* Tullow suspends work after protesters demand more jobs
* More than 800 of 1,400 employees from area, says Tullow
* Investor confidence already knocked by Nairobi mall attack
By Edmund Blair
NAIROBI, Oct 28 Tullow Oil's suspension
of drilling in Kenya after weekend protests shows that popular
impatience for a share of the spoils is compounding the problems
energy firms face building an oil and gas industry from scratch
in east Africa.
Backed by local politicians, demonstrators from Kenya's
poor, northern Turkana community marched on Tullow sites
demanding jobs and other benefits, prompting one of Sub-Saharan
Africa's most experienced oil explorers to "temporarily" halt
That is a blow to Kenya's government, determined to show it
has security under control following last month's attack by
Islamist militants on the Westgate shopping mall in Nairobi, in
which at least 67 people were killed.
Investors' confidence was another casualty.
While east Africa is a hot new province for oil and gas
exploration, excitement has been tempered by wrangles with
governments, gaps in regulations and rickety infrastructure.
Local populations are understandably anxious for a windfall,
but production may be years away, and such direct action is only
likely to slow the region's emergence as a significant producer.
"There are numerous potential risks on exploration projects
in poor, remote areas," said Tom Savory at consultancy Africa
Practice. "Navigating local politics can be just as much of a
challenge as navigating national politics."
London-listed Tullow, which has a track record of delivering
projects elsewhere in Africa, said it was working with the
Kenyan government, local authorities and communities in the area
to resume work as soon as possible.
Grievances in the local community erupted into protests
around at least two of its drilling sites, demanding more jobs
Tullow says more than 800 of its 1,400 employees in its
Kenya operations are from the Turkana region.
"We welcome them (Tullow) to Turkana. But we want to start
benefiting as early as possible," said James Lomenen, a regional
member of parliament who joined the protest at Twiga South-1
site. He said he saw workers evacuated from the site.
"No one was telling them to go; the community was just
coming to have dialogue," he said, adding that the protest was
peaceful and demonstrators "were just outside singing".
An industry source, however, described a "very tense" scene,
and a senior Kenyan energy ministry official, Martin Heya, said
politicians, whom he did not name, had stirred things up.
"We want them (Tullow) to work as soon as possible," Heya
said. "We shall work with security agents to make sure they feel
secure," he added, after police said they beefed up security.
Such incidents are not unique to Kenya.
In Tanzania, where gas deposits have attracted firms like
Britain's BG Group and Norway's Statoil,
residents of the Mtwara region protested in May over
construction of a pipeline there, demanding more benefits.
Hardy oil firms are not likely to be deterred by such
unrest, but anything that makes them more wary and imposes extra
costs hinders development of an industry that Kenya, like other
governments, hopes will generate new revenues to plug budget
deficits and lift more people out of poverty.
"Risks for operators in this zone will in the end be at the
cost of Kenya's exploration success and potentially lead to
delays in the commercialisation of discoveries," said Duncan
Clarke, chairman of Global Pacific and Partners, an advisory
firm to the upstream industry.
"It will add some concerns, already emerging in Kenya, about
tougher terms and state regulatory involvement," he said.
Kenya is revising outdated laws governing the oil and gas
industry. A draft law could go to parliament in November.
Others are also updating industry rules. Tanzania is drawing
up a new gas policy, but has yet to issue it as a debate rumbles
on about how much gas should be sold to foreigners.
Elsewhere, a wrangle between Uganda and oil firms over
whether to process crude or export it has pushed back production
until 2016, a decade after oil was discovered. Uganda has now
agreed with France's Total and China's CNOOC
on building a smaller refinery than it had earlier wanted.
After helping bring Ghana's discoveries to production,
Tullow shows no sign of backing away from its Kenya and Uganda
investment, but the shutdown in Kenya comes at a tricky time for
It has suffered a greater number of dry holes this year than
its investors have come to expect and is looking for a partner
to take on the $4.9 billion development costs of its Tweneboa,
Enyenra and Ntomme (TEN) offshore Ghana project.
"I do believe Tullow is a good operator in challenging new
areas," said Mark Wilson, oil and gas analyst at Macquarie
Securities in London, adding that the latest incident in
northern Kenya should not be seen as too negative for the firm.
Tullow, which has a market capitalisation of over $14
billion, estimates Uganda and Kenya could together export
500,000 barrels per day through a Kenyan pipeline.
But Wilson said Tullow faced a tough job managing
expectations in the local community and needed government help.
"The company, with the best will in the world, can't
actually predict how the Kenyan development will work out," he
said. "It is very difficult, particularly in a new area where
there is literally no (oil and gas) industry whatsoever."
(Additional reporting by Duncan Miriri, Drazen Jorgic and
Humphrey Malalo in Nairobi and Andrew Callus in London; Editing
by Will Waterman)