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4-Traders Homepage  >  Equities  >  London Stock Exchange  >  Tullow Oil    TLW   GB0001500809

TULLOW OIL (TLW)
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Tullow Oil : Politics, banditry hamper Turkana oil harvest

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07/13/2018 | 12:59am CEST

On March 26, 2012, just after President Mwai Kibaki announced that Kenya had discovered oil in Turkana after 58 years of explorations and drilling, several interests set in.

Six years later, and after Tullow Oil, together with other partners, had sank $1 billion (Sh100 billion), their investment now rests on something they might not have foreseen – the politics of cattle rustling.

So serious is the issue that on Monday, the Minister for Interior Fred Matiang’i announced that the government would set up an ultra-modern camp for the paramilitary General Service Unit (GSU) at Loruk, north of Lake Baringo, to curb the menace.

The insecurity here is complicated by years of small arms flow from Uganda, Somalia and South Sudan and made worse by an organised cattle rustling syndicate that, sources say, exports livestock to the markets in the Middle East.

ILLEGAL FIREARMS

The Annual State of the Nation Security Report to Parliament stated that, as of April 2016, there were over 650,000 illegal firearms in circulation in Kenya and mainly in northern Kenya, where they were used in cattle rustling business.

Two weeks ago, hundreds of Turkana residents were mobilised to block the Lokichar-Kapenguria road demanding for protection against incessant banditry.

By the end of the day, they had managed to stop the ferrying of the crude oil to storage tanks at the Kenya Petroleum Refineries Limited in Mombasa and the trucks had to turn back.

That the Irish oil and gas business, operating in the Lokichar basin, is now caught up in this pandemonium is partly blamed on failure to “communicate openly” and the company is being challenged by civil society groups to hold public hearings with affected communities and members of the public concerning its operations in the area.

“It is not implausible that the current unrest that has led to a halt of the Early Oil Pilot Scheme could have been identified and avoided if a comprehensive ESIA (Environmental and Social Impact Assessment) had been undertaken,” said Odenda Lumumba, the Kenya Civil Society Platform on Oil and Gas (KCSPOG) chairman.

DEMANDS

But the company is afraid that the value of its work in the Turkana basin is diluted by the ceaseless demands.

The demands range from the tangible (jobs for locals) to the obscure (demands for oil revenues to be deposited into individual bank accounts), which highlights the convoluted political atmosphere in the region.

The interruptions are also having an effect on the timelines set by the company which has been financing the operations from its coffers and those of its partners - Africa Oil Corporation and Maersk Oil.

“While we appreciate the views of the community, the shareholders expect a re-turn on their investment – and any disruptions eats into our set timelines,” says Mr Martin Mbogo, the Tullow Oil country manager.

EXPECTATIONS RISE

The discovery of oil in an area that was economically neglected and where 88 per cent of the people live below the poverty line, compared with 45 percent nationally, was bound to increase expectations for the community, which regards the resource as their own.

Minus an agreement on revenue sharing, the Early Oil Pilot Scheme (EOPS) to test and profile the wells was resting on quicksand and chances of the oil companies recouping their investments was in doldrums.

Even though the government has not put a single penny to the exploration, politicians from the region have not helped either and have been demanding 10 per cent of the oil revenue to be channelled to the community – an acrimonious issue that was the local agenda of the last general elections.

CAPITAL INTENSIVE

“This is a capital intensive industry and the return on investments can take up to 10 years,” said Mr Mbogo, who is perhaps more worried that any delay will hurt the operations of the company.

Under EOPS, Tullow aims to ship 2,000 barrels of oil per day to Mombasa by road as the first step towards recouping its investments.

Although the Turkana leaders together with officials from Tullow Oil, Africa Oil Corporation and Total met with President Kenyatta at State House, Nairobi, and agreed that the revenue from oil will be shared on the basis of 75 percent for all Kenyans through the National Government, 20 per cent to the county government and five percent will go to the local community – the road blockade was the first signal that all is not well.

BLACKMAIL

Dr Matiang’i says that some politicians are trying to “blackmail” Tullow Oil in order to get contracts.

Over the last six years, Tullow Oil has created an estimated 5,000 direct and indirect jobs.

“Further, we encourage local businesses to be part of the supply chain, and we have put in place measures to provide useful skills and training,” says Mr Mbogo Tullow says it has met its end of the bargain and that “two out of every three Tullow and contractor workers are from Turkana.” Processing facility

Tullow and its partners have proposed that the Amosing and Ngamia fields should be developed first with a processing facility and pipeline to Lamu. The projection is to pump 60,000 to 80,000 barrels per day by 2021 or 2022 rising to 100,000 barrels per day from further development of the 280 wells.

Tullow says that its assessment shows that the country has recoverable oil re-serves of 1.2 billion barrels.

SWEET CRUDE

The Turkana oil type is classified as sweet crude because it has less than 0.42 per cent sulphur.

The low-sulphur crude oil is used for processing into petrol and is usually in high demand.

“What we know is that we have a premium product that will fetch good prices. This is because it is low in sulphur,” says Mr Mbogo on the prospects.

Already, a cost auditor has been sent to the ground to assess how much Tullow has used.

QUANTIFY

Also, the ministry of petroleum has sent officers to the ground to quantify how much oil is being extracted and sent to the tanks in Mombasa from where they will look for a refinery to process the product and know its market value.

But with the insecurity and poverty in the grazing fields of Lokichar, and with Tullow oil being the largest employer on the ground, the oil prospector is being seen as a “cash cow” by both the politicos and the community.

Although Tullow has built health centres, rehabilitated schools and wells and is offering scholarships to the locals, how far this gesture will appease the locals – and their leaders – remain to be seen.

At the moment, the company is caught up in the politics of cattle rustling and the historical neglect of the north.

(c) 2018 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

Stocks mentioned in the article
ChangeLast1st jan.
AFRICA OIL CORP 0.00% 1.19 Delayed Quote.-16.20%
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