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'Incredible increase' in oil, gas in East Africa

Friday - 6/21/2013, 11:20am  ET

JASON STRAZIUSO
Associated Press

NAIROBI, Kenya (AP) -- East Africa is in the middle of an incredible energy boom that is likely to last decades, according to energy industry executives who gathered this week in Kenya's capital in a sign of the region's growing prominence.

The last couple of years have seen significant oil and gas discoveries in Kenya, Uganda, Tanzania and Mozambique. Even Somalia hopes to get onboard though security woes and a lack of regulation make the likelihood still years away.

"This region was definitely underexplored in the last decade," said Martin Trachsel, the chief executive of South Atlantic Petroleum Limited. "Most companies were exploring in West Africa. It's part of a general trend of people looking for more oil."

New technology also has contributed to the string of new discoveries, he said.

"The industry is innovative. It always finds new plays and new ways of finding oil and gas," Trachsel said.

Kenya's president announced last year that oil had been discovered there for the first time. Tullow Oil, which is carrying the exploration in the region, has reported progress in bringing the oil to market, though no date for that has been announced.

Uganda, which has confirmed oil deposits of about 3.5 billion barrels, wants to extract at least 1.2 billion barrels over the next three decades. That figure could rise when more oil blocks are put up for exploration later this year, potentially making Uganda one of Africa's top oil producers.

"It won't be boom and bust. We're talking about fairly large reserves," Trachsel said. "It will have a 40-year lifetime or more."

Allegations of corruption in the oil procurement progress already have dogged the situation in Uganda, though.

An independent lawmaker fingered three government ministers he believed had been bribed by foreign oil companies seeking contracts with Uganda's government. The charges, denied by the three officials, forced lawmakers across the political spectrum to order an investigation. That investigation is still ongoing two years later.

Trachsel said that oil companies can influence whether the oil industries' activates in a given country become corrupt, but he said "ultimately it's the government's decision."

Another East Africa region that could also hold energy reserves is Somalia. But Somalia brings with it problems like piracy, clanism, corruption, and a lack of a central bank, said Alec Robinson, president and chief executive of London-based Temo Petroleum.

Perhaps the biggest obstacle: "There is no legal framework for oil exploration," he said. "A law is planned but it needs work, and the support of regional states. There's a lot to do in Somalia. Don't expect this to happen soon."

South Atlantic Petroleum is currently working in Benin and Nigeria in Africa's west, and in Madagascar and French overseas territories in the east. Trachsel said his company will continue to develop its business in Nigeria and in other regions of sub-Saharan Africa, areas he called high risk but potentially high reward.

"Bringing Africa and some of these countries out of poverty is positive for all parts of the world. Poverty causes instability and that can lead to conflict. I think the U.S. would be very glad to see the average income of the population increase in Africa," he said.


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