uganda:oklahoma::kenya:texas

tullow oil’s discovery in its first well in the south lokichar tertiary rift basin, kenya’s find could change the preexisting commercial dynamics of east africa’s emerging oil plays in a similar manner that texas crowded out oklahoma’s discoveries in the early twentieth century. so far tullow has downplayed its ngamia-1 well’s 20 meters of net oil discovery on block 10bb in turkana county, but has hinted that adjacent acreage in kenya, and also ethiopia, could be significant in the company’s africa expansion strategy. the block’s operators—tullow, africa oil corporation, and lundin—have estimated reserves to be from anywhere between 30 – 45 bbls of oil in miocene era sandstones. kenyan president mwai kibaki and energy minister kiraitu murungi have compared kenya’s light, waxy crude with ugandan varieties. tullow had long written off the rift valley basin in favor of the albertine rift basin (which is ten times larger than what is in kenya and ethiopia), but recent discoveries suggest that the company many change how it views its east africa portfolio–essentially shifting more of its eggs in to its kenyan basket.

previous drilling campaigns have only explored at intermediate depths (approximately 1,000 meters), and tullow plans to drill almost 2,000 meters deeper to see if it can replicate its previous success. successful onshore campaigns have piqued the interest of kenya’s offshore potential, which is looking to compete with the flurry of discoveries off the tanzanian and mozambican coasts. however, across the world, daily rig rental rates have been steadily increasing, and in east africa the price tag can be as high as $600,000. and although the oil services industry plans to construct approximately 50 new rig this year, those interested in exploring kenya’s (and also uganda’s) oil will face difficulties in securing a rig, critical for the development of kenyan oil. the fact that there are few rigs under contract in the region suggest that ships must travel longer, to an unknown area. kenya—which predicts it will need up to half a dozen rigs to complete its exploration targets—will have to compete with tullow’s planned expansion in uganda, which is planning to drill up to twenty wells. and while somali pirates have taken a break from their own “exploration,” an increase in maritime commercial activity closer to their borders could incentivize a new piracy campaign.

the excitement around kenya’s oil discovery comes in the run-up to what will be hotly contested elections, which will likely be held in early 2013. while kenya’s embryonic oil story could share similarities with uganda’s drama with tullow and heritage surrounding payment on capital gains taxes (kenya does not have this on its books), the involvement of the controversial former foreign affairs minister moses wetangula adds a political dimension unlike what was seen in uganda. while uganda’s virtual one-party system ensures that politics stays out of commercial transactions, kenya’s vibrant, and at times violent, multipartyism means that business can be politicized.

although tullow oil and africa oil corporation have found themselves in favorable geological terrain, they could be sitting on questionable legal and political terrain, particularly if they decide to sell their blocks in the run-up to election season. the uganda oil rush has triggered a licensing rush in kenya’s tertiary rift basin, and the operators of 10bb were early to the game. a local subsidiary of canadian turkana energy stealthily emerged to sign a production sharing agreement before lundin, a current partner with the aforementioned two companies. two well-connected kenyans—amyn lakhani and wetangula—were the leading kenyan partners with turkana. turkana’s board agreed to a share-swap bid from africa oil in 2009, and eventually tullow purchased 50% of africa’s oil stake for about $34 million.

wetangula was appointed by president mwai kibaki, and has not been an anti-corruption crusader. an odinga victory looks increasingly likely in 2013, despite kibaki, kenyatta, and ruto attempts to reshape the “kkk” ethnic alliance that has for so long dominated contemporary kenyan politics in the wake of the icc indictments. an odinga win could see odm politicians target turkana and those companies who worked closely with them, if wetangula conspicuously contributes—in the same way that the ceos of ghana’s eo group, who contributed to the opposition npp during the 2008 elections, were targeted by the ruling ndc—to whomever becomes the pnu nominee for 2013.

wading in: presidential elections in senegal

if the number of youtube views from senegalese musicians could predict the outcome of the senegalese presidential elections, the 26 february contest would be a foregone conclusion. youssou n’dour—whose biggest hit “7 seconds” has 2 million + views (more than the number of senegalese who voted for wade in the 2007 campagin)—would easily beat abdoulaye wade, who has enlisted senegalese pop star demba dia to campaign on his behalf.

unfortunately, the surprise decision by the senegalese constitutional court on 27 january banning n’dour’s candidacy has, for many analysts, confirmed a wade victory. nevertheless, many have failed to explain the importance of the interim period between the constitutional court’s ruling and the actual presidential election, especially for holders of the ’21 eurbond. yields for the ’21 have been as high as 9.162%, and social unrest in the interim could send them quickly creeping up again, as investors sell off their holdings as they react to headline risk that is certain to emerge from the country over the next few weeks. markets seem to think that senegal’s eurobond “overstates” senegal’s credit risk, short-term electioneering weigh heavily on the country, which could ultimately affect the country’s ability to repay its debts in the medium-term. i think investors are slowly realizing the risk in senegal, as demand for the bond (see below yield history) has slowly declined since mid-january.

although it is common for spending to increase during election season across sub-saharan africa, as incumbent governments draw from government funds to finance their elections, senegal will face the dual pressure of keeping the lights on in the run-up to voting and after to maintain political stability. chronic power cuts across dakar and other urban areas framed the june 2011 riots, and wade is keen not to repeat that scenario. karim wade, who serves as energy minister, introduced the billion dollar plus plan takkal, or “let there be light” in wolof, scheme to create more power. this plan—whose namesake eponymously mirrors the wildly inflated ego of the wade administration—is an emergency attempt to correct the projected 256mw production deficit the country will face in 2013 and senelec’s mounting debt. in the past days, karim has desperately looked for more sources of finance to ensure 35 days worth of supply and an 80mw power surplus, instead of working with a 64mw deficit it is currently running, during this month’s voting. the cost for wade to remain in power is much higher than that of his peers in côte d’ivoire, as buying off senegalese urban voters with promises of infrastructure investment (power, roads, highways, etc.) is much more expensive than buying seeds, trees, fertilizers, and bags for cocoa and coffee farmers.

if the lights stay on for voting and the politically-important marabouts do not come out stronger against the president, wade will win ugly in late february. he remains strong in the face of a divided opposition because of many challengers’ big egos and historical baggage of serving in wade’s administration. on 1 december, benno siggil senegaal or “united to boost senegal” formed an electoral alliance to fight wade’s parti démocratique sénégalais. they nominated moustapha niasse to the anger of ousmane dieng, the leader of the parti socialiste which ruled senegal between 1960 and 2000. further, younger opposition figures, such as idrissa seck and macky sall were former prime ministers and close to wade. yet both sall and seck both fell out of favor with wade. sall confronted his karim wade over shading accounting for the organization of the islamic conference in 2008, while seck has been accused of embezzling $34 million dollars from the thiès road project.

wade has been extremely shrewd in projecting divisions among the opposition to the wider senegalese populace, particularly among the y’en a marre opposition movement that is made up of local rappers that broadly appeal to the youth population. much has been made of an n’dour victory because of his broad appeal, but this argument ignores the fact that many senegalese youth find the style of n’dour’s music—mbalax—as antiquated and are more connected to hip-hop. recognizing this social trend, the state security services (divisions des investigations criminelles) will probably move forward in arresting one of the leading rappers (fou malade) of y’en a marre for attacking another rapper (gaston), an action that will surely expose weaknesses among the group that many think could significantly affect political change. these high-profile, politically-charged arrests will likely continue, as wade strategically sees the benefit in muzzling opposition figures that have the possibility of uniting the dissonant opposition voices.