As the East Africa Community (EAC) member states gear towards becoming net oil and gas exporters, a latest industry report has sent mixed signals on how the region is performing in the development of its oil projects.
It has emerged that Kenya has made major development in the first half of this year compared to her neighbour Uganda which is still lagging behind in its oil projects, mainly exploration and the planned construction of a pipeline linking its oil fields to the Tanga Port in Tanzania.
Tullow Oil plc (Tullow) which has operations in both countries, through Joint Ventures, has noted that significant progress has been made over the first six months of the year in Kenya on both the Early Oil Production Scheme (EOPS) and the Foundation Stage of “Project Oil Kenya.”
“In May 2019, EOPS production was increased from 600 bopd (barrels of oil per day) to 2,000 bopd and the reservoirs, wells and associated facilities have been performing well,” the firm notes in its latest operational update released on Tuesday.
Over 150,000 bbls(a unit of volume for crude oil and petroleum products) of oil have been safely delivered to Mombasa so far and Tullow expects the first export cargo to be sold and lifted in the third quarter of 2019.
The Joint Venture Partners and the Government of Kenya have also concluded negotiations around key fiscal and commercial principles for ‘Project Oil Kenya’ with agreements between the parties documented in various Heads of Terms which were signed by the Joint Venture Partners and the Government of Kenya in Nairobi on Monday.
According to Tullow, the move gives parties confidence that the development project will be robust at low oil prices.
“In addition, the completion of the FEED studies for both the upstream and midstream, together with recent market soundings provide increased confidence in the project’s capital expenditure estimate and construction timetable that is expected to see first oil three years after the Final Investment Decision (FID),” Tullows’ management said.
The company which is exploring and drilling oil in the northern part of Kenya further notes that the government of Kenya continues to make good progress, both in acquiring the land for the upstream and pipeline and securing water rights for the upstream.
However while these activities are progressing well, they are taking longer than originally forecast, the firm has said.
The National Environment Management Agency (NEMA has requested that additional community consultation take place for the Environmental and Social Impact Assessments (ESIAs) which will now be submitted in the second half of 2019, which is later than anticipated.
“All parties continue to work well together across all development workstreams and significant progress has been made so far this year. However, despite this progress, the Partners and the Government of Kenya are reviewing the most likely timeline to FID which Tullow now expects in 2020,” it said.
Unlike Kenya, little progress has been reported in Uganda with Tullow saying it is considering selling its stake in the Ugandan oil industry.
In January this year, the CEOs of both Tullow and Total met with President Museveni, where principles for the tax treatment of the farm-down to China National Offshore Oil Corporation (CNOOC) and Total were agreed.
The Joint Venture Partners have worked to finalise an agreement based on these principles.
However, Tullow and its Joint Venture Partners have so far been unable to finalise this agreement with the Government of Uganda.
“We continue to work constructively with our Joint Venture Partners and the Government of Uganda to agree a way forward and the consequent timing of FID. Nevertheless, although negotiations continue, Tullow is currently considering all options in pursuing the sale of its interests in Uganda,’ the management has reported.
The Joint Venture Partners continue to work towards reaching FID for the development project in the second half of 2019 with the project’s technical aspects now completed.
The Tilenga Project ESIA has been approved by the National Environment Management Agency and the Kingfisher ESIA public hearing is ongoing.
Geotechnical and geophysical surveys for the East Africa pipeline (EACOP) have been completed for the entire route across both Uganda and Tanzania.
There are ongoing EACOP discussions between the Joint Venture Partners and the Governments of Uganda and Tanzania regarding key commercial agreements which are required prior to FID.
In respect of the first half of 2019, Tullow expects to report revenue of around US$900 million and gross profit of around US$500 million.
Underlying free cash flow (before the 2018 final dividend payment) is forecast to be around US$100 million for the first half of the year and around US$450 million for the full year.
This figure is expected to increase to around US$650 million following completion of the Uganda farm-down.
As previously disclosed Tullow expects its revenue and free cash flow to be heavily weighted to the second half of the year due to the Group’s liftings schedule and the phasing of both tax payments and rebates. Net debt is expected to be around US$3.0 billion at June 30, 2019.
The Group’s liquidity headroom of unutilised debt capacity and free cash at June 30, 2019 is expected to be around US$1.0 billion.
Capital expenditure guidance for 2019 remains unchanged at US$570 million (excluding Uganda expenditure which will be repaid following completion of the Uganda farm-down).
“Tullow has made steady progress overall across the business in the first half of the year. Our balance sheet remains strong and we expect another year of solid free cash flow generation,” said Paul MCdade, Chief Executive Officer-Tullow Oil plc.
“I am particularly pleased with the significant progress we have made in Kenya and the agreement with the government over a number of key commercial principles will greatly assist us in driving the project to FID,” he added.
The Chief Executive further said the company’s drilling campaign in Guyana will get underway later this month with the spud of the first of three wells planned for 2019.
Production Group working interest production for the first half of 2019 is expected to average around 89,000 bopd, including production equivalent insurance payments.
As previously disclosed, production in Ghana was impacted by gas compression constraints on Jubilee during February and a delay in completing a TEN production well.
Both issues were resolved successfully in the first quarter of the year. Tullow is currently producing around 95,000 bopd net and the Group’s net oil production is expected to rise towards 100,000 bopd in the second half of 2019 as further wells are brought on stream in Ghana.
The Group’s full year forecast remains unchanged at 90,000-98,000 bopd. This forecast includes production-equivalent insurance payments of 1,300 bopd. The insured period associated with Tullow’s successful Corporate Business Interruption claim has now ended three years after cover commenced.
“Tullow continues to insure against Business Interruption. Ghana The Stena Forth and Maersk Venturer drillships have been working in tandem on Ghana drilling and completion operations throughout the first half of the year with four wells drilled and three wells completed,” the firm has reported.
The Stena Forth drillship has now left Ghana to commence drilling in Guyana. The Maersk Venturer will remain in Ghana and will complete the ongoing Enyenra-14 production well, a Jubilee producer and an Enyenra water-injector, before switching to drilling operations for the remainder of the year.
“The completion of the Enyenra-14 production well is taking longer than anticipated and consequently will be onstream later than planned. This delay has been reflected in a small revision to full year guidance for TEN which has been adjusted to around 71,000 bopd gross, from 73,000 bopd,” Tullow said in a statement on Tuesday.
Following strong performance from Jubilee, production guidance for the year has been adjusted to around 95,000 bopd gross, up from 93,000 bopd. Reservoir performance in the first half from existing and new wells has been in line with expectations at both fields and Tullow expects to reach gross production from Ghana of around 180,000 bopd in the second half of 2019.
Non-operated portfolio production from Tullow’s non-operated portfolio in the first half has been strong, especially in Gabon, according to the management.
First half net production is expected to average around 25,500 bopd and the portfolio is expected to deliver around 25,000 bopd net for the full year.