Kenya oil dream in limbo with Tullow yet to tap strategic investor

Kenya’s dream of striking it rich from its crude oil deposits in Turkana remains in limbo with explorer Tullow Oil yet to on board a strategic investor for the project.

While the firm has in its just published half year results expressed optimism of making progress by the end of the year, Tullow has highlighted uncertainties to the realization of the project’s value in use (VIU).

The uncertainties which jeopardise Tullow’s ability to realize the estimated VIU include the receipt and finalizing of an acceptable offer from a strategic partner and the securing of government approvals related to the project.

Further, Tullow lists the obtaining of financing for the project and government deliverables as further uncertainties.

“These items require satisfactory resolution before the Group can take a final investment decision,” Tullow said on Wednesday.

“Due to the binary nature of these uncertainties, the Group was unable to either adjust the cash flows or discount rates appropriately.”

As such, Tullow has had no impairment or reverse impairment of its assets in Kenya.

Since the start of the year, the firm says it has been in discussions with the government on the approval of its Final Development Plan (FDP) and securing government deliverables.

The FDP is currently under review with the government of Kenya extending the review period to November 6, 2022.

“In addition, the company continues to progress with the farm down process with approvals being sought,” added Tullow.

Tullow is nevertheless hopeful of progress on the Kenya oil project under the new administration despite the non-change in uncertainties in the last six months.

“A process to secure a strategic partner for the development project in Kenya is ongoing and Tullow is confident that substantial progress will be made before the end of the year. Following the recent elections, Tullow and its joint venture partners will work with the new government to progress the project which has the potential to make a significant contribution to the Kenyan economy through taxation, revenue sharing, employment and local content,” Tullow said.

On previous occasions, Tullow Oil has defended and stood firm on the viability of the project amidst the stay of uncertainties.

Technically, the project remains financially viable with the Net Present Value (NPV) outstripping the assets book value by Ksh.30.7 billion ($255.2 million).

NPV refers to the present value cash flows at the required rate of return for the project compared to the initial investment and is used to calculate the return on investment (ROI).

Value in use or VIU meanwhile refers to future cash flows expected to be derived from an asset in its current condition while the book value the value of assets according to its balance sheet account balance.