Tullow Oil, Africa Oil signals possible farm out in Kenya

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Tullow Oil and its partner Africa Oil may be farming out blocks 10BB and 13T in the Lokichar basin and where the companies have already discovered oil reserves in excess of 600 million barrels.

According to Africa Oil CEO Keith Hill in an interview with Reuters the plans that are not pegged currebtly on no timeline will occur similar to the situation in Uganda where the company farmed to Total and CNOOC.

“We will likely bring on a partner to help develop Lokichar Basin reserves but no timetable has been set,” Hill told Reuters in an email interview.

The British explorer according to experts is in fact in no financial position to develop the blocks for production all by itself.

Early in May CitiBank warned that Tullow could be entering into dangerous levels of debt that had the levels to delay oil production in East Africa if a farm does not happen.

“A failure to farm-out its current high equity stakes in its future developments could see a delay in the development timetable for some of these projects,” said Citi in a report titled Detailed Review of Tullow’s Exploration and Production Portfolio.

“Assuming no farm-outs, we see net debt/EBITDA peaking at 2.4-times in 2016 on our oil price deck (of $90 per barrel) and gearing (or net debt to equity ratio) peaking at 80 per cent in 2017,” continued the report.

Tullow Oil is likely however to get a financial injection from National oil Corporation of Kenya that has already said it will back-in on the two blocks under the provisions of the PSC.

“Under the PSC we have a clause that allows the government to acquire a stake in blocks inside the country should a discovery be made. National Oil on behalf of the government will therefore exercise this right although we are yet to decide on the equity to acquire,” said National Oil managing director Sumayya Athmani.

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