Discovery of oil a great opportunity for Kenya

Workers at the Ngamia 1 oil rig in Turkana county, northern Kenya. The discovery of oil has caused a lot of interest in the region. Photo | STEPHEN MUDIARI
Recent progress on Tullow Oil’s Ngamia-1 exploration well in Turkana County in Kenya moved the country one small step closer to establishing a commercially viable sector.

Today, Tullow and its partner, Africa Oil, are just over half way through drilling the Ngamia well and already we have encountered in excess of 100 metres of total net oil pay across multiple reservoir zones. Net pay is the thickness of an oil reservoir that may be able to produce oil.

There is little doubt that this is a stunning result. However, just as when we made our first announcement about Ngamia-1 back in March, this remains one small step and there is still a long journey ahead of us.

With the discovery of oil comes a great opportunity and great responsibility.

We hear much about the resource curse and the potential effects on the underlying growth prospects of a country.

Sadly, in Africa, there are many examples of where a country’s natural resources have not been effectively utilised to deliver the lasting prosperity which is often highly anticipated. The reasons for this are many but, crucially, they are avoidable.

Local content

Before any long journey, you need to take time to plan and prepare. You need to make sure you are in good health and have the tools you may need along the way.

You also need to understand your environment and the challenges you may encounter. Kenya’s journey to becoming a competitive oil producing nation is no different.

For the new oil and gas sector to flourish in Kenya, explorers like Tullow Oil will require access to a wide range of competitive, high quality goods and services.

When the sector is new to a country, these goods and services are often sourced from specialist international contractors.

As the sector grows and matures, many of them can more readily be sourced domestically.

This brings many advantages. For investors, it helps to reduce costs and delays, which subsequently improves our competitiveness.

For contractors, it brings income, jobs and growth opportunities, which, combined, support a healthy domestic economy.

A key part of our business is in supporting the development of Kenyan contractors and suppliers and ensuring that as many jobs as possible in our local operations are filled by local people. This practice is known as local content.

Local content is not about meeting legislative requirements or ticking a box to demonstrate contractors have spent money locally or met a pre-determined job quota.

It is about supporting the development of competitive and profitable businesses in the countries in which they operate.

It supports capacity building for our industry, maximises the use of Kenyan goods and services and promotes effective partnerships between international companies and local suppliers. At its heart, it is about delivering a sustainable economic legacy.

Contractors

In 2011, Tullow spent $23.6 million with local suppliers. This represents 23 per cent of the company’s overall spending in Kenya.

This ratio will change in years to come as we expand our operations and work with more and more local companies.
The benefits of supporting this approach are most clearly demonstrated in Ghana where we have helped to develop a strong supplier base to support our oil production operations.

Between 2009 and 2011, we spent over $240 million with Ghanaian firms. In 2011, over 1,200 of our 1,500 contractors were local companies.

These contractors represent a range of sectors from finance to logistics and transportation, well-engineering, catering, human resources and health and safety.

The lesson we at Tullow take from Ghana is to start early and work together with local companies to build a competitive supplier base.

As a result, over the coming years, the oil industry will be working with the government and putting in place programmes which help new suppliers develop their standards, processes and systems to support our industry.

Local content is just one of the many things we will need on our journey, but it is critical to our success and it can help to overcome the challenges which oil development can bring.

There is also revenue transparency and good governance. These are important elements and the government has a leading role to play in promoting a meaningful dialogue with all stakeholders.

Mr Mbogo is the Country Manager, Tullow Oil Kenya.