Tullow Oil’s South Lokichar Project in Kenya Faces Setback as Major Players Exit
In a blow to Tullow Oil’s ambitious South Lokichar project in Kenya, both TotalEnergies and Africa Oil have announced their withdrawal from the multibillion-dollar venture, exacerbating the project’s complexities.
The long-awaited South Lokichar project, situated in Kenya’s remote Turkana county, aims to tap into vast oil reserves of approximately 460 million barrels. However, the undertaking has been marred by numerous challenges, including commercial, political, technical, and environmental obstacles, as well as the disruptive effects of the Covid-19 pandemic. These issues have already set the project back by around four years from its original timeline.
The departure of French energy giant TotalEnergies and London-based Africa Oil further complicates the project for Tullow Oil, as it now assumes full ownership of the asset. Tullow had been actively seeking to reduce its 50% stake in the project and had engaged in discussions with potential strategic partners such as India’s ONGC Videsh and Indian Oil Corporation. There were also reports of China’s Sinopec showing interest in the project.
Africa Oil’s decision to exit stems from its belief in the greater potential in other areas of its portfolio, particularly the offshore Namibian Orange basin. This comes after Tullow Oil had previously exited the same basin, only for Shell and TotalEnergies to later uncover substantial oil discoveries there. Africa Oil CEO Keith Hill emphasized that the company’s strategic focus had shifted towards production and exploration opportunities, particularly the promising Venus discovery off Namibia’s coast.
With Africa Oil’s departure, Tullow Oil faces an uphill battle as it grapples with the mounting complexities of the South Lokichar project. Nevertheless, Tullow remains optimistic, highlighting that full ownership allows for increased flexibility and more options in securing strategic partners, streamlining joint-venture partnerships, and expediting project delivery. The company assures prospective partners that discussions are ongoing, indicating their continued commitment to the project’s progress.
The South Lokichar project’s future hinges on the approval of Tullow Oil’s updated field development plan (FDP), recently submitted to Kenyan authorities. Tullow Oil’s CEO, Rahul Dhir, anticipates the FDP approval process, including ratification by parliament, to conclude within the current year. Pending approval, new partners can be brought on board, and the necessary funding can be secured, leading to a final investment decision expected in 2023 or 2024. However, this revised timeline pushes the first oil flow to 2027, a delay of at least five years from the initial projections and a considerable 15 years since the initial oil discovery in Kenya.
Analysts have weighed in on the exits, with some suggesting that the reduced number of partners may simplify and expedite discussions regarding farm-out agreements. Nonetheless, Tullow Oil’s ability to navigate the challenges, attract strategic partners, and propel the South Lokichar project forward remains a closely watched development with significant implications for Kenya’s energy landscape.
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