Tullow Oil has written off $800 million of its exploration costs in Kenya and Uganda after lowering its forecast for long-term crude oil prices.
Oil firms recover their exploration costs over the 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 per barrel to $65 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.