Firms get in line to finance drilling of oil in East Africa

• With production projected to beat that of the Middle East in two decades, foreign firms are making a beeline for East Africa to grab a share of the energy billions

East African oil is projected to beat that of the Middle East in global markets over the next 20 years. Currently, much of the activity has centred around exploration, with huge discoveries in Kenya and Uganda. Most experts, however, say the march to outpace the Middle East in production could be hindered by lack of or poor infrastructure.

Despite this, multinationals are seeing opportunities to fund enabling infrastructural projects and explorations, buyout of oil fields, and drilling of oil in what experts term “the next trillion-dollar deal”. Insurance companies are also queuing to take up the risk, with local firms finding it almost impossible to take up the business due to the huge capital outlays involved.

Last month, an international reinsurance broker, Afro-Asian Insurance Services, opened a liaison office in Kenya to help provide regional insurers with an expanded pool of reinsurers to which they can transfer risks.

“We are bringing solutions in this market, new capacities, and international knowledge in Kenya,” the Afro-Asian Insurance Services associate director, Mr Christian Ramamonjiarisoa, said.
Afro-Asian is an accredited broker at Lloyd’s London, which means that regional insurers and reinsurers will now have direct access to the vast capacity and unique risk solutions that Lloyd’s can offer.

Mr Udai Patel, Afro-Asian’s group managing director, said the firm would offer risk services in oil exploration because of its magnitude and large capacities that cannot be adequately exhausted by the local market.

Gras Savoye, a French reinsurance broker, also set up its regional office in Upper Hill, Nairobi, within days of Afro-Asian’s announcement. The broker, in partnership with the Willis Group, is also eyeing the oil and gas market that has taken shape in the region over the past year.

“We are seeing many global companies moving towards the East African market, which gives us an opportunity to furnish them with international reinsurance services that may be absent in the Kenyan market,” said Gras Savoye’s regional director, Mr Vincent de Charnacé.

JB Boda, an Indian reinsurance broker with over 30 years presence in the country, also set up an office last month in Nairobi.

The Lloyd’s accredited firm is riding on its experience in oil and gas ventures in the mother country to penetrate the Kenyan exploration market.

“By and large, it was a very exciting time last year for Kenya following the discovery of oil in Turkana County and natural gas reserves off the coast of the Lamu Basin in the Indian Ocean. The effect has attracted underwriters from around the world,” said Mr Tom Gichuhi, the executive director of the Association of Kenya Insurers (AKI).

One of the global big names in financing, JPMorgan Chase, with a corporate loan book of over Sh121 trillion, has announced plans to set up shop in Nairobi. In its annual financial report for 2011, the firm identifies Nairobi and Accra as the two, and only Africa offices, of the eight new outlets it plans to open in the 2012/13 financial year.

“As our clients — multinational corporations, sovereign wealth funds, public or quasi-public entities — expand globally, we intend to follow them around the world,” JPMorgan Chase chairman and chief executive Jamie Dimon wrote in his notes to shareholders.

Barclays Bank is reorganising its investment bank arm in sub-Sahara Africa, centralising its operations to South Africa. Announcing the financial result of the Kenyan unit, the bank said its priority is in restructuring its investment arm by moving the function to South Africa.

“Oil and gas business is of course one of the key areas that we will be keeping our eye on,” said Barclays Africa chief administrative officer Adan Mohamed. “We intend to source the expertise to fund such projects from our South Africa unit.”

Ecobank, which is exposed to the oil and gas business in West Africa, is also revamping its investment bank arm. The West Africa-based bank has also been active in East Africa, engaging leaders by organising conferences and tours to oil-rich West African countries.

Oil exploration in Kenya hit fever pitch when Tullow Oil struck the black gold in Turkana in the northern part of the country.

“2012 was a year of major progress for Tullow. We materially enhanced the business with a basin-opening oil discovery in Kenya, adding highly prospective new licences in Africa and the Atlantic margins, refinancing our debt, and partially monetising our Ugandan assets,” said Tullow’s chief executive, Mr Aidan Heavey, last week when he released last year’s financial results.

With the successful basin-opening discovery in Kenya with Ngamia 1 and Twiga South 1 wells, Tullow is optimistic of another 40 wells in the region.