3rd time lucky5 Jun 2020 13:28
Tullow Oil exit from Kenya, Uganda raises capacity queries
By mid-May, Tullow Oil announced the sale of its remaining stake to Total E&P for $575 million for its interest in Uganda a
In Summary
• Tullow Oil and Total have since hired French bank Natixis to run the joint sale process for Blocks 10 BA, 10 BB and 13T in the South Lokichar Basin in Kenya.
•To understand Tullow's predicament and operational drawbacks, its 2019 annual statements give a glimpse of a company in distress.
by DUNCAN OTIENO OGWANG Siasa
Tankers that transported crude oil from Turkana County at the Mombasa Oil Refinery in Changamwe, June 6, 2018.
Tankers that transported crude oil from Turkana County at the Mombasa Oil Refinery in Changamwe, June 6, 2018.
Image: ANDREW KASUKU
The decision by Tullow Oil to exit Kenya and Uganda respectively comes as no surprise to the industry watchers.
Tullow Oil and Total have since hired French bank Natixis to run the joint sale process for Blocks 10 BA, 10 BB and 13T in the South Lokichar Basin in Kenya.
By mid-May, Tullow Oil announced the sale of its remaining stake to Total E&P for $575 million for its interest in Uganda after the China National Offshore Oil Company — a shareholder in the Uganda Oil Project — decided against exercising its pre-emptive rights to acquire part of the 33.3 per cent Tullow Oil stake floated to Total E&P.
It is generally agreed that depressed oil prices tend to force large producers to roll back spending, but what is the the rationale for shedding non-core assets?
Targeted spending in projects that offer the best returns, low costs and cash returned to shareholders appear firmly in favour. Divesting noncore or high-cost assets appears to be a de rigueur part of the oil industry today.
As a result, slash-backs on capital and operating expenditure has become the norm and all the oil majors have either announced capex cuts or plan to reduce their spending significantly. The drive to cut spending, generate cash and shore up the balance sheet could, in theory, make divestment an even more attractive option for large-oil companies this year.
In my previous article entitled, What next for Kenya and Uganda's quest for commercial oil production? in the Star on March 20, I noted that Tullow Oil Plc reported a net loss of £1.7 billion in their full financial year results of 2019.
This was a result of pre-tax impairments and exploration write-offs partly from the reduced output at the Jubilee and TEN fields in Ghana, failure to make progress on crucial projects in Kenya and Uganda and disappointing exploration in Guyana that wiped out nearly half of the company’s market value.
To understand Tullow's predicament and operational drawbacks, its 2019 annual statements give a glimpse of a company in distress.
"The company faces the real risk of bankruptcy if conditions do not improve. If crude persists at its current level—or drops even lower—the company’s finances