OBG talks to Aidan Heavey, CEO, Tullow Oil

 Interview: Aidan Heavey

To what extent are West African governments involved in exploration and production?

AIDAN HEAVEY: It goes through phases: if it is frontier exploration where no exploration activity has been done yet, it is unusual for the government to be involved, but it varies from country to country. The countries that have a long track record of trying to find oil and have built up a national oil company tend to look for small interests right at the beginning. In virgin territory where there have been no oil and gas discoveries, you generally only have a department of energy that does not get involved; they rely on a taxation and royalties framework. In a country with developed oil and gas industries you do see the set up of a national oil company, which usually participates in licenses as well as in building up in-country expertise and ensuring the participation of local investors. We are very supportive of having as many local and indigenous companies taking part in serving the supply chain; it helps to create transparency. It remains a high-risk and capital-intensive industry, and most governments do not have the financial capacity to get involved in the financial side and lack skilled labour. That is the reason why they rely on taxation, which is risk free for them.

To what extent might foreign companies turn to listings on local capital markets for funding?

HEAVEY: There is only a small amount of money available on local stock markets. The primary reason for firms like ours to enlist is to allow local investors as well as pension funds to actually participate in their industry, but it is not really a source of financing. The amount of money involved is vast so you need an investor community that really understands the risks involved. In Ghana, for example, we have 10,000 shareholders for a small amount of money, so it is more about supporting local stock exchanges and helping to create better stock markets. One of the key issues that oil companies should be focusing on is to create an investment climate and make sure there are as many business opportunities as possible, so oil does not dominate the whole economy. Supporting the local stock exchange is important as it backs other businesses and creates a more viable business community. When you have oil and gas generating huge amounts of revenue it will have a positive impact on the economy as a whole.

What are the greatest challenges in offshore exploration in West Africa?

HEAVEY: When talking about offshore you are looking at technical and equipment failure risks, and there have been a number of devastating examples of failure during the past few years. If you have a problem, it tends to be a big environmental problem. The more dangerous risks are the onshore risks though, because you are directly dealing with communities, making it more tangible. You might have big environmental impacts like offshore in the Gulf of Mexico every 10 years, but the smaller ones onshore are more challenging.

How much room is there for the participation of local firms in the production and value chain?

HEAVEY: One of the biggest benefits oil companies can bring to an economy is to encourage growth of the supply chain and local companies to get involved to help them to bring their standards up so we can actually use them. For safety reasons, you need all your contractors and suppliers to meet particular standards. If you are a contractor and you are subcontracting services to local companies, and you can train them and bring them up to a very high standard, it has a huge knock-on effect on the economy – both in terms of employment and bringing standards of all those companies up.

The oil industry, therefore, helps to support other sectors in the country. That is why we support mechanisms like Invest in Africa since many companies were facing the same issue: how to involve local companies in the supply chain. By grouping together major companies we were able to increase smaller companies’ standards, as well as help them to finance their operations.