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Energy law favours speculative activity in oil industry

By By MOHAMED GULEID | Updated Thu, October 31st 2013 at 00:00 GMT +3

By MOHAMED GULEID

For the last 40 years, Kenyans been receiving ‘very good news’ after another about the prospects of discovering the black gold. The first ‘good news’ was the discovery in Chalbi desert of Marsabit County large deposits of oil in 1988 in what is now block 9.

Retired President Moi flew there in a helicopter to confirm the same. And 27 years later not a drop of oil has been pumped from Marsabit, which neighbours Turkana County. The area is now licensed to Africa oil. Some years later there was euphoria over oil finds in Isiolo and Lamu. These discoveries also, like the previous one in Chalbi, have still not produced any tangible results.

Now, Tullow has also suspended her drilling exercise in Turkana over trouble with protesters even though the national as well as the county governments have assured the company not worry over security. So, what is happening? My assumption is that all this oil exploration companies are hiding something we do not know.

Could it be that their intentions are to make money from the international stock exchanges and not to drill any oil. For instance, the company called Africa Oil 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, but by September 13 this year, according to records from Toronto’s bourse TSX, Africa Oil Corporation posted market capitalisation of almost $2 billion.

Meanwhile, the company had not produced any oil locally. There are many cases where oil firms spent millions of dollars to drill only to announce that nothing was found. One company drilled two wells in Somalia’s northern eastern autonomous state of Puntland in an area previously classified as having 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 was also classified to have low prospects. Each of these companies spends hundreds of millions of dollars without any success.

But though they don’t eventually drill in Somalia, such ventures raise the market shares of these companies. Another example is Australian 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 relations fiasco. There is a high possibility that international politics of petroleum could be interfering with chances of Kenya striking oil and this calls for more focus by government.

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 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. Nigeria improved its law making and increased ownership through a a 2010 law that gives indigenous oil and gas companies leverage in a sector earlier dominated and controlled by multinationals.

Finally, in the US state of Texas, over a million oil and gas wells were drilled in 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 to build their international standing.

 The writer is Isiolo Deputy Governor and chairman of  the Deputy Governors Forum

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