By Adedayo Ojo
Tullow Oil has just emerged from perhaps its toughest challenge with a regulatory authority in Africa, a continent it likes to call its home.
With two Production Sharing agreements, signed by the Ugandan Government, in hand, the company can beat its chest about having shown remarkable dexterity in managing issues and has proven its ability to overcome the type of challenges that readily overwhelms less determined and less focused players.
It has taken 18 months to come this far.
The story goes back to July 2010, when Tullow bought two oil blocks in western Uganda from Heritage for $1.45bn. Ugandan authorities insisted Heritage was liable for capital gains tax on the sale – a claim the London-listed company has denied. In order to settle the dispute with Uganda’s government, Tullow was required to pay a tax bill of almost $313.5m.
The fall-out ballooned into bribery allegations in the parliament that threatened a planned farm out of some stake to China National Offshore Oil Corporation (CNOOC) and France’s TOTAL, as well as the very future of the company in Uganda.
On Friday, February 3, 2012, Tullow signed Production Sharing Agreements (PSAs) with the Ugandan government for the EA-1 and Kanywataba licences in the Lake Albert Rift basin, and was also awarded the Kingfisher production licence.
“As a result of this signing, Tullow will now finalise arrangements with CNOOC and TOTAL for completion of the farm-down and the related transfer of monies as soon as possible” said the company.
This development is good news and a relief.
If the Ugandan story had gone sour, there may have been ripple effects right throughout the continent, where Tullow has been establishing significant presence in the last 26 years, acquiring 55 licenses in 15 countries. It would have inflicted a huge reputational damage to the house Aidan Heavey erected in a small town called Tullow, about 35 miles south of Dublin, Ireland.
This is how Heavey himself recalls the country’s coming to Africa: “In the 80s there were loads of companies starting off in the North Sea and Irish Celtic Sea. I was talking to a friend of mine in the bank one day and he was talking about small oil fields in Africa, which had been left behind by the majors and had no-one to work them. That is where the idea came from.”
Tullow signed a licence agreement in Senegal in 1986, and thus started its African adventure. By May 2004, the company had doubled in size, mainly through the acquisition of Energy Africa which brought in production from Cote D’Ivoire, Equatorial Guinea, Gabon and Congo Brazzaville. In 2006, Tullow acquired Hardman Oil, adding to its Ugandan portfolio. In the same year, it signed a Petroleum Sharing Contract for the Deepwater Tano Block in Ghana.
In 2007, Tullow discovered oil in Heydua 1, which incidentally probed reservoirs that straddled its own operated acreage (Deepwater Tano licence) and Kosmos operated West Cape Three Points block, in which Mahogany 1 had earlier encountered large pools of oil. The unitised field was renamed Jubilee, in recognition of the fact that the year 2007 was Ghana’s 50th year since independence from Britain. Ghana became the second major oil province for the company after Uganda, but the reservoirs in Ghana, which are contiguous giant sized pools stored in the Atlantic waters are much easier to move into production than the Ugandan reservoirs, which are stranded 1,300Km from the coast. Still the Ugandan fields have added up to over 1billion barrels (P1+P2) and a 100 percent exploration success rate has continued in Uganda, moving the project closer to the commercial threshold for development.
Tullow has emerged stronger after going through the challenges it faced with the regulatory authorities and will surely do better down the line. The greatest lesson is perhaps in the learning that all stakeholders (including Tullow) can take away in this Crude Continent (a la Duncan Clarke).
First, Tullow must set its agenda for Uganda right. The company must understand the socio-political terrain and ensure that all stakeholders are properly engaged with no one left behind. This should include but not limited to government at all levels, the host communities, the media as well as various human and environmental rights’ groups. Tullow must assure that such engagement stems from a well thought out strategic long term plan and not lifted from a hurried negotiation or ad-hoc arrangement.
In carrying out its social responsibility, Tullow should target programmes that are truly sustainable, make the greatest impact on the majority and add the highest value to improving the quality of life. Such programmes should aim at empowering the inhabitants of the communities to be self reliant and grow individual and group capacity.
The Ugandan government on the other hand should relate with Tullow, and of course any other oil company in its domain, with lessons learnt from what has happened in places like Nigeria. Under no pretence should the government relinquish its responsibilities to it citizens to any company of any shade, oil and gas or otherwise. Respect for the sanctity of contract and provision of an enabling environment as well as provision of basic infrastructure all fall in the category of the responsibility of a responsible government. More importantly, both the government and the companies will do a lot of good by embracing openness, fairness and accountability in declaring what is produced, sold, paid for and how the revenue is utilized.
On the regulatory front, there should be a clear separation of roles, responsibilities and expectations between the regulator and the regulated. A situation where the regulator depends on the companies it is supposed to regulate for training or logistics support is a recipe for systemic disaster. Government must help the regulatory agencies to develop capacity to regulate!
Tullow and indeed all companies that operate in the African oil and gas landscape should begin to develop capacity to effectively manage issues especially those that may impact “the license to operate”. The oil and gas industry is not devoid of technology or technical expertise. The greatest vulnerability is in handling social issues. Social challenges must be anticipated and capacity built to deal with same. After all, by the very nature of oil & gas business, risk and surprise is the name of the game. If surprises are anticipated in the rig, why expect less in the town?
There are today a crop of professional firms that have developed expertise in dealing with reputational issues and challenges that oil companies often face. Firms that have proven expertise in managing reputational challenges will help companies grow in-house capacity.
Tullow’s story is now an illustration of what a small but focused organisation can achieve in the risky business of oil and gas exploration in a challenging region such as Africa. The Tullow story bears lessons for other independents, countries as well as regulators
Tullow has done well. The way it flexes its youthful vigour, it will do greater things. Its first two decades of existence has been spectacular. It will, no doubt, be a company to watch in the coming years.
Adedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy based in Lagos.
Caritas is the West Africa affiliate of Regester Larkin, a pioneer reputation strategy/management consultancy with offices in London, Washington and United Arab Emirates