Minister’s firm sold Turkana oil block for Sh800m

A company associated with a Cabinet minister sold the block, where oil was found in Turkana, for a fortune.

In 2010, Turkana Drilling Company, associated with the Cabinet minister who was affected in Monday’s reshuffle, sold Block 10BB for $10 million (Sh840 million) to Africa Oil.

Turkana Drilling’s case is just an example of how small firms might be using influence in government to make hundreds of millions of shillings by trading in oil prospecting licences.

The whole business of acquiring blocks has been invaded by influence peddlers and well-connected middlemen, including Cabinet ministers. 

More sensational is the manner in which licence holders have been making millions of shillings selling the licences to third parties.

The way the game is played is all too familiar: as a well-connected speculator, the first thing you will do is make sure that the obligations in the licence are as minimal as possible and that the terms will not require you to spend too much money.

With the licence in your hands, you make sure that you are in a position to influence government officials to vary the terms as many times as possible as you wait for the opportunity to “flip”, that is sell, the licence at a handsome profit.

Big money has been made selling these licences and trading rights to third parties. A Canadian company made Sh5 billion in this way.

The Toronto Exchange-listed Centric Corporation of Canada was given a licence for Block 10BA, adjacent to Ngamia 1, where Tullow has struck oil, in January 2010 and paid the government $615,000 (Sh52 million) mainly in training fees and signing bonuses.

Centric had outmanoeuvred bigger names, including Tullow — who had expressed interest in the same block.

With a solid track record, having made discoveries in neighbouring Uganda, Tullow was forced to lobby the Office of the Prime Minister, lamenting that it had applied for the block long before the Canadian company.

In February 2011, just over one year after acquiring Block 10BA, Centric Corporation sold its shares to another Toronto Stock Exchange company, Africa Oil Corporation, for a cool $60 million (Sh5 billion).

Block 10BA, which was the only major asset in Centric’s books, had effectively been transferred to a third party, allowing the Canadian shareholders to make profits on a prime national asset without having done any work.

Two years ago, Platform Resources, another Toronto Stock Exchange listed company, controlled by Canadian Michael Lee, sold two licences in circumstances not too dissimilar to the case of Centric and Africa Oil.

Platform Resources enjoyed the patronage of a local consultant with friends in high places.

The company owned the licences for Block 12A and 13T in the Lake Turkana basin, having signed production sharing agreements in September 2008.

Three years later, and despite having done no substantial work, the company and its local sponsors applied to the Ministry of Energy to allow them to sell the blocks to Africa Oil.

Initially, the ministry rejected the application on the grounds that Platform had not provided the bank guarantees to secure the negotiated work programme for the initial exploration period.