What everyone ....well the doom mongers and shorters anyway .... are forgetting13 Sep 2023 12:07
Kenya
Following the withdrawal of its minority partners from Project Oil Kenya in the first half of 2023, Tullow is now the sole partner in the project (refer to Note 11 for more detail). This has created a more flexible proposition for a strategic partnership and discussions continue with several interested parties. The Kenyan energy regulator (EPRA) has recently engaged third party consultants to assist with the review of the Field Development Plan (FDP) and Tullow continues to work with the Government of Kenya and EPRA on the approval of the FDP.
11. Intangible exploration and evaluation assets continued
Since 1 January 2022, there have been ongoing discussions with the Government of Kenya (GoK) on approval of the Field Development Plan (FDP) submitted on 10 December 2021 and securing government deliverables. An updated FDP was submitted on 3 March 2023 and is being reviewed by the GoK before ratification by the Kenyan Parliament. Energy and Petroleum Regulatory Authority (EPRA), the regulator, has recently engaged third party consultants to review the revised FDP and extended the review period to Q1 2024. The Group expects a production licence to be granted once Government due process has been completed.
On 22 May 2023, Africa Oil Corporation (AOC) and Total Energies (TE) gave notice of their respective withdrawal from the Blocks 10BA, 10BB and 13T Production Sharing Contracts (PSCs) and the Joint Operating Agreements (JOAs), effective 30 June 2023, quoting differing internal strategic objectives as reasons. The withdrawal is ultimately subject to the GoK's consent, at which stage the transaction will be considered completed and Tullow will have full rights and liabilities under the JOA. Per the terms of the agreement, until such approval, the participating interest will remain in trust for the sole and exclusive benefit of Tullow, who is the only remaining joint venture partner.
In Management's view, in light of public statements and announcements made by AOC and TE to this effect, and in accordance with the terms of the Joint Operating Agreement, it is considered that the ownership of the 50% held by AOC and TE was passed on 30 June 2023, resulting in Tullow holding 100%. From that date, Tullow has the right to benefit from the participating interest and is liable for all costs incurred going forward. As the sole party, Tullow can control and direct the use of the asset from 30 June 2023. Tullow accounted for this as asset acquisition at nil cost.
The withdrawal of the partners is considered to be an impairment trigger, and in line with its accounting policy the Group has performed a VIU assessment. The cash flows were discounted using a pre-tax nominal discount rate of 20%. Oil price assumptions are detailed in Note 12. This resulted in an NPV significantly in excess of the book value of $255.8 million.
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