5 billion (Ksh150bn)
writedown after lowering its long-term oil price assumptions by $10 to
$65 a barrel.
“Write-offs include Jethro, Joe and
Carapa well costs in Guyana as a result of drilling results and Kenya
Block 12A, Mauritania C3, PEL37 Namibia and Jamaica licence costs due to
the levels of planned future activity or licence exits,” it said.
In Uganda, the oil explorer said that there was no breakthrough where it is looking to reduce its stake.
A
final investment decision for Kenya is still pencilled in for the end
of this year, but that target is “challenging”, Chief Operating Officer
Mark MacFarlane said.
JPMorgan analysts said in a note:
“Looking forward, alongside the CEO and other organisational changes we
anticipate through 2020, we look for greater clarity on realistic
timeframes to progress in both Uganda and Kenya, which hold the key to
medium term growth potential.”
Tullow and the
government are using the early shipments to test the market and to
provide invaluable data and experience to be used in driving the oil
business at the development stage.
Trucking
of crude to Mombasa was launched by President Uhuru Kenyatta in June
2018 but the project has faced many hurdles including protests by local
community demanding security be beefed up over banditry and allocation
of jobs and tenders in the oil operations. The protests forced Tullow to
suspend trucking for a month.
OUTPUT TO SHRINK
The
writedown at comes after the exit of CEO Paul McDade in December and
the scrapping of the group’s dividend after the group failed to meet
production targets due to a weak performance at its assets in Ghana.
To
shield against oil price fluctuations, Tullow has hedged 45,000 barrels
per day (bpd) of its 2020 output with an average floor price of $57.28 a
barrel. For next year, it hedged 22,000 bpd at an average floor price
of $52.80 a barrel.
Tullow shares shed 70 percent in
the fourth quarter of 2019 on production downgrades in Ghana, the oil
quality found in a well in the Orinduik block offshore Guyana and the
disappointing size of a well in its Guyanese Kanuku block.
Tullow,
a partner of French oil major Total in several projects, has forecast
2020 output to shrink to a maximum of 80,000 bpd and fall again to
around 70,000 bpd in 2021-2023. It is still looking for a replacement
for its former Chief Paul McDade, who stepped down last month.
Tullow’s full-year results are due on March 12 and will include updates on the review of its assets and management structure.
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