Africa’s new oil

There’s oil in that thar valley. Kenya’s Great Rift Valley contains the country’s oil reserves There’s oil in that thar valley. Kenya’s Great Rift Valley contains the country’s oil reserves Sam D Cruz
24 Mar
2015
Chad, Uganda and Kenya are trying to find new ways to manage oil boons, with mixed results

When Chad struck oil in 2003, nobody realised just how much money the find would bring. Estimates in the early 2000s placed expected revenue at $2.5billion for the project’s entire duration, but earnings have already passed $10billion, according to Celeste Hicks, a former BBC correspondent based in Chad.

Hicks explores Africa’s latest oil producers in her recent book Africa’s New Oil.

Chad, Uganda, Niger and Kenya are all dealing with new oil discoveries, and are working out the best strategies to manage a resource that has come to be seen as much a curse as it is a blessing.

Hicks says that Chad took a very strong position with foreign oil companies over environmental and social impacts from oil exploitation. China played an important role in Chad’s oil development and while the Chinese are often portrayed as having a sinister role in Africa, Hicks found that in Chad, Chinese companies were the exploited party.

‘It’s much more complicated than simple neo-colonialism,’ she says. ‘The Chinese companies can be naïve and disorganised. It can’t be characterised as a neo-colonial approach.’

KENYA OILAn oil strike in Kenya (Image: Kenya Civil Society Platform on Oil and Gas)

In Chad, the government blocked Chinese oil exploitation when schemes deviated from the government’s expectations.

What followed was an ambitious plan to ensure Chad did not fall into the ‘resource curse’ so often seen in oil-rich countries where, despite an abundant natural resource, low economic growth and poor development outcomes prevail.

World Bank loans were offered to Chad to develop the oil industry, on the condition that a law was passed requiring that 80 per cent of oil revenue was spent on health and education. ‘The plan included high environmental standards and stabilisation measures to develop a future savings fund for the next generation,’ says Hicks. Contract transparency for negotiations between the oil company and the government was also included in the plans, she adds.

These high expectations were not fulfilled. ‘It has not really worked,’ says Hicks. ‘The Chadian economy has grown enormously, but has not met any development goals. Also, the Chadians spent around $4billion on armed forces.’

Meanwhile, Kenya and Uganda are set to become East Africa’s first oil producers. Kenya is keen to see oil production begin, while Uganda is more cautious. In both cases UK company Tullow Oil is at the forefront of exploration.

Kenya’s reserves are estimated to be around 1billion barrels, according to Oil Review Africa.

Say hullo to Tullow

 Plans to regulate the Kenyan oil industry have come under fire from civil society groups, according to Hicks. Last year, the Kenya Civil Society Platform on Oil and Gas (KCSPOG) issued a report warning that the country was ‘ill-prepared to deal with the complexities of petroleum revenue management and its potentially devastating impact on the economy.’

Revenues could hit $1billion per year when production starts, according to KCSPOG. This month, Tullow expanded exploration in the South Lokichar Basin in the Great Rift Valley.

‘Whilst we would have hoped for basin opening success in the North Turkana Basin’s first wildcat well, Engomo-1, we still have a vast amount of undrilled acreage with identified prospects and leads providing significant remaining exploration potential,’ says Angus McCoss, exploration director at Tullow.

West of the Lokichar Basin, Tullow found oil in Uganda in 2008. ‘The initial plan was for Uganda to become an oil producer very quickly,’ says Hicks. But the Ugandan government has taken a cautious approach, often blocking Tullow’s plans to set up oil production.

Until 2014, there was an eight-year freeze on issuing new licences in the sector, according to the Wall Street Journal. Three companies: Tullow, Total and China National Offshore Oil Corporation had exclusive rights until then, notes the WSJ.

As with Chad, Uganda has government objectives aimed at ensuring the oil money is well spent when it arrives and is prepared to take the time to make sure these initiatives work. Patience might make all the difference.

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