Kenya Aims for Bigger Stake from Exploration and Production

Kenya is looking to get a larger portion of the revenues from its natural resource exploration boom by asking for 25 percent of the country’s oil and gas revenues.

That was one of the many government policies that the energy minister of Kenya put in place last month to raise revenue from its resources of oil and gas, including new tax rules on capital gains, a better licensing process and bigger fees for oil and gas exploration.

International oil exploration and production companies give the National Oil Corporation of Kenya (NOCK), a company owned by the state, a share of 10 percent in the output of whatever commercial amounts of gas or oil are discovered. This means that the company also has a 10 percent contribution to the costs of production and obtains 10 percent of the revenues.

But, what the government currently seeks from companies for NOCK is an initial stake of 10 percent that would rise to 25 percent upon the start of production, said Kiraitu Murungi, Kenya’s energy minister.

Oil and gas expert Rajesh Shah of Pricewaterhouse Coopers said that it was not clear if the rule will push away potential oil and gas exploration and production companies, since the basis of the contracts are one-on-one deals between firms and the Kenyan energy ministry.

The boom of exploration in Kenya has been further ignited by discoveries of gas in Mozambique and Tanzania, and discoveries of oil in Uganda.

Africa Oil and Tullow Oil discovered oil on Block 10BB with the Ngamia-1 well in the month of March, and found more several months after.

Last October, the two companies also found oil in an onshore well called Twiga-1 on Block 13T, which is around 30 km from the western part of the Ngamia-1 well. The commercial usefulness of the two finds is still yet to be determined.

In September, Tullow and Pancontinental Oil & Gas of Australia made an announcement that Apache, the operator of their license consortium, had discovered gas in the shallow offshore area of the Mbawa-1 well.

According to experts, it may take five years to bring petroleum to market. However, the country is hoping to leverage its new energy-powerhouse status to obtain better terms from companies that want to perform oil and gas exploration and production activities in Kenya.

By: Chris Termeer