Africa Oil and TotalEnergies have notified Tullow Oil and the government in Kenya that they intend to withdraw from the licences.
Progress has been slow for some time now and Africa Oil wrote down the value of its South Lokichar Basin licences in 2022 by $170.6 million, to $58.6mn. It will now reduce this to zero.
The decision covers the Blocks 10BB, 13T and 10BA.
A Total representative confirmed the company had been studying options on Blocks 10BB and 13T.
“The studies did not result in a project that meet the Company’s investment criteria and the Company decided to withdraw from these licenses,” the official said.
Africa Oil IR manager Shahin Amini said his company had been in Kenya since 2008 but that the company could no longer justify spending “management time, resources and capital on an asset that, on balance, we believe is unlikely to be farmed out in the near future”.
The company had taken a portfolio approach, he said. It is intent on focusing on production in West Africa and the Orange Basin.
Tullow has optimised the project in the last three years, Amini continued. “It may have robust economics but there’s a need for significant upfront capital. It needs a strategic partner, for someone to help out, to share the risk.”
Africa Oil has benefited from exploration success in the South Lokichar Basin. The sale to Maersk Oil in 2016 saw Africa Oil receive $427mn. It then used this cash to buy into producing assets in Nigeria that now continue to provide substantial cash flow. Total bought Maersk in 2017.
Eyeing options
The move comes just a day after reports in the Indian press that the proposed Kenyan farm-out plans had hit a roadblock. Indian Oil and ONGC Videsh had been in talks to take a stake in the project.
According to the Times of India, the two Indian companies had opted to drop their $2 billion plans for the Kenyan development. The newspaper did not provide the companies’ reasons for exiting discussions.
A note from Peel Hunt noted speculation that Sinopec may be interested as a participant in the Kenyan project. The analysts said the removal of the minority partners could “simplify and speed up discussions”. The report gave a 40% chance for the first phase of the Kenyan project to move ahead.
Tullow went on to say the withdrawal gave it “more optionality” and “more flexibility in the ongoing process to secure strategic partners, creates a simpler Joint Venture Partnership and streamlines project delivery”.
Tullow said it had submitted an updated field programme on the development in March this year. The talks are taking longer thane expected, the company said, but it intends to secure a partner this year.
According to plans from Tullow, the development would cost around $3.4 billion and produce 120,000 barrels per day of oil.
“It would have made more sense to walk away and keep limited firepower for more accretive deals elsewhere,” said Panmure Gordon’s Ashley Kelty.
Strategy shift
“We have taken the decision to exit our Kenya concessions as our strategy has shifted to focus on production and high potential exploration opportunities, including our Orange Basin portfolio where we are now appraising the exciting Venus discovery, offshore Namibia,” Africa Oil President and CEO Keith Hill said.
The company has a 25% stake in the three licences, while Tullow Oil has 50% and TotalEnergies 25%. In 2016, Africa Oil reported its 2C oil resources in the area at 766mn barrels of oil.
Hill said the company had played a “central role” in discovering the finds, and that these would still be a “significant oil producing province in the coming years with strategic value for the country”. He wished the partners on the block, the government and the host communities the best in taking the work forward.
Nigeria, Namibia and South Africa are Africa Oil’s core focus now. However, the company entered Equatorial Guinea in February this year, signing production-sharing contracts (PSCs) with the government.
Amini noted the company was particularly excited by EG-31. “It’s an infrastructure led exploration play, in shallow water, with gas potential. It’s a mature province that benefits from nearby gas infrastructure.”
The company is seeking a farm-in partner on its other block in the country, EG-18.
Updated at 3:23 pm with comments from Africa Oil’s Amini, confirmation from TotalEnergies and Panmure Gordon’s Kelty.
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