Kenyan firms earn Sh10.63bn from Tullow Oil deals

Money Markets

Tullow Oil spent Sh10.63 billion on buying Kenyan goods and services. PHOTO | FILE 

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

In Summary

• Tullow says it used $225 million (Sh20.8 billion) for its local content programme and out of this, Kenyan companies accounted for $115 million (Sh10.63 billion) or 51 per cent of this spending.

Kenyan companies earned slightly over half the Sh20.8 billion Tullow Oil used to buy goods and services from local suppliers in 2014.

The oil and gas exploration firm said it used $225 million (Sh20.8 billion) for its local content programme and out of this, Kenyan companies accounted for $115 million (Sh10.63 billion) or 51 per cent of this spending.

The earnings by Kenyan firms were a 55 per cent increase from the $74 million (Sh6.8 billion) spent in 2013, and a result of last year’s increased activity on Tullow’s Kenyan-based blocks.

“The increased local company participation was partly driven by deliberate efforts by Tullow to increase awareness and participation of local companies in Tullow’s value chain. As part of these efforts, Tullow identified feasible national content in contracts and matched local businesses to these opportunities,” said country manager Martin Mbogo.

The explorer did not give a list of local suppliers but KK Security, Atlas Development and TransCentury are some of the companies that service the exploration firm.

Mr Mbogo added that Tullow Oil also gave contracts to 36 firms based in Turkana, where its activities are concentrated. The contracts were to supply light vehicles and came with financing agreements negotiated by Tullow.

The global fall in the price of oil is, however, expected to see oil and gas companies scale back operations which will in turn reduce spending on local companies.

Oil prices are at the $57 a barrel level, which is below the $90 per barrel needed to make local exploration commercially viable.

READ: Tullow Oil pays Sh3.8bn in taxes to Kenya in 2014

Tullow Oil said it would reduce its exploration budget by Sh9.1 billion, but its Kenyan operations will not affected like in other regions it operates.

“Despite the lower level of activity/ reduced work programme in 2015, Kenya remains a key part of Tullow’s global business focus. In 2015, Tullow plans to spend $200 million in exploration with a significant portion of these costs centred on East Africa, for which Kenya remains a key focus,” said Mr Mbogo.

The explorer operates in 22 countries. Other oil and gas companies said they will continue drilling programmes which should still create opportunities for local companies.

Taipan Resources, a Canadian explorer drilling the Badada-1 well in Mandera Basin, too has a local content programme. It is drilling through subsidiary Lion Petroleum.

“As part of the Lion’s focus on local content, a number of Kenyan companies have been contracted to provide well-site services including logistics, road repairs and the drilling of water wells and other services,” said Taipan in late December 2014.

American exploration firms ERHC and Camac Energy are also going ahead with their exploration work.