A Review of the Nigerian Energy Industry

Is oil exploration and discovery in Kenya a hoax?

uhuru kenyatta-852
Kenya President Uhuru Kenyatta

11 November 2013, Nairobi – The people of Kenya are being duped by con oil exploration companies. For the last 40 years, we have been receiving very good news about the prospects of discovering the black gold.

The first good news was the discovery in Chalbi desert of Marsabit county when the former President Moi flew on a helicopter and announced a large deposit of oil in 1988 in what is now block 9.

The area is now licensed to Africa Oil, but no oil is yet to be pumped 27 years later. Some year’s later there was euphoria over oil finds in Isiolo and Lamu.

These discoveries, like the previous one in Chalbi, have still not produced any tangible results. Now, Tullow has also suspended her drilling exercise in Turkana. So, what is happening? My assumption is that all these oil exploration companies are a hoax, or hiding something we do not know.

Their intentions are to make money from the international stock exchanges and not to drill any oil. For purpose of analysing this issue, I will zero in on Africa Oil since this company has been in this business within East Africa for a long time but has to date not been successful in any of its exercise.

In November 2006, Africa Oil’s predecessor Canmex made losses of about $20,000 (Sh1.7 million) but by September 13, 2013 according to records from Toronto’s bourse, TSX Africa Oil Corporation posted market capitalisation of almost $2 billion (Sh170 billion).

The surprising thing is how a company that was making losses has turned into profitability without pumping any oil. Elsewhere in Somalia’s Northern Eastern autonomous state of Puntland, Africa Oil Corporation has drilled two wells in an area that has low prospects of oil.

In 1989, American Oil exploration company Conoco found oil in Nugal Valley, yet they did not drill in the high potential but instead drilled in Dharoor valley which has low prospects. Each of these companies spends hundreds of millions of dollars without any success.

The motive appears to be speculation and intentionally raise their market shares. Another example is the failure of the Australian oil company Woodside who failed to drill any oil in Lamu in 2005. The National Oil Corporation had to take the blame and deal with the loss of reputation for this public-relation fiasco.

The regulatory processes around awarding concessions to oil exploration companies are weak. The Ministry of Energy appears not to have the capacity to regulate and ensure proper supervision takes place.

The African Energy Commission which was formed by the African Union has also miserably failed to ensure African countries, including Kenya, are not duped.

The member states do not share critical information on these dubious companies. There are even fears that some oil companies actually deposit toxic nuclear wastes instead of drilling any oil.

The Energy Act 2006 is the applicable law regulating the exploration of oil in Kenya. Currently, a new draft bill is likely to change this issue because the ministry wants to build local capacity, including training young people for bachelor’s degree in civil, mining, and mechanical engineering to be trained at graduate levels.

Oil and gas experts said this means Kenyan nationals could participate in upstream operations as operators, joint venture partners, or both. But developing local content capacity is a challenge because Kenya lacks adequate and well-trained manpower in the oil industry.

We need to see local ownership of these assets to encourage knowledge and technology transfer in the exploration and production sectors. The policy makers should incorporate this issue of ownership in the draft energy bill before it becomes law.

The exploration for oil and gas is a risky venture, the success of drilling oil is one out of nine wells. In other parts of the world, the bargaining power is far much greater than in East African countries.

A country like Nigeria has improved its law making and increased ownership through the content bill which became law on April 22, 2010 and gives indigenous oil and gas companies leverage in the sector which was earlier dominated and controlled by international oil companies and briefcase businessmen.

Finally, in Texas USA, more than a million oil and gas wells were drilled since 1919, while in Kenya we have hardly drilled 50 wells, yet this very valuable resource has been left in the hand of the foreign companies whose primary objective is just to build their international standing.

Mohamed Guleid, the writer, is the Deputy Governor, Isiolo County

– The Star

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