Canadian petroleum major Africa Oil, one of the three joint venture firms alongside Tullow Oil and Total, says it will not pump any money into the project until plans for commercial production are approved.
The company last week disclosed that it does not have adequate capital to complete development plans for the three oil blocks that it has a stake in.
It said it must first secure long-term licenses to commercially explore the oil in order to commit more resources to the project.
This is a new blow that threatens to leave Kenya’s dream of large-scale production and export of crude oil by next year in tatters.
This is because Tullow Oil and now Africa Oil have both expressed doubt of the commercial viability of the project especially at the current low global oil prices.
“Regarding the South Lokichar Basin development, the company will continue to minimise capital investment until a field development and financial plan is approved. The company’s current working capital position may not provide it with sufficient capital resources to complete development activities being considered in the South Lokichar Basin (Kenya),” the company disclosed.
Block 13T
The three firms tried to dispose of part or whole of their assets last year but their licenses for Block 10BB and Block 13T were extended by the government to December.
They are now planning to have submitted a Field Development Plan (FDP) before the end of the year.
“In Kenya, the JV partners are designing a field development plan for the South Lokichar development in collaboration with the government of Kenya in order to optimise the economics of a more sustainable project and secure a long term extension of the licences, while minimising expenditures in the short term,” Africa Oil said in its Quarter One 2021 results released on Thursday last week.
The company owns a 25 percent stake in oil blocks 10BA, 10BB and 13T, while Tullow Oil and Total own a 50 percent and 25 percent stake respectively in each of the three exploration blocks.
Block 10BA is the largest of the three and covers an acreage of 11,760 square kilometres, while Block 10BB and Block 13T cover 8,835 and 6,296 square kilometres respectively.
The firm on Thursday valued its stake in blocks 10BB and 13T at Sh19.9 billion and had, in the three months to March last year, reduced the valuation of its entire interest in Kenya by $215.6 million (Sh23.1 billion) due to poor prices of oil which fell to the lowest level in history on suppressed demand.
Sh7.6 billion
Tullow also watered down the value of its stake in the Kenyan oil project by Sh46.8 billion on low global oil prices, and has cut its spending in Kenya to Sh548 million in the project this year compared to Sh4.4 billion last year and Sh7.6 billion in 2018, casting doubt over the project’s future.
This as Africa Oil has, at the same time, announced that it has acquired a $150 million (Sh16 billion) loan facility which it aims to use to restructure its debt that matures in January next year.
It will also boost its financial position and pump part of the money into developing and acquiring oil assets in emerging oil markets across Africa.
“As well as the immediate benefits of lower borrowing costs and improved liquidity, this refinancing strengthens our banking relationships, a strategic advantage as we seek to acquire additional producing assets in this attractive market and progress our South Lokichar project in Kenya,” Africa Oil chief executive Keith Hill said on Thursday.
Meanwhile, the company said extension of their license for Block 10BA until April 26 next year allows the JV firms time to include and align the block’s work programme with the FDP for the two other blocks, and will dig an exploratory well in the block.
Kenya has gazetted 63 onshore and offshore oil blocks and almost half of them have already been sold to foreign multinationals, while 35 remain up for grabs. BY DAILY NATION