Tullow Oil completes early oil pilot as contract expires

British based oil explorer Tullow Oil along with its joint venture partners have announced the completion of the Early Oil Pilot Scheme (EOPS) for Kenya as its contract expires after two years.

The firm says the pre-commercial program has served its purpose of providing technical data, logistical, operational experience and training ahead of a potential full field development (FFD) program for project oil Kenya.

“The Early Oil Pilot Scheme has provided important lessons for the planning and execution of the Full Field Development phase of Project Oil Kenya,” noted Tullow Oil Chief Operating Officer Mark MacFarlane.

“By producing, transporting, storing and exporting crude oil from Northern Kenya, the pilot scheme has provided proof of concept for oil production in Kenya. The first export of crude oil from East Africa in 2019 was a historic achievement and clearly demonstrated the potential of Project Oil Kenya on world markets.”

Tullow Oil is now expected to make its final investment decision (FID) defining the commercial suitability of Project Oil Kenya before the close of 2020.

During the EOPS, Tullow facilitated the shipment of the first ever crude batch from Kenya to the international market at the end of August which totalled 240,000 barrels and fetched Ksh.1.2 billion ($12 million) from a sale to London based ChemChina UK Limited.

The sale was at the top-end market valuation which priced a single barrel at Ksh.6,216 ($60) at the time, a price equitable to the premium priced Brent crude and ahead of the medium priced West Texas Intermediate (WTI)

Like Brent, the Turkana based Kenyan crude was described as sweet and light, its light attribute describing its low relatively low density as the sweet sentiment underpins the crude’s low sulphur content.

However, the EOPS has not been without hiccups with Tullow having suspended the trucking of crude in November 2019 following heavy flooding in Turkana County which rendered roads impassable forcing Tullow’s hand in suspending the scheme.

Further, in May, Tullow issued a force majeure to the Ministry of Petroleum indicating its inability to honour its contract as a result of the Covid-19 pandemic on operations including restrictions on domestic and international travel.

“Declaration of force majeure allows time for an improvement in the operating environment and for the joint venture partners, to discuss with the government of Kenya the best way forward for this strategic project,” the African Oil Corporation, a partner in Project Oil Kenya told its shareholders on May 15.

Tullow Oil has been farming down on its operations in Kenya by effectively putting up its assets and holdings in the project for sale ahead of the FID.

Even so, the firm has previously assured of its plan to stay on board Project Oil Kenya emphasizing on the project’s viability.

“There is enough oil in Kenya, and the business fundamentals remain intact: recent independent reserves audits demonstrate that we have a substantial underlying reserves and resources base in East Africa,” noted Tullow in a statement on March 12.

“Throughout 2019, over 95% of the Tullow’s reserves and resources have been independently audited, and the results underpin the quality of the asset base.”