Published On: Wed, Feb 12th, 2014

Tullow Oil loses Sh7bn in surrender of Marsabit block

tullowBritish company Tullow Oil booked a Sh6.8 billion loss from surrender of an exploration block in northern Kenya to the government, the London Stock Exchange listed firm has revealed in its annual 2013 report released on Wednesday.

The company surrendered exploration Block 10, which was jointly held with Africa Oil, after expiration of its prospecting licence.

“The Group has written off $280 million (Sh21 billion) in relation to prior years expenditure and fair value adjustments as a result of licence relinquishment and changes to future work programmes. These included write-offs in Kenya ($79 million) (Sh6.8 billion) due to the relinquishment of Block 10A,” said the explorer’s annual report.

Tullow said that it will continue with its massive exploration programme that will see 40 wells dug over the next two years despite the Sh6.8 billion loss.

The 2013 group profit dropped by two-thirds to $216 million (Sh18.66 billion) from $662 million (Sh57 billion) in 2012.

The British firm did not indicate how much money it will spend in Kenya, but said that it has set aside $1 billion (Sh87 billion) for exploration in Mauritania, Norway, Kenya and Ethiopia and Guinea.

In March last year, Tullow suspended work on the Paipai-1 exploration well after drilling to a depth of 4,255 metres.

The well had traces of oil but needed more work to bring it to the surface and the firm decided to halt further exploration on it.

“As we were unable to recover the hydrocarbons encountered whilst drilling, the well needs additional assessment. We will now carefully evaluate all the data and review the available technical options, which include possible flow testing and reservoir stimulation,” Tullow’s exploration director Angus McCoss said at the time.

Relinquishing of the block means that ownership of interest on the block has since returned to the government which has the option of putting up for sale in the market.

The production sharing agreement with the government had also ended in January 2014. Tullow Kenya country manager Martin Mbogo said that the explorer has not ruled out the possibility that it could apply for the exploration licence anew.

“We could consider going for it again,” Mr Mbogo said in an interview.

Tullow’s other partners Africa Oil, a Canadian explorer with a 30 per cent interest on the block, had indicated it will not continue exploration on the block.

“The partnership has elected not to continue into the next exploration phase in Block 10A in Kenya and the previously planned test of the Paipai well has been cancelled due to concerns over economic viability,” said Africa Oil in January this year.

Source: Business Daily

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Tullow Oil loses Sh7bn in surrender of Marsabit block
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