News / Africa

Analysts: Kenya Shutdown Tempers East African Oil Ambitions

FILE - Fishermen row their boats next to an oil exploration site in Bulisa district, approximately 244 kilometers northwest of Kampala in this undated handout photo from Tullow Oil Uganda, July 2012.
FILE - Fishermen row their boats next to an oil exploration site in Bulisa district, approximately 244 kilometers northwest of Kampala in this undated handout photo from Tullow Oil Uganda, July 2012.
Reuters
Tullow Oil's suspension of drilling in Kenya after weekend protests shows that popular impatience for a share of the spoils is compounding the problems energy firms face building an oil and gas industry from scratch in east Africa.

Backed by local politicians, demonstrators from Kenya's poor, northern Turkana community marched on Tullow sites demanding jobs and other benefits, prompting one of Sub-Saharan Africa's most experienced oil explorers to “temporarily” halt work.

That is a blow to Kenya's government, determined to show it has security under control following last month's attack by Islamist militants on the Westgate shopping mall in Nairobi, in which at least 67 people were killed.

Investors' confidence was another casualty.

While east Africa is a hot new province for oil and gas exploration, excitement has been tempered by wrangles with governments, gaps in regulations and rickety infrastructure.

Local populations are understandably anxious for a windfall, but production may be years away, and such direct action is only likely to slow the region's emergence as a significant producer.

“There are numerous potential risks on exploration projects in poor, remote areas,” said Tom Savory, who works at consultancy Africa Practice. “Navigating local politics can be just as much of a challenge as navigating national politics.”

London-listed Tullow, which has a track record of delivering projects elsewhere in Africa, said it was working with the Kenyan government, local authorities and communities in the area to resume work as soon as possible.

Grievances in the local community erupted into protests around at least two of its drilling sites, demanding more jobs and contracts.

Tullow says more than 800 of its 1,400 employees in its Kenya operations are from the Turkana region.

“We welcome them [Tullow] to Turkana. But we want to start benefiting as early as possible,” said James Lomenen, a regional member of parliament who joined the protest at Twiga South-1 site. He said he saw workers evacuated from the site.

Reassurances

“No one was telling them to go; the community was just coming to have dialogue,” said Lomenen, adding that the protest was peaceful and demonstrators “were just outside singing”.

An industry source, however, described a “very tense” scene, and a senior Kenyan energy ministry official, Martin Heya, said politicians, whom he did not name, had stirred things up.

“We want them [Tullow] to work as soon as possible,” said Heya. “We shall work with security agents to make sure they feel secure,” he added, after police said they beefed up security.

Such incidents are not unique to Kenya.

In Tanzania, where gas deposits have attracted firms like Britain's BG Group and Norway's Statoil, residents of the Mtwara region protested in May over construction of a pipeline there, demanding more benefits.

Hardy oil firms are not likely to be deterred by such unrest, but anything that makes them more wary and imposes extra costs hinders development of an industry that Kenya, like other governments, hopes will generate new revenues to plug budget deficits and lift more people out of poverty.

“Risks for operators in this zone will in the end be at the cost of Kenya's exploration success and potentially lead to delays in the commercialization of discoveries,” said Duncan Clarke, chairman of Global Pacific and Partners, an advisory firm to the upstream industry.

“It will add some concerns, already emerging in Kenya, about tougher terms and state regulatory involvement,” he said.

Kenya is revising outdated laws governing the oil and gas industry. A draft law could go to parliament in November.

Others are also updating industry rules. Tanzania is drawing up a new gas policy, but has yet to issue it as a debate rumbles on about how much gas should be sold to foreigners.

Challenging areas

Elsewhere, a wrangle between Uganda and oil firms over whether to process crude or export it has pushed back production until 2016, a decade after oil was discovered. Uganda has now agreed with France's Total and China's CNOOC  on building a smaller refinery than it had earlier wanted.

After helping bring Ghana's discoveries to production, Tullow shows no sign of backing away from its Kenya and Uganda investment, but the shutdown in Kenya comes at a tricky time for the group.

It has suffered a greater number of dry holes this year than its investors have come to expect, and it is looking for a partner to take on the $4.9-billion development costs of its Tweneboa, Enyenra and Ntomme offshore Ghana project.

“I do believe Tullow is a good operator in challenging new areas,” said Mark Wilson, oil and gas analyst at Macquarie Securities in London, adding that the latest incident in northern Kenya should not be seen as too negative for the firm.

Tullow, which has a market capitalization of over $14 billion, estimates Uganda and Kenya could together export 500,000 barrels per day through a Kenyan pipeline.

But Wilson said Tullow faced a tough job managing expectations in the local community and needed government help.

“The company, with the best will in the world, can't actually predict how the Kenyan development will work out,” he said. “It is very difficult, particularly in a new area where there is literally no [oil and gas] industry whatsoever.”

You May Like

Taliban's New Leader Says Jihad Will Continue

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Video US Landmark Pushes Endangered Species

People gathered in streets, on rooftops in Manhattan to see image highlights that covered 33 floors of Empire State Building More

World’s Widest Suspension Bridge Being Built Over Bosphorus

Once built, Yavuz Sultan Selim Bridge will span 2 kilometers with about 1.5 kilometers over water, and will be longest suspension bridge in world carrying rail system More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Iraqi Yazidis Fear Death of Their Communityi
X
Sharon Behn
August 03, 2015 2:23 PM
A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Iraqi Yazidis Fear Death of Their Community

A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Bangkok Warned It Soon Could Be Submerged

Italy's Venice and America's New Orleans are not the only cities gradually submerging. The nearly ten million residents of the Bangkok urban area now must confront warnings the city could become uninhabitable in a few decades. VOA Correspondent Steve Herman reports from the Thai capital.
Video

Video Inclusive Gym Gets People With Disabilities in Fitness Spirit

Individuals with special needs are 58 percent more likely to be obese than the general population. According to the U.S. Centers for Disease Control, they also have an increased likelihood of anxiety, depression and social isolation. But a sports club outside Washington wants to make a difference in these people's lives. With Carol Pearson narrating, VOA's June Soh reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Special Olympics Show Competitors' Skill, Determination

Special Olympics competitions will wrap up Saturday in Los Angeles, and the closing ceremony for athletes with intellectual disabilities will be held Sunday night. In a week of competition, athletes have shown what they can do through skill and determination. VOA's Mike O'Sullivan reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Shooter’s Grill: Serving Food with a Touch of the Second Amendment

Shooter's Grill, a restaurant in Rifle, Colorado, attracts visitors from all over the world as well as local patrons. The reason? Waitresses openly carry loaded firearms as they serve food, and customers are welcome to carry them, too. VOA's Enming Liu and Lin Yang paid a visit to Shooter's Grill, and heard different opinions about this unique establishment.
Video

Video Despite Controversy, Business Owner Continues Sale of Confederate Flags

At Cooter’s, a store in rural Sperryville, Virginia, about 120 kilometers west of Washington, D.C., Confederate flags are flying off the shelves. The red, white and blue battle flag, with 13 white stars representing the Confederate states, was carried by southern forces during the U.S. Civil War in the 1860s. The South had seceded from the Union over several key issues of disagreement, including slavery. VOA’s Deborah Block has the story.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.

VOA Blogs