What you need to know:
Crude oil prices have traded below the $75 per barrel since October 2018, with Tullow taking the current prices of the commodity as the basis of its budgeting.
Tullow Oil has written off $800 million (about Shs3 trillion) of its exploration costs in Uganda and Kenya after lowering its forecast for long-term crude oil prices.
Oil firms recover their exploration costs over years once production and sale of the commodity start, with lower oil prices indicating a slower-than-expected rate of recouping the investment.
“Exploration costs written off are predominately driven by a write-down of the value of the Kenya and Uganda assets due to a reduction in the group’s long-term accounting oil price assumption from $75 (about Shs277,000) per barrel to $65 (about Shs240,000) per barrel,” Tullow said in a trading update.
Crude oil prices have traded below the $75 per barrel since October 2018, with Tullow taking the current prices of the commodity as the basis of its budgeting. The multinational has spent more than $1 billion in exploration and oilfield development in Kenya alone and it was not immediately clear how much of this it has written off.
Lower earnings forecast in the regional business is among a series of setbacks that have seen Tullow overhaul its top leadership and announce that it is willing to be acquired at an acceptable price.
Despite the reduced expectations, the Kenyan operation will remain profitable at the current crude oil prices.
The Kenyan government has said the country’s oil production breaks even from $34 per barrel, indicating a potential windfall from the current international crude oil price of $64.
Tullow says it has suspended Kenya’s early oil export scheme due to severe damage to roads caused by heavy rains in the fourth quarter of last year.
“Trucking remains on hold until all roads are repaired to a safe standard. Work continues with joint venture partners and the Government of Kenya to progress the development project,” the firm said.