Tag Archives: oil

Loss Making Atlas Development focuses more on Ethiopia and Tanzania as activity in Kenya reduces

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Nairobi securities exchange listed company Atlas Development has said it is now eyeing the Ethiopian and Tanzanian markets as oil exploration in Kenya and the Turkana region witnesses a significant reduction.

According to the company business in Ethiopia has been improving with contracts in the potash project where developers have been negotiating and have renewed as they look to advance their exploration and mining operations.

“The Ethiopian business pipeline is also improving in the natural resource and infrastructure spaces.  With a positive market dynamic and a growth in requirements for international standard support services the Board is hopeful that the Ethiopian operations will generate positive returns,” the company says in a statement.

The company adds that despite agreements in place to provide support services across the delivery spectrum in Kenya revenue visibility is not easy to predict at this time.

Atlas development adds that although tenders are being offered by a number of parties throughout the East African region the Board believes that the terms being demanded from service providers are not sustainable.

“Indeed in a number of recent cases contracts were agreed but terms then adjusted by the clients, causing the work to be unprofitable and therefore unattractive to the Company,” the statement continues.

Atlas also says it has conducted a full review of operations in Kenya and dramatically reduced costs and overheads to preserve the balance sheet whilst maintaining a presence to ensure the capabilities are in place to deliver these potentially transformational projects when the time arises or market sentiment changes.

In Tanzania, although the Company has a number of small contracts, the operations are heavily centred on the oil and gas sector where, as in Kenya, the general environment remains challenging.

The company continues operations continue in Western Sahara.

Meanwhile the Company reported comprehensive losses during H1 2015 of US$2.6 million, which included exchange rate losses of US$0.7 million (resulting from the 9% fall in the USD:KES exchange rate which heavily impacted the USD equivalent cash balances which were held in KES) and non-recurring restructuring costs of US$1.1 million.

Looking forward Atlas Development adds the Board has focused on the preservation of capital through prudent cost cutting and streamlining initiatives. The board adds that it is in discussion with a number of asset financing banks with regards to potential acquisitions and expansion opportunities.

“The conclusion of any transaction due to market dynamics and the current valuations is more challenging but the Board, as I said, believes there remains opportunity.”

 

Serious Fraud Office Opens Corruption investigations on Soma Oil and Gas

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United Kindgom’s Serious Fraud Office has confirmed that it has opened a criminal investigation into SOMA Oil & Gas Holdings Ltd, SOMA Oil & Gas Exploration Limited, SOMA Management Limited and others in relation to allegations of corruption in Somalia.

According to the SFO website the investigating institution is seeking information from whistleblowers with inside information.

“Whistleblowers are valuable sources of information to the SFO in its cases.  We welcome approaches from anyone with inside information on all our cases including this one – we can be contacted through our secure reporting channel, which can be accessed via the SFO website,” read a statement from the SFO.

The company says it is confident that it will be cleared off the allegations as it has carried its activities in a transparent and lawful manner

“Soma Oil & Gas can confirm that it has been informed by the Serious Fraud Office (“SFO”) that it is investigating an allegation that has been made against the Company.  Soma Oil & Gas is confident that there is no basis to the allegation and it is co-operating fully with the SFO to answer it’s queries. Soma Oil & Gas has always conducted its activities in a completely lawful and ethical manner and expects this matter to be resolved in the near future,” posted a statement by Soma Oil and Gas website.

Soma Oil & Gas which was founded in early 2013 expressly with a view to exploring in Somalia has on its board members including: former leader of the Conservative Party in Britain Lord Howard now the Chairman having held the post since May 2013, former Chairman of Eurasia Drilling Company Lord Clanwilliam, one of the founding investors in Ophir Energy plc Basil Shiblaq who is the Executive Deputy Chairman among others.

Soma Oil and Gas that in June concluded a 122,000 sq km 2D seismic acquisition is set to benefit from blocks with an area of up to 60,000 sq km under a seismic option agreement with Ministry of Petroleum & Mineral Resources, Federal Government of Somalia.

Oil, Gas and Chemical Industry advised to adopt cost culture to survive current environment

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With the recent fall-off in oil prices, companies in virtually all sectors of the oil, gas and chemicals (OGC) industry worldwide are going to have to plan and manage their projects for greater capital productivity, something they weren’t doing particularly well before the price-drop, and along the way create a “cost culture” inside their companies. That’s according to a new study, which includes a survey of 250 high-level industry executives around the world, released today by AlixPartners, the global business-advisory firm.

The executive survey finds that just 30% respondents say their companies had explicit return-on-capital targets for projects prior to the crash in oil prices and, perhaps most surprising, that just 12% believe their companies are any better than their competitors at project execution. Meanwhile, the survey finds that only 19% of respondents from North American firms say their companies finish projects on budget, compared with 29% of all respondents globally.

The study also delves into the reasons behind suboptimal project management to date.  According to the executive poll, just 34% of respondents said they “agree” or “strongly agree” that project management is executed at the “company level” across all projects, suggesting that many projects are not benefitting from economies of scale, institutional knowledge, etc.  Only 39% of respondents—and just 30% of oil and gas drillers—said they have a strong series of checks and balances to ensure projects stay on track.  And only 11% of all respondents said they employ a stage-gated process to assess project viability at defined milestones when developing a new capital program.

Overall, when asked to name up to three ways in which they are most challenged in keeping projects on budget, the top reason chosen (by 39% of all respondents) was “company culture isn’t focused on project management.”

“Strong energy prices in recent years have allowed companies to delay putting an emphasis on project management, as they focused instead on the urgent need of achieving greater throughput.  But that was then and this is now,” said Dennis Cassidy, managing director at AlixPartners and co-head of the firm’s global Oil, Gas and Chemicals Practice.  “In the current environment of falling prices, plus increasing geologic and technical challenges, a new focus on building a ‘cost culture’ into each and every project is mandatory.”

The survey results also suggest that as projects grow more complex, many companies have attempted to boost returns, not by tightly controlling costs internally, but by looking outward, toward such things as developing partnerships.  For instance, when asked to list the most important criteria used in selecting new capital projects, 60% in the survey cited “partner/syndicate relationships,” a tie for first place with the project’s projected net present value.  And, among the firms in the survey with the highest (self-reported) corporate ROCE (return on capital employed), 64% cited partner/syndicate relationships as most important, compared with 51% of those representing the companies with the lowest self-reported ROCE who said that, suggesting that partnerships may indeed have been a successful strategy for boosting returns—in the past.

AlixPartners research accompanying the executive survey notes that, despite an average 10% per annum increase in industry capital spending globally since 2010, compounded ROCE averages for all major sectors of the industry (integrated oil and gas, chemicals, upstream, downstream, midstream, and equipment and services were in reality negative for the period 2008-2013— i.e., even before the recent drops in energy prices.

Sector Highlights

Below are some of other key survey results by sector:

  • Two-thirds (66%) of those representing exploration firms said it takes significantly longer to see returns on capital from projects, vs. only 38% for those from integrated oil and gas companies and 47% from drillers
  • Fully 70% of those from oil and gas drilling companies said partners/syndicate relationships are the most important determinant in deciding whether to conduct a project, vs. 60% of total respondents.
  • Just 55% of executives from integrated oil and gas companies said they “always” or “very often” deliver their projects on time, vs. 74% of total respondents.
  • Only 30% of leaders from oil and gas drilling companies said they have a strong set of checks and balances in place to ensure projects stay on track, vs. 39% of total respondents.
  • 55% of those from integrated oil and gas companies said their company culture is not focused on project management, although half said they do complete reviews at key project milestones.

Meanwhile, while 58% of total respondents said they are “focused” or “highly focused” on creating a “cost culture” within the companies – and an even higher number, 69%, from refining and marketing firms and from exploration/production companies said that — the study finds that many companies are not taking the right actions to match their words.

Regional Highlights

Here are survey highlights by region:

  • 49% of those from North American firms said their project planning process efficiently integrates input from key stakeholders, vs. 60% of total respondents.
  • Only 9% of North American respondents said they are likely to use tighter criteria for selecting projects, vs. 26% of Middle Eastern respondents.
  • African operators said they are more likely to close unprofitable operations—64%, vs. 45% of all respondents; 30% said they are plagued by insufficient data (vs. 20% of total respondents); and they said they are less likely to be investing in new infrastructure (13%, vs. 20% overall).
  • 56% of executives from South American firms say they are challenged by “limited synergy with planning and operations” (vs. 41% of total respondents) for getting projects completed on time; 58% cited too much intramural competition for project resources and skills (vs. 36% of all respondents globally) for completing projects on budget.

The executive survey also found that prior to the crash in prices “improving throughput” was indeed the single-most important focus for improving capital productivity, globally, with 63% of total respondents saying they were “quite” or “highly” focused on increasing throughput if existing operations.  It finds as well that only 30% of those surveyed formally identify and quantify project risks in advance of undertaking new projects, and that, in an era where new digital technologies help define the drilling environment, just 39% have a formal knowledge- management process in place.

The AlixPartners study does, though, offer hope to companies looking to crack the code on efficient project management in today’s brave new world of lower energy prices—and a lot of it starts with proactive leadership.  For instance, the executive survey finds that the companies which are best ROCE performers according to those surveyed are also more likely to be creating tighter criteria for project approval (36%, vs. 29% of all respondents), and that top leaders in those high-ROCE companies review all projects on a semi-annual or annual basis (53%, vs. 43% of total respondents).

Furthermore, the survey results suggest that OGC-industry leaders themselves view the creation of an overall cost culture inside their companies as a powerful generator of returns in the year ahead.  According to the survey, 46% of respondents believe doing so will yield at least 5% savings for their firm over the next 12 months, a greater improvement than they believe could come from improved purchasing/resource acquisition (41%), higher subcontractor productivity (39%),  SG &A improvement (27%) or technical-cost reduction (19%).

“The good news is that creating a true, soup-to-nuts cost culture can not only yield significant returns, if implemented properly it can be the approach that offers a lower degree of social impact, which of course can be of use once markets change yet again,” said Cassidy.  “If history is any guide, companies that simply go into shut-down mode given today’s tough market will rue the day when the market turns yet again.”

The AlixPartners Study included a global survey of 250 C-level executives and business-unit leaders globally in the oil, gas and chemicals (OGC) industry, 75% of whom work at companies with reported revenues last year of more than $1 billion.  The survey was conducted for AlixPartners by Oxford Research.

Experts call for clear tax policies on farm down transactions in Kenya

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Tax experts Deloitte East Africa have expressed fear that the unclear tax policy position on farm down transactions may be a draw back with the potential to derail the momentum in the industry.

The experts took issue particularly with the assumption by policy makers that all farm down transactions generate windfall profits warning that this could discourage investors wishing to make their entry.

They note that Farm down transactions represent a real opportunity for big oil companies to acquire working interest in the country’s petroleum sector originally dominated by smaller oil companies injecting much needed money to fund the capital intensive phases.

“Such transactions raise finances but also manage exploration and development risks in the sector. Countries that place onerous requirements on assignment of petroleum interests can potentially discourage FDI in the sector,” the experts say in a report dubbed Kenya’s Petroleum Fiscal Regime.

In Kenya the minister for energy has does not unreasonably withhold consent to any proposed assignment.

The MPSA does not however provide for exemption from the application of transfer taxes on the assignment of interest.

For companies wishing to engage in farm down transactions in Kenya various taxes apply including income tax that applies to net gains arising in relation to the disposal or assignment of a petroleum interest, including information and shares of the petroleum company at the corporation tax rates ranging from 30% to 37.5%.

Work obligations or future carry are excluded from the proceeds deemed to be earned on the disposal of a petroleum interest.

Another applicable tax to investors carrying out exploration in Kenya is the value added tax that applies to supply of services and is pegged at a rate of 16% unless where such services have been specifically exempted such as supplies imported or purchased for direct and exclusive use in oil, gas or mining prospecting or exploration by a licensed company.Farm outs do not fall within the realm of this exemption.

Lastly every instrument relating to property situated or to any matter or thing done or to be done, in Kenya, is chargeable with stamp duty.

Apart from the unclear taxes when dealing with farm downs the experts say to the greatest extent, the petroleum fiscal terms adopted by Kenya are favourable for FDI.

Caterpillar expects tough 2015, restructuring anticipated

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World’s leading manufacturer of construction and mining equipment Caterpillar has said it expects a tough 2015 as a result of the modest improvement anticipated globally as well as the continued weakness in commodity prices—particularly oil, copper, coal and iron ore as to which the company depends on for its sales.

The company adds to undertake restructuring actions  that will cost the company about $150 million above the restructuring it has undertaken over the past two years designed to lower our long-term cost structure.

According to Caterpillar Chairman and Chief Executive Officer Doug Oberhelman the recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook.

“Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world.  In addition, with lower prices for copper, coal and iron ore, we’ve reduced our expectations for sales of mining equipment,” Oberhelman said.

Caterpillar expect sales and revenues in 2015 to be about $50 billion down from 55 billion last year.

The company has also lowered its expectations for the construction equipment sales in China despite a growth in 2014.

“While we are, without a doubt, facing a tough year in 2015, we’re driving cost management through additional restructuring actions and continued operational improvements gained from our focus on Lean Management.  While 2015 will be difficult, the work we’ve done to improve our cost structure, market position and quality will position us for better results when the world economy and the key industries we serve improve,” Oberhelman added.

Tullow Oil To Start Offering Vocational Training Scholarships Beginning 2015

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Tullow Kenya will starting next year expand its annual Tullow Group scholarship scheme (TGSS)to cover vocational training, in a move that will see over a 1000 Kenyans get opportunities to pursue short term courses including welding and carpentry.

Tullow Kenya Country Manager Martin Mbogo says the oil exploration company had renewed its contract with the British Council, the TGSS administrators, who will oversee the expanded scheme.

The new courses to be offered as part of the expanded Tullow Group scholarship scheme will be aimed at those who may have ambitions to apply for the Tullow Masters degree Scholarship but do not necessarily qualify for post graduate education.

“Over and above the job training, these young people will also get basic communications and entrepreneurships skills that will allow them to also participate in the oil and gas sectors either as entrepreneurs or employees. This objective sits within Tullow’s wider goal of increasing the participation of Kenyans in the country’s oil and gas sectors,” said Mr Mbogo.

This year, Tullow Kenya has invested Kshs. 200 million in providing scholarships and bursaries to university, college and secondary school students. In particular, the company has spent Ksh150 million in providing 30 scholarships to postgraduate students as part of the 2014 scholarship scheme.

“The main reason for starting the Tullow Group Scholarship Scheme was to bridge the skills gap within the oil and gas sectors in countries where we operate. I am proud to say that since we started the scholarship scheme in 2012, the Tullow Group Scholarship Scheme alumni network has become a rich source of specialised skills  for the Kenyan oil and gas sector, producing experts in fields such as oil and gas law, environmental sciences and logistics ,” added Mr Mbogo.

The 30 scholarship awarded this year brings the total numbers of Kenyans awarded the TGSS scholarships since it was started in 2012 to 55.

FEATURE: Learning the ropes and ties in Kenya’s young Oil and Gas sector

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During my touring at the 3rd East Africa Oil and Gas Summit and Exhibition one stand caught my eye in a very special and unique way, it was however not in terms of decoration or its products of which I must state was in no way inferior.

Approaching the stand I would tell the occupants in light blue company shirts were much younger than the many delegates I had met and were way also much younger than myself.

As curious as I always am I approached one young man Tobias Okoth a student at Makerere University who has just completed his petroleum engineering course at the institution and who is now an intern at Merrick & Company.

During my interaction with Okoth I learnt that two other students were also attached in the firm and are currently carrying various special projects in the country.

As I earlier noted what caught my eye the special and unique way the company was running its operations.

Having spoken with many graduate students in this sector I have learnt that despite the talk of the minimal human resource available in the industry that a number of qualified professionals still lack employment.

Not very long ago I met with a number of professionals who had just returned in the country having graduated with various Masters degrees from various universities in the United Kingdom and who have since remained jobless due to their lack in experience.

A discussion that arose when I sat down with George Gachie Geomatic graduant from the Jomo Kenyatta University of Agriculture and Technology who says despite the institution releasing 38 professionals only 2 have been absorbed in the sector so far.

In this industry the application of our skills are in much demand. Currently the country is discussing on the construction of the pipeline a project that cannot be carried out without geomatic engineers and professionals with expertise in geospatial information systems,” says Gachie.

This approach by Merrick & Company as I learnt is influenced by a former University professor in charge of internship training, Richard Boehne who is currently the vice president of international business and has long believed in tapping the mind shift and innovation sense in young people at an average pay.

Given the current speed at which the oil and gas sector is growing many international companies have set base in East Africa with the aim of pinching a piece of the market with the company also eyeing the market.

For Merrick & Company however the entry strategy into the market is much different.

Whereas other companies invest in offices and employees Merrick has a different take in localization and partnerships with focus in working hand in hand with these partners without necessary expanding physically in the region and thus will rely on such local professionals.

“We offer high value solutions, localized, to meet our customer expectations. This is as we see the success of our partners and customers as a Merrick achievement thus we committed to making that happen,” says Boehne.

In respect to the planned production of oil and gas in the region there is a growing demand for engineers who will be required in the first phase to develop various feasibility studies and cost models, this is where local expertise comes in.

As Boehne points out there are surely the availability of the basic skillset of engineers needed as there remains a deficiency in professionals with experience in petrochemicals.

IMG_20141017_131438

From Left: Tobias Okoth, Richard Boehne (VP, international business), Elizabeth Gichuki, Peter Dixon (VP, Energy)

The students have thus gone over this hurdle with the possibility of employment thereafter.

“This internship programme has exposed me to the real world experience. I am a better person with on the work training as well as experience in this promising industry,” says Okoth.

A view shared by fellow intern Jewel Zawadi an electrical engineering student from Moi University who has her sight now on the oil and gas sector having been exposed to it through the internship.

“Truly speaking I had never thought of ever working in the oil and gas sector. In our learning institutions there is little or no advice on the various new sectors that old professions like us can engage in,” she says.

According to the company’s regional representative Elizabeth Gichuki the company had targeted more interns than it received and will be seeking more interns in the coming quarter.

“We have agreed that we will be taking in several students from different disciplines and different institutions every quarter. We have had challenges in getting interns in the past but we are determined to achieve our dream,” says Gichuki.

“Our aim is to build Students who understand the local environment,” she adds.

The company is also arranging for exchange programmes in future where interns wil be moved to ongoing projects in East Africa so as to ensure they gather more experience in the fields of specialization.

“We strive to build capacity in Africa and more specifically in East Africa,” she concludes.

Oil Potential in Tanzania’s Ruhuhu Block placed at 3.6 BOE

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Australian explorer Jacka Resources has said a prospective resource assessment at the Ruhuhu Block has set the highest estimate at 3.6 billion barrels of oil in both convectional and unconventional oil.

According to the resource assessment the 3.6BOE  include 263 million barrels of oil (MMBO) of conventional neogene oil and 20 Tcf unconventional gas + liquids potential (shale/tight gas and coal seam methane).

The conventional Neogene oil prospective resource estimates are a combination of play-level estimates and lead-level estimates.

Jacka says that he convectional oil resources have been estimated on the basis of average size and yields of the Mputa, Waraga and Nzizi discoveries in the Albertine graben of Uganda. These discovered fields – the first in the East African Rift – lie in a highly analogous Neogene delta setting with which Jacka is very familiar.

Shale gas and tight gas resource estimates on the other hand are based on a probabilistic range of areas likely to contain the thick early Permian high TOC shales and silt stones.

Coal seam gas prospective resources have similarly been estimated using areas anticipated to contain thick coals within a depth range considered viable for commercial CSG development with GIIP yields derived from the measured CSG holding capacity of the Ruhuhu coal while a range of recovery factors were drawn from a number of CSG developments in early Permian coals from around the world.

The summed prospective resource estimates Jacka however warns have not been adjusted for risk as the plays have no co-dependent risk elements.

Jacka reveals that conventional gas potential has been recognized in the Karoo section of the Ruhuhu Licence although it cannot be reasonably quantified as yet.

Following the assessment the Ruhuhu project is now moving to operational phase, aiming to quantify the risks associated with each of the identified plays with geological field work, an airborne gravity survey and a seismic survey planned for the balance of 2014 and the following year.

Should the project yield results Jacka says a number of commercialization options are available to the project, depending on the type of hydrocarbon.

One potential commercialization route for Ruhuhu gas resources has recently emerged, electricity company Tanesco awarding a contract to connect the south west Tanzania township of Songea to the Tanzanian national electricity grid. The 220kV electricity transmission lines will cross the middle of Ruhuhu Licence, providing a potential opportunity for power generation for all of Tanzania from future Ruhuhu gas.

(Figure 1). Transmission line construction is expected to commence in March 2015.

Nyasa Ruhuhu basins

Nyasa and Ruhuhu Basins depth to Basement maps with Ruhuhu surface features. 

An exploration well is planned to be drilled on any identified targets before March 2017.

Jacka Resources is also in the process of identifying potential partners for a farm-out as the company seeks to continue with the Ruhuhu project.