Tullow to Start Pumping Oil in Kenya After Resource Increase

Tullow Oil Plc, the U.K. explorer that found Kenya’s first oil, will start initial production in the country next year after finding more resources in the Lokichar Basin.

Tullow raised its resource estimate about 20 percent to more than 300 million barrels of oil equivalent after drilling the Etuko-1 discovery, it said today in a statement. Partner Africa Oil Corp. said the well was extended in Block 10BB, finding about 50 meters (164 feet) of additional oil.

“We’ve certainly reached the threshold for development,” Tullow Chief Operating Officer Paul McDade said in a phone interview. “We are starting to think about other options within Kenya to do earlier production by road and by rail.”

The partners have made three discoveries in the basin and plan further exploration and appraisal over 12 to 18 months before declaring the project commercial. Tullow intends to export Kenyan oil, potentially with volumes from Uganda, South Sudan and possibly Ethiopia, by pipeline when output rises.

“We are likely moving ahead pretty soon” with a preliminary feasibility study for a pipeline that may bring oil from Uganda and Kenya to the Indian Ocean coast, McDade said. “Very limited volumes” can be brought to the Kenyan market as soon as next year and higher supplies as soon as 2016, before the pipeline is built in 2018 or later.

Regional Collaboration

Ugandan President Yoweri Museveni and his Kenyan counterpart, Uhuru Kenyatta, discussed plans for a regional oil pipeline and a refinery last month. The Democratic Republic of Congo may also ship future oil production through the planned East African pipeline, according to the Kenyan Energy Ministry.

Tullow is cooperating with Total SA and Cnooc Ltd. in developing Ugandan oilfields that hold 1.7 billion barrels of gross resources.

Today’s announcement shows Tullow is “pressing full steam ahead with commercializing Kenyan oil,” Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London, wrote in an e-mailed report. The “near-term upside from the East African rift system continues to provide the backbone to recovering exploration impact on the share price.”

Tullow rose 1.1 percent to close at 1,038 pence in London.

TEN Bids

On the other side of Africa, the company operates in Ghana, where a development plan for the Tweneboa-Enyenra-Ntomme (TEN) discovery was approved by the government in May. Tullow plans to open its data room by the end of August to attract bids for a 20 percent interest in the project and may sell the stake next year, Chief Financial Officer Ian Springett said by phone.

“We’ve got government approval to farm it down,” Chief Executive Officer Aidan Heavey said on the same call. “We’ve already talked to two companies and it’s going to be very much a seller’s market, it’s a very attractive project.”

The new partner will cover Tullow’s share of funding for the project, which is now expected to cost about $4.9 billion excluding the lease of a floating production vessel, up from the previous $4.5 billion estimate. The increase “is associated with an expansion of the scope to enhance the recovery from Ntomme and facilitate gas export,” Tullow said.

The company today trimmed its forecast for full-year production to 84,000 to 88,000 barrels of oil equivalent a day from as much as 90,000 barrels a day, in part because of a water-pump failure at its Jubilee field off Ghana, where Tullow holds a stake of about 35 percent.

Production at the field, a venture with Anadarko Petroleum Corp. and Kosmos Energy Ltd., makes up about 40 percent of Tullow’s output. Tullow now expects the deposit to pump 95,000 barrels of oil a day this year, down from 104,000 barrels in the first half. The partners plan maintenance at the production facility later this year.

Tullow produced 88,600 barrels a day in the first half, according to a statement. First-half revenue rose 15 percent to $1.35 billion.