London-based multinational Tullow Oil Plc has announced plans to invest Ksh7 billion in its Kenyan operations this year as it steps up preparations for commercial production starting 2022.
In a trading update on Wednesday, Tullow said the additional capital would be spent on developing wells in Turkana County where the multinational discovered an estimated 1.2 billion barrels of oil reserves.
According to Tullow, “The group’s 2019 capital expenditure is expected to total approximately $570 million (Ksh57.5 billion), comprising … Kenya pre-development expenditure of circa $70 million (Ksh7 billion).”
The company is continuing to transport an estimated 600 barrels per day of crude oil by road to Mombasa ahead of the planned small-scale (early oil) exports in the coming months.
Tullow expects this to increase to 2,000 barrels of oil per day from April 2019. Currently, there are 60,000 barrels of oil stored in Mombasa with a maiden lifting expected in the first half of 2019 although it is not clear if a buyer for the limited oil stocks has been identified.
The multinational plans to commit to commercial oil production this year in a process that will include signing contracts with the Kenyan government.
“Tullow made substantial progress in Kenya in 2018 and continues to target final investment decision (FID) in late 2019 and First Oil in 2022,” they said.
“This will require several key milestones to be achieved throughout 2019 including land acquisition, commercial frameworks and contract awards.”
Moving to full commercial operations is expected to provide a significant revenue boost to State finances and help diversify the country’s economy with oil receipts also expected to shore up the local currency.
The company has spent more than $1 billion (Sh100 billion) to prospect for oil and develop wells and had earlier said oil production could range between 60,000 and 80,000 barrels per day. This has the possibility of rising to 100,000 barrels per day from development of more wells.
Government earnings from the oil discovery have so far been minimal, comprising mainly of fees paid by Tullow with licence fees and infrastructure improvement payments by the multinational in 2017 amounted of Ksh 64.6 million.
Although Tullow did not pay income taxes or royalties in the two years, these are expected to rise significantly as soon as commercial production starts.