If we look at the pros and cons, I think the best course of action is to not offer him an extended deal.
Pro - If he does well, we can argue for some compensation from any club wanting to take him. It wouldn't be all that much, mind you, considering the type of club that's likely to be interested in someone like Kettlewell.
Con - If he doesn't do well, we have to sack him and pay him off, which means spending money we likely don't really have to spare.
For me, I'd rather we run the risk of losing him if he does well. I'd rather be sitting in a great position and have him leave for nothing than be in the shit and have to pay him off.