Kenya plan needs oil price rebound: Africa Oil - CNBC Africa

Kenya plan needs oil price rebound: Africa Oil

East Africa

by Reuters 0

Tullow Oil & Africa Oil are desperate for a rise in the oil price so they can go ahead with their Kenyan project. PHOTO: Getty Images

Oil prices would probably need to rise to about $75 to $85 a barrel from around $60 currently for Tullow Oil and Africa Oil to go ahead with their Kenyan project, the chief executive of Africa Oil said.

CEO Keith Hill told the Reuters Africa Investment Summit he was confident that crude prices would recover to around those levels long before a final investment decision, due by the end of 2016, is made.

“We still need oil prices to recover probably above today’s levels to pull the trigger on the project sanction,” he said. "I am quite confident that oil prices will recover by the end of the year."

Hill said a level of $75 to $85 would be "just perfect for us", saying that level "makes us very cost competitive and many of our competitors not," pointing to more expensive shale production or deep sea oil developments.

The oil plunge, in which prices fell from $115 last June to below $50 in January, has forced energy firms to slash spending.

Tullow and Africa Oil, 50-50 partners in Kenya where they have found an estimated 600 million of recoverable reserves, have cut their 2015 budget to about $400 million, half that of 2014.

The venture, in which Tullow is operator, had planned to drill about eight wells to boost reserves in 2015 but reduced that to four, with the rest pushed into 2016, Hill said.

Kenya could start producing at the end of 2018 or early 2019, but the pace of progress may depend on how quickly Kenya decides on a route for an oil export pipeline.

Uganda, which has also found oil, is expected to use the same pipeline.

Hill said the government could announce a decision by mid-year, adding: “There will come a point, by about mid-year, if we don’t have pipeline certainty, I think you will see us cutting expenditures even further."

Raising capital has become more expensive. Africa Oil raised $125 million in a private placement last month with shares priced at $2.74 each, while in November 2013 it raised $435 million in a placement at $8.35 a share.

Hill said the firm had enough cash to meet its needs until the end of 2015 based on its slowed spending programme.

Africa Oil had hoped to sell or "farm out" part of its stake by early 2016, but falling oil prices could delay that.

"We are prepared to stay in this project through 2015, even through 2016 if necessary, to get the best value for our shareholders,” said Hill, who has said his firm would like to keep at least a 25 per cent stake in the project.