Total’s power play in East Africa

12Sep 2017
The Guardian
Total’s power play in East Africa

Four years ago, in a villa on a bumpy, rust-coloured road in South Sudan’s capital Juba, a manager of the French oil major Total rolled out a map of East Africa and shared a vision for the region’s oil future.

Patrick Pouyanne, Chairman and CEO of Total.

At the time, Total was closing in on gaining exploration rights to unchartered areas of South Sudan.

With the South Sudanese government keen on sending any future discoveries through a new pipeline to Kenya – bypassing the only existing pipeline route through its hostile neighbour Sudan – Total saw an opportunity to link the region’s growing oil resources.

East Africa was on the verge of an oil boom. Beginning in 2006, exploration companies discovered 6.5 billion barrels of oil along the eastern shore of Lake Albert in Uganda. In 2012, they found another 600 million barrels in Kenya’s north-western Turkana region.

If new oil was found in South Sudan, it could be connected via a regional pipeline to Uganda and Kenya. From there, it would be piped to the Indian Ocean coast for export to international markets. A new centre was developing on the African energy scene, and Total wanted in.

A Danish Deal

The outbreak of civil war in South Sudan in December 2013 put exploration plans in South Sudan on hold. A sharp drop in international oil prices also slowed development in Uganda and Kenya’s oil industries.

However in August, Total took a big step towards realising an interconnected east Africa oil industry. The company bought Maersk Oil for US$7.5 billion. The deal includes new stakes in Kenya’s main oil concessions.

The acquisition puts Total in an even stronger position to sway the policies of governments in the region.

Maersk Oil was a subsidiary of the Danish shipping giant AP Moller Maersk, which after nearly 50 years in the global oil and gas business has been moving to sell off its oil activities. CEO Søren Skou sees the Maresk Oil sale as a necessary move.

“The agreement will strengthen the financial flexibility of AP Moller Maersk and free up resources to focus our future growth on container shipping, posts, and logistics,” Skou said in statement. 

For Total, taking control over Maersk Oil’s North Sea assets, where the majority of its of 160,000 barrels per day oil is produced, was the main motivation behind the acquisition. The French oil major will now become the second-largest producer in the region behind Norway’s Statoil.

But Total also strengthened its position in east Africa in the Maersk oil deal by taking over the 25 percent stake the Danish company held in Kenya’s onshore oil blocks, alongside Tullow and Africa Oil. This acquisition consolidated Total as dominant player across the region.

From West to East

The French oil major is hardly a newcomer to oil production in Africa. Regional assets already generate roughly 30 per cent of Total’s overall oil and gas production.

However, the majority of those assets are in northern and western Africa including Algeria, Nigeria, Gabon, and Congo-Brazzaville. Entering Kenya is in line with Total’s strategy of leveraging its long experience from the other side of the continent in up-and-coming producers in East Africa.

Total made its first big splash in East Africa in 2010, buying a one-third stake in Tullow’s interests in Uganda’s main oil concessions for US$2.9 billion.

The real action started in 2017 as Total exploited its market capitalisation of more than US$100 billion to buy up assets in the current lower oil price environment. In March, Total tightened its grip on Uganda’s upstream sector by purchasing 21.6 per cent of Tullow’s remaining stake for US$900 million.

A couple of months later, the company bought the Gulf Africa Petroleum Corporation, a retailer of petroleum products in Kenya, Uganda, and Tanzania. This acquisition cemented its logistical and service station presence in east Africa’s downstream market.

Pipeline politics 

The last piece Total needs to complete the East African oil puzzle is a regional pipeline to transport Uganda’s landlocked oil reserves to the Indian Ocean coast for export.

In early August, President Yoweri Museveni and his Tanzanian counterpart John Magufuli laid the foundation stone of a US$3.5 billion pipeline. If completed by its ambitious 2020 deadline, the pipeline will extend 1,445km from Uganda’s oilfields on Lake Albert down the western side of Lake Victoria to Tanzania’s port at Tanga.

It was a long-awaited deal for Total, but one that left Kenya out in the cold. With oil resources of its own, Kenya was once seen as the obvious partner for Uganda. The original idea had been that the neighbours could combine their oil resources to draw in investors for a regional pipeline.

This plan finally fell apart, however, because the Kenyan government insisted on constructing the pipeline through its restive northern region. The venture came with considerable development costs and security risks. Investors balked.

Total was one of the fiercest critics of Kenya acting as the transit route for the regional pipeline. In late 2015, with Uganda still considering whether to go ahead with Kenya or Tanzania, Total CEO Patrick Pouyanne met President Museveni to make the case against the Kenyan route.

Tensions grew. When Kenya’s president Uhuru Kenyatta visited Paris in 2016, he reportedly told the French oil company “to stop dictating issues involving the new pipeline”.

The Kenyan government remains adamant that it will push on with developing an oil pipeline as part of a wider infrastructure development plan for Kenya’s north. But without scaling-up its oil resources through new discoveries, it is unlikely to find many investors.

Ironically, after buying Maersk Oil, Total now owns a sizeable stake in Kenya’s stranded oil resources. With its size and experience, the French oil major may be able to bring Kenya’s oil to market faster than its current investors, Tullow and Africa Oil.

“The immediate thing that Total brings on board is the financial muscle that the current players in Kenya were lacking,” explains Charles Wanguhu, coordinator at the Kenya Civil Society Platform on Oil and Gas.

Total is insisting on having its way. In a conference call with investors in August, CEO Pouyanne underlined his company’s commitment to the Tanzania route. “We’re committed to that scheme,” he said.

He also floated a new proposition that will surely provoke politicians in Kenya. “Maybe there is an idea which will be to link [Kenya’s] resources to Uganda and then to Tanzania,” he offered.

Total has locked in its position as the lead player on east Africa’s oil pitch. The French oil major’s economic muscle and growing assets in the region bring into question just how much influence regional governments have over oil development in east Africa.

Activity in Total’s offices in war-torn South Sudan have all but shut down for now. However the completion of a regional pipeline at the start of next decade may very well allow Total to tie all its assets together and realise its vision for East Africa.

Top Stories