Lack of funds to further jeopardise Kenya's hope for oil cash

 

Canadian-based Africa Oil Corporation (AOC) is short of funds to complete ground activities at its South Lokichar Basin, Turkana County, further complicating Kenya’s chance to taste oil money.

This is after the firm suffered impairment cots of $215.6 million (Sh23.3 billion) in the first three months of the year.

In a half-year financial report, AOC said it would, however, continue to assess the sufficiency of its capital resources until a field development and financial plan is approved.

In a statement, the oil firm said it is currently focused only on office-based planning actions with the impact of COVID-19 forcing the joint venture to call Force Majeure on its licenses, which will delay final investment decision (FID) and impact the ongoing farm-down process.

In Mid May, its operating partner on Blocks 10BB and 13T in Kenya, Tullow Oil, submitted notices of Force Majeure to the Kenyan Ministry of Petroleum and Mining on behalf of the joint venture partners to discuss coronavirus restrictions and tax changes.

Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties.

This saw the Early Oil Pilot Scheme (EOPS), which commenced mid-2018, is suspended. The initiative was to test the market and review the logistics of handling the crude export in readiness for the Full Field Development (FFD).

Tullow Oil has been contesting a $50.2 million tax claim by Kenya Revenue Authority’s (KRA) in court.

The taxman is demanding the billions from Tullow Oil for the transfer of 25 per cent of its interests in 2015 and a further 10 per cent in 2018 both in Block 12 A in South Lokichar Basin to the UK-based Delonex Energy.

The matter currently before the tax appeals tribunal was last heard in October last year.

“Constructive discussions are ongoing with the Kenya Government regarding next steps, including the extension of the licenses for Block 10BB and 13T which are set to expire in September 2020,” AOC in a statement to its shareholders.

Under the terms of the Block 10BA, AOC received approval from the Ministry of Energy and Petroleum for the Republic of Kenya for an extension to the second additional exploration period which expires in April 2021.

During this extended exploration period, AOC and its partners are obligated to complete geological and geophysical operations, including either 500 kilometres of 2D seismic or 25 square kilometres of 3D seismic.

Additionally, the joint venture partners are obligated to drill one exploration well or to complete 45 square kilometres of 3D seismic.

The total minimum gross expenditure obligation for the first additional exploration period is $19 million.

Seismic acquisition commitments have been completed while the good commitment is still outstanding.

''Discussions are ongoing between the joint venture partners and the Government of Kenya on the best path forward to resume operations,’’ the Canadian firm said.

In February reports indicated that Tullow and Total were looking for ways to sell down their stakes in the Kenyan project as part of the restructuring plan.

The British oil firm is frustrated by FID on Kenya, which has been postponed severally due to stalled issuance of an environmental impact assessment license.

The company had previously aimed to give the final go-ahead by the end of 2019 for its onshore Kenyan oilfields, which are expected to produce up to 100,000 barrels per day.

It had expected to start production of oil by 2022, which was pegged on getting investment commitments from each partner this year.

Generally, AOC’s half-year average operating cost of $5.1 per barrel represents a 12 per cent decrease over the first-quarter operating cost of $5.8 per barrel.

No leasing costs were payable for Prime's Floating Production, Storage and Offloading ("FPSO") platforms because they are owned by the joint venture partners and are not leased during the period under review.

''Crude sales were unaffected in this difficult environment with all five planned sales completed in the second quarter,’’ the firm said.

During the period, Prime lifted and sold 10 cargos representing a sales volume of 9.5 million barrels or 4.75 million barrels net to Africa Oil's shareholding in Prime at an average price of $68.95 per barrel.