Tullow Oil lifts Kenya resource estimate
03 July 2013, 16:12
London - London-listed Tullow Oil lifted its estimate of resources in Kenya and announced a new discovery, moving closer to commercial production of oil in the east African country.
Africa-focused Tullow, is under pressure to deliver positive drilling news after a disappointing trading update in January, increased its resource estimate for the South Lokichar basin in Kenya after flow tests at its Ngamia and Twiga South wells and a new discovery at the Etuko-1 well.
The discoveries in Kenya, along with oil struck in Uganda and gas finds offshore Tanzania and Mozambique, underlines east Africa's potential to become a major oil and gas producing region in the next five years.
Morgan Stanley analysts said in a note that the increased resource estimate and Etuko discovery "establishes the region as a major new emerging oil province that could shortly surpass Uganda and reach commerciality too."
Tullow's shares, which have lost around a fifth of their value the start of the year after a mixed 2012, rose 3 percent, bucking a weaker resources sector.
"Kenya is getting the company back on track to following up basin opening success with basin commercialising success," Macquarie analyst Mark Wilson said.
Tullow sees a flow rate potential of 5,000 barrels a day based on Ngamia-1 and Twiga-South-1, and estimates there are 250 million barrels of oil in place - a forecast it said could increase further after appraisal.
Tullow is focused on exploration, but makes money producing oil in Ghana. Last year it raised $2.9 billion for more exploration by selling part of its Uganda franchise to Total and China's CNOOC, bringing top global oil companies into east African oil for the first time.
Terms for the commercialisation of the Ugandan oil, which Tullow has said is worth $50 billion to the country, have yet to be agreed.
Tullow said talks were continuing with the government, and Ian Springett, finance director, said the company expects to see a memorandum of understanding signed in weeks.
He also said the positive well test results in Kenya had "crystallised the thinking of all parties" around a pipeline route that would see Ugandan production exported via Kenya - linking up with Kenya's own supplies and probably reaching the coast between ports Mombasa and Lamu.
He said other pipeline options, including a route via Tanzania further south, were still on the table.
Uganda is aiming for commercial output of oil by 2016 and estimates its crude reserves at 3.5 billion barrels. Wrangling over taxes and over the size of a refinery to process some of the crude have stalled commercialisation. In April it was agreed that the refinery would process 30,000 barrels a day.
Uganda currently transports all of its fuel - imported primarily through the Kenyan port of Mombasa - in road tankers.