Africa Oil Corp (AOIFF)

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Tullow agrees first export sale of Kenyan crude at $60/b

02 August 2019

SPG Global

Author Robert Perkins Eklavya Gupte Editor James Leech Commodity Oil, Shipping

London — Tullow Oil and its partners have agreed the sale of the first export cargo from Kenya's maiden oil field development at around $60/b, Kenya's President Uhuru Kenyatta said Thursday.

Tullow and partners Africa Oil and Total have been in talks with refiners to sell the initial cargoes of their South Lokichar crude to Kenya's port of Mombasa for at least a year.

"I'm happy to announce that as a country...we have joined the oil exporting countries of the world," Kenyatta said at a Thursday cabinet meeting in a video released on Twitter Friday. "Our first deal was concluded this afternoon, 200,000 barrels at a decent price, $12 million, so I think we have begun our journey."

A spokesman for Tullow confirmed that 200,000 barrels of the South Lokichar crude will be lifted on August 24-26 from Mombasa but declined to give further details of the deal or the counterparty.

Kenya has said it expects to sell its crude exports mostly to buyers in India and China, with refiners attracted by a $2/b price discount for the waxy crude relative to Brent crude.

Kenya's Lokichar crude is relatively high quality, classified as light and sweet with an API of between 32-38 and sulfur levels below 0.5%, broadly on par with the UK's Brent Blend. Light, sweet crudes usually demand a price premium as they require less processing to produce higher-value, clean products such as gasoline and jet.

But the crude also has a high wax content, of nearly 40%, which means it remains solid at up to 40 degrees Celsius and requires heated pipelines and tankers in order to transport. As a result, Kenya believes its crude appeals more to large and complex refineries with the ability to import "high pour" or viscous crude.

ASIAN BUYERS

Tullow has also said it is confident that Lokichar's low sulfur crude will be attractive to refiners, particularly just ahead of IMO regulations set to slash sulfur in bunker fuel from 2020.

China, Indonesia, and India are already the main buyers of crude from Kenya's northern neighbour, South Sudan, which ships its Dar and Nile Blend crude from Sudan's Marsha Bashayer terminal near Port Sudan on the Red Sea.

Chinese buyers, such as Chinaoil and Unipec, have been keen buyers of Nile Blend in the past, another sweet, light crude. Trading houses Vitol, Trafigura and Arcadia have also picked up volumes.

Tullow and its partners have discovered 750 million barrels of recoverable oil to date in the South Lokichar basin following a string of finds since 2012. Tullow expects the Lokichar finds to pump between 80,000-120,000 b/d when a $1 billion export line to Lamu is completed by 2023.

Tullow has been trucking production from the development to the port of Mombasa since last year. Trucking operations have been slow, however, with a number of disruptions to the planned 2,000 b/d truck flows. Tullow has said that minimum tanker sizes require a consignment of at least 200,000 barrels for the exports from Mombasa.

Last week, Tullow said the FID on the full Kenyan oil development has now been delayed to the second half of 2020 due to issues obtaining approval for use of the land and water rights.


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https://www.spglobal.com/platts/en/market-insights/latest-news/oil/080219-tullow-agrees-first-export-sale-of-kenyan-crude-at-60-b