Lack of law delays oil, gas exploration permits
An oil rig worker at Ngamia-3, one of the oil wells drilled by Tullow Oil and its partner Africa Oil in Turkana County. Tullow may consider selling part of its exploration interest in Kenya. PHOTO | FILE
What you need to know:
- The draft laws are meant to align regulation of activities in the energy sector to provisions of the constitution and revise the current laws that are more than 30 years old.
- The laws have been criticised by industry players for failing to effectively deal with emerging issues in the sector.
- The law has also been criticised for not defining a model for sharing revenue resulting from exploitation of gas and oil deposits between oil marketing companies, local communities and the two tiers of government that exist today.
New licences for oil and gas exploration have not been issued because of lack of a current law to govern operations in the upstream petroleum sector.
The delay in revision of the current laws has stalled issuance of new licences for close to three years now, even as local exploration blocks continue to attract increased interest from international oil and gas companies due to crude discoveries.
The Petroleum (Exploration & Production) Bill 2015 and the Energy Bill 2015 are yet to be presented to Cabinet before discussion in Parliament.
The draft laws are meant to align regulation of activities in the energy sector to provisions of the constitution and revise the current laws that are more than 30 years old.
The laws have been criticised by industry players for failing to effectively deal with emerging issues in the sector.
“A decision is to be made on which law will be relied upon in issuing the blocks. However, we expect the process of updating the current law that is currently underway to be concluded soon,” said Daniel Kiptoo, a petroleum legal advisor at the ministry of Energy said in a telephone interview.
PLANNED REVISION
Last year, Martin Heya, commissioner for petroleum at the Energy ministry told participants of an East Africa Upstream Summit, organised by the Petroleum Institute of East Africa, that the government planned to create eight new exploration blocks from those that had been surrendered by oil and gas companies already operating in the country.
This will add to the seven others that were carved out of existing blocks in 2013.
After the planned revision, the total number of blocks is expected to rise to 61. It is the third revision of the country’s blocks since independence.
“Some blocks have been released in full while others comprise just part of acreages currently held by licensed companies. There is need for a law that will guide the process of consolidating these blocks,” said Mr Kiptoo.
The total number of gazetted blocks currently stands at 46, up from 25 before the first revision was conducted in 2006. Of the current total gazetted blocks, 41 have already been licensed to 21 international oil and gas exploration firms.
The targeted blocks in the planned revision of exploration acreages would be constituted from block 10A that was given up by Tullow Oil Plc and blocks L15 and L8 surrendered by Dominion and Apache respectively, among others.
Last June, energy and petroleum cabinet secretary Davis Chirchir said the government was considering issuance of oil and gas exploration blocks under the current law to meet growing demand from international oil and gas companies as the enactment of a new law has delayed.
The current Petroleum (Exploration & Production) Act has been faulted for failing to provide a mechanism of drafting production sharing contracts for exploration of natural gas despite deposits of the resources having been discovered in the country alongside those of crude oil.
The law has also been criticised for not defining a model for sharing revenue resulting from exploitation of gas and oil deposits between oil marketing companies, local communities and the two tiers of government that exist today.
Experts, including the International Monetary Fund (IMF), also say that the revenue sharing formula provided for in the current law does not give the country a fair share of her revenues.
SHARING REVENUES
Consideration of a new revenue sharing model in the draft legislation comes out of recommendations made by a team of International Monetary Fund (IMF) experts that visited the country in 2013 to review existing petroleum exploration and mining contracts.
The IMF backs the R-factor revenue sharing model which will see government’s share of profits from sale of crude oil based on a ratio between the contractor’s cumulative net revenue and the total exploration and development costs.
The revenue sharing model, according to the IMF, ensures that when the price of crude is low, the contractor (oil exploration company) recovers its cost of investment at a lower rate thus securing government revenue.
The latter is planning to construct an $11 billion port at Bagamoyo to rival Mombasa port.
