“We are not competing with Uganda” says Kenyan oil leader
Updated, November 15, 2012, with exclusive interview added.
Speakers at an East Africa Oil and Gas Summit in Nairobi yesterday urged the region’s governments to cooperate and harmonise their plans for processing and transport infrastructure.
“We are not competing with Uganda,” the Managing Director of Kenya’s National Oil Corporation, Summaya Hassan Athmani, told delegates. “The challenge is to expand our thinking beyond national boundaries and to think about this as a regional issue.”
With recent oil discoveries in Kenya and prospecting under way in Somalia and Ethiopia, Ms. Athmani said that the region could soon be producing upwards a of a million barrels of oil per day.
“This is our time as a continent,” she proclaimed—stressing, however, that “Our competitiveness as a region requires that we think wider than national interest.”
Coastal India, she pointed out, hosts oil refineries capable of processing 1.2 million barrels a day. If East Africa’s oil infrastructure is developed in a piecemeal way, country by country and with small refineries dotted over the map, the region might price its products out of world markets.
With reference to Uganda’s refinery plans, Ms. Athmani noted that, because of the nature of the Albertine crude oil, the refinery would need to be highly sophisticated. “Will it be viable to build such a refinery with capacities that may be sub-optimal?” she asked.
“There needs to be a regional approach, ideally under the auspices of a regional model, with infrastructure jointly owned by East African governments,” Ms. Athmani urged.
Elly Karuhanga, President of Tullow Oil’s Ugandan subsidiary and Chair of the Uganda Chamber of Mines and Petroleum, was quick to agree on the need for regional cooperation.
“We need an immediate East African infrastructure conference” he told some 200 delegates from oil companies, oilfield service providers, and government agencies.
Mr. Karuhanga quoted a recent Reuters analysis as saying that East Africa may contain petroleum reserves worth US$ 9 trillion, but that investment totalling US$ 100 billion will be needed to bring the resources on stream. The scale of investment requires regional coordination.
“A 2011 report by the World Bank makes a clear case that trade and investment, and therefore economic growth, have been constrained in East Africa by small, disconnected markets, high transportation costs and cumbersome regulatory barriers,” Mr. Karuhanga said.
“Oil is already altering the geopolitics of the region through the adjustment of trade flows and pattern of investment. Conflict may occur in the future as a consequence of oil produced, but in the long term collaborating policies are bound to work better for oil.”
Report by NY
DO-IT-YOURSELF LOCAL CONTENT
Oil in Uganda briefly interviewed Ms. Hassan-Athmani, Managing Director of the National Oil Company of Kenya (NOCK) on the sidelines of the November 14 East Africa Oil and Gas Summit in Nairobi . . .
The oil industry is traditionally very male dominated; how did you rise so high in it?
To be honest with you—and this may sound very cliché—my answer is that it was the will of God. I joined the National Oil Company as head of legal [affairs] and Company Secretary, and from there I rose to become Deputy MD. When the opportunity came up, when my former MD left, I applied for the job and yes, as you say, the field was crowded with many men. I think by and large I was the underdog, I was always the underdog and it caught everyone by surprise when I got the job. So that’s how it happened really. [Laughs]
Uganda is now set to establish a national oil company. Kenya’s National Oil Company has been around for many years. Could you explain to us exactly it does?
Different national oil companies adopt different models. Some just do downstream, some just do upstream. We are fully integrated: we have petrol stations, we are one of the top five oil marketers in the country; we have midstream, where we have wholesale depots that supply others, and then we are also upstream.
Before last year our upstream was mainly facilitative. We have the national data repository: we keep all the data. We facilitate exploration companies wanting to come and look at core cuttings and samples, we keep all that. We administer PSCs [production sharing contracts] on behalf of government.
But it was our view that you cannot build capacity by just coming in upon commerciality [ie, when it is certain that an international explorer has discovered commercially profitable quantities of oil.] The government has a market interest in every [exploration] block, and that is held by National Oil, but that means that you only really come into an operating environment at the end, by which time all the pre-works have been done. In our view at NOC, that will never work: you have to build local capacity and the way you do that is by being in it from the start.
So we applied for our own block. We had to go through the whole process that anyone else goes through and justify work programmes and what have you. We did that. We are on the ground now, operating our block, and for me this is very, very important. Because any area that you look at that has had natural resource discoveries, the issue of local content will creep in. But you cannot create local content overnight. You have to start a pool of different skill sets that are available—technicians, engineers, geo-physicists, whatever—and the way to do that is to get in and do the work yourself. So, if you’re going to partner with another oil company, make sure you’re on the ground. I have somebody in every oil block, as they go out in the field there’s someone from National Oil, and we have our own acreage.
The other thing we’re doing is partnering with universities because my other concern is that if academia and industry don’t work together, If they don’t understand what industry means, how do we bridge that gap? So I said to them, ‘Look, when we’re out in the field, send your final year students, let them come for field work let them be exposed to an actual environment.’ So we’re making good progress and having good discussions in that area.
The other thing that we do—and I think this is the difference between NOCK and other companies—is that we also play a strategic role. Strategic in the sense that one of the things we are doing now is setting up strategic infrastructure. If you have an oil company that wants to put up a depot, for instance, the first consideration is whether it is financially viable for them. Our considerations are bigger than that. So even when I build petrol stations, of course I do my DCF [discounted cash flow analysis] and I run my numbers, but I will be willing to go to a completely remote area and open it up with a petrol station, as opposed to others who say ‘Well, when there’s some business there we’ll come and put a petrol station.’ Because energy is a key opener and we still have too much rural-urban migration, and now with our county government system and our constitution it’s time to go outward. So: strategic infrastructure, strategic decisions—including, for instance, selling kerosene.
This is very close to the heart of the low income Kenyans and probably would be in Uganda as well: kerosene is a very major fuel at that level. But the way it is priced here many times it is a loss maker. You’ll have a lot companies saying ‘Sorry, we just won’t sell kerosene.’ But I have to sell kerosene because you have to balance strategic and commercial considerations—and people need it.
Can I take that up a level and ask about refinery options for the region? The government of Uganda wants a large refinery and appears to believe they could make money out of it. There’s a lot of opinion against it, and a lot of counter arguments. But presumably one of the things that the government would argue is what you just said: ‘We’re being strategic; the country needs this, we need it for development, even if it is not as profitable for the companies.’ So what would your response to that be? Do you think that at that level of decision making it’s okay to make commercial considerations secondary?
I think without commenting specifically on that particular project, my view is that when you’re dealing with a large resource, which your population expects to bring about significant development and greatly improve their standards of living, how to create best value out of that is very important. If you’re not fully leveraging that resource you may get value out of it but it may not be the most optimal value.
In looking at creating value out of an oil and gas resource, scale is very important, particularly when you have consideration to the quality of the product. The oils by and large that have so far been discovered in the region are very waxy with a very, very high pour point. That oil is solid at room temperature. So for the oil to flow you need heat. For you to refine it you’re looking at some quite complex refinery. So my view would be, with oil like that, where would the best value be, where can your extract the best value?
At this point Ms. Hassan-Athmani was captured by conference organisers and led away to chair a session. Oil in Uganda hopes to resume the conversation in the not too distant future . . .