British explorer Tullow Oil has announced the sale of its entire Kenya operations at Sh15.6 billion to Gulf Energy, marking its exit from the country’s ambitious but long-stalled oil exploration project in Turkana.

Tullow confirmed that its subsidiary, Tullow Overseas Holdings BV had signed a heads of terms agreement with Gulf Energy Ltd, a Kenyan energy and infrastructure firm, for the sale of Tullow Kenya BV, the entity holding all of Tullow’s interests in Kenya’s South Lokichar Basin.

“Today’s announcement marks another step forward in Tullow’s accelerated deleveraging journey with near-term cash receipts and mitigating significant capital exposure, whilst retaining a material option on the future development of the project,” said Richard Miller, Tullow’s CFO and interim CEO.

The deal comes after years of infrastructural, financial, and partnership setbacks that have bogged down Kenya’s hopes of becoming an oil-producing nation.

The Sh15.6 billion consideration will be paid in structured phases, with an initial Sh5.2 billion on completion, followed by a second Sh5.2 billion upon approval of the Field Development Plan (FDP) or by 30 June 2026, whichever comes first.

The remaining Sh5.2 billion will be staggered in quarterly payments starting in 2028, conditional on oil price benchmarks being met.

In addition to the cash components, Tullow is set to retain a royalty structure tied to future production, with Sh65 per barrel paid quarterly, calculated as 80 per cent of total output, subject to various conditions. The company also holds an option to re-enter the project for a 30 percent stake in any future development phases at no cost.

Tullow said the deal was in line with its ongoing strategy to reduce debt and refocus on its West African producing assets, noting that the sale was “accretive to both equity and leverage.”

Kenya’s oil deal hit

The exit underscores the mounting difficulties that have plagued Kenya’s oil ambitions, despite significant early promise when oil was discovered in Turkana over a decade ago.

Tullow’s project had long stalled following infrastructure challenges, notably the requirement for a heated pipeline stretching from Turkana to Lamu. Due to the waxy nature of the crude oil, heating was essential , ballooning the project’s cost and complexity. The pipeline alone was expected to cost over Sh130 billion, with full field development pegged at more than Sh442 billion.

Another blow came in 2023, when Tullow’s joint venture partners , TotalEnergies and Africa Oil Corp   withdrew from the project, citing shifting priorities and commercial feasibility concerns. This left Tullow as the sole stakeholder, significantly increasing the financial burden and risk exposure.

The challenges were compounded by Kenya’s slow regulatory and fiscal framework development, and persistent delays in land acquisition and community engagement processes.

Gulf Energy is seen as a credible and well-capitalised local player with deeper ties to the Kenyan market. The company is expected to be better positioned to navigate local regulatory frameworks, negotiate with communities, and potentially bring the stalled project back to life.

“This transaction is a significant step forward in Tullow’s strategy,” said Miller. “We are receiving Sh10.4 billion in near-term payments while mitigating future capital exposure, and we maintain an option to benefit from future success in Kenya.”

Tullow added that the deal allows it to strengthen its balance sheet as it eyes refinancing opportunities, particularly following the Sh39 billion raised through its recent sale of assets in Gabon.

The transaction is still subject to several regulatory approvals and the execution of a final Sale and Purchase Agreement (SPA). Completion and the first tranche of payments are expected during 2025.

If successful, the deal will represent a critical pivot in the future of Kenya’s upstream oil sector, now fully in local hands for the first time since oil was struck in Turkana in 2012.