Kenya and Uganda Upstream Field analysis
Both the Kenyan and Ugandan upstream petroleum sectors are at risk under a combination of depressed prices in the short-term and energy transition in the medium- to long-term
Open Oil and InVhestia revised its previous financial analysis of the Turkana Project (2018) to account for the effects of the 2020 market conditions and evaluate the economic viability of the Turkana project and the likelihood of an FID: The main conclusions of the new Turkana financial model are:
● No current price projection could make the so-called Foundation Stage commercially viable for the contractors.
● With prices below $53 per barrel, the National Oil Company of Kenya would not even reach breakeven and with prices below $72 it would not reach a positive NPV10.
● Under almost any realistic price scenario, the Turkana project would achieve a point forward negative NPV with a production lower than 900 million barrels.
● Rates of returns for the contractors proved to be low or inexistent under current market conditions and under all price scenarios projected.
● Unless the consistent oil price recovers and the Consortium manages to position Turkana oil (which is more viscous and has more impurities than Brent) at a single digit discount to Brent price, the project viability is compromised.
But this is not a Kenya-exclusive problematic, similar scenarios are happening all across the world, economic conditions are proving unfavorable especially for new producing countries with no mature producing assets
The report finds similarly in Uganda that the current structuring of the deals around the petroleum sector would commit the state to $2.7 billion of direct liabilities to reach revenues which under all scenarios have reduced sharply from previous estimates, with higher risk.
● No current price projection could make the so-called Foundation Stage commercially viable for the contractors.
● With prices below $53 per barrel, the National Oil Company of Kenya would not even reach breakeven and with prices below $72 it would not reach a positive NPV10.
● Under almost any realistic price scenario, the Turkana project would achieve a point forward negative NPV with a production lower than 900 million barrels.
● Rates of returns for the contractors proved to be low or inexistent under current market conditions and under all price scenarios projected.
● Unless the consistent oil price recovers and the Consortium manages to position Turkana oil (which is more viscous and has more impurities than Brent) at a single digit discount to Brent price, the project viability is compromised.
But this is not a Kenya-exclusive problematic, similar scenarios are happening all across the world, economic conditions are proving unfavorable especially for new producing countries with no mature producing assets
The report finds similarly in Uganda that the current structuring of the deals around the petroleum sector would commit the state to $2.7 billion of direct liabilities to reach revenues which under all scenarios have reduced sharply from previous estimates, with higher risk.
- OpenOil
- 2020
