Why Tullow's Turkana oil sale deal is at risk over Sh22b tax claim
Business
By
Brian Ngugi
| Feb 26, 2026
Tullow Oil has cautioned that a Sh22 billion ($170 million) tax demand from the Kenya Revenue Authority (KRA) could derail its Sh15.4 billion ($120 million) asset sale to Gulf Energy, even as an additional Sh5.1 billion ($40 million) payment from the buyer is still awaiting regulatory approval. The tax claim exceeds the entire value of Tullow’s Kenyan assets.
The London-listed explorer agreed in April 2025 to sell its entire Kenyan business, including interests in the South Lokichar Basin, to local energy firm Gulf Energy Group for a minimum consideration of Sh15.4 billion ($120 million).
The deal was structured so that Sh5.1 billion would be paid upon completion, a further Sh5.1 billion would be paid by June 2026, and the final Sh5.1 billion would be due over five years from 2028.
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However, the transaction has become entangled in a fiscal dispute that now threatens its viability, Tullow cautioned in its Feb. 20 trading statement.
“Tullow is aware of a tax assessment for Sh22 billion from the KRA relating to alleged underpaid VAT and Capital Gains Tax on the disposal of its 100 per cent shareholding in its Kenyan subsidiary, Tullow Kenya BV, to the Gulf Energy Group for a minimum consideration of Sh15.4 million,” the company said.
Tullow stated that its “clear and firm position is that the assessment is wholly without merit.” The company said it intends, in conjunction with Gulf Energy, to contest the assessment through the regular objection process.
READ: Why Tullow Oil's sale is a new dawn for Turkana
“There will be no cash outflow in respect of lodging these objections, nor does Tullow expect cash outflow on completion of its appeal process,” it added.
Industry analysts told The Standard yesterday that the tax claim, which significantly exceeds the minimum value of the entire transaction, creates material uncertainty over the deal’s completion.
They said the stalemate over the KRA demand threatens to delay or derail the transfer of assets, potentially triggering contractual complications between Tullow and Gulf Energy.
Compounding the difficulties, Tullow confirmed that the second instalment of proceeds from the Kenya disposal, valued at Sh5.1 billion, has been delayed.
The payment is contingent upon ratification of the approved Field Development Plan (FDP) for the South Lokichar project.
In its trading statement, Tullow said the payment is now expected during the first quarter of 2026, with a back-stop date of June 30, 2026. Chief Executive Officer Ian Perks cited the delay as one of several factors negatively impacting the company’s 2025 free cash flow, alongside delayed receivables from the Government of Ghana and lower year-end commodity prices.
ALSO READ: Tullow seals Kenya assets sale deal
The dispute emerges amid heightened parliamentary scrutiny over fiscal terms in Kenya’s oil sector. The Auditor General has warned lawmakers that expanded tax exemptions and delayed audits in Turkana oil contracts could defer or reduce the government’s share of earnings once production begins.
KRA earlier disclosed to Parliament that oil exploration companies have benefited from significant import tax exemptions, with Tullow Kenya BV receiving exemptions amounting to nearly Sh10 billion. The tax authority has proposed several reforms to strengthen revenue safeguards, including revoking exemptions on interest paid on foreign loans and removing withholding tax exemptions on services.
Gulf Energy, which has risen to prominence through its participation in Kenya’s government-to-government fuel supply deal with Middle Eastern entities, now finds itself navigating a complex fiscal landscape as it seeks to advance the long-stalled Turkana project.
The deal’s completion, along with the remaining payments totalling Sh10.3 billion, now faces uncertainty pending resolution of both the tax dispute and FDP ratification.