State to appear before UN panel over withdrawal of Vanoil licence

The government is preparing its defence before appearing at the United Nations Commission on International Trade and Law in a case in which Canada’s Vanoil Energy is seeking arbitration.

Energy principal secretary Joseph Njoroge said the Canadian firm has written to the ministry expressing its interest in having the row between the two parties resolved by the UN agency.

Vanoil Energy is dissatisfied with the action by the Cabinet Secretary for Energy and Petroleum, Mr Davis Chirchir, of revoking its licences for blocks 3A and 3B located in Garissa in February.

This was after the firm failed to carry out work as specified in the production sharing contract it signed with the government in 2007.

“These are expectations and they are allowed for in the production sharing contract. They have written about their intention of going for arbitration and we have already started preparing our response,” Mr Njoroge said.

He was speaking on the sidelines of a consultative workshop of the World Bank-supported Kenya Petroleum Technical Assistance at Utalii Hotel, Nairobi, on Friday.

He defended the cancellation of Vanoil’s licence, saying the ministry was keen on expediting oil and gas exploration.

PLAY HARD-BALL

“It is important that these resources are exploited as soon as possible. We must play hard ball. We do not want to have people who just delay on these blocks and deny a chance to interested firms which would carry out the work,” said Mr Njoroge.

Vanoil Energy announced its intention to seek a formal demand for UN arbitration on the matter early this month after Africa Oil Corporation announced discovery of natural gas deposits at Sala-1 well in Anza basin, where blocks 3A and 3B are located.

Vanoil said in their update that they believed the value of the blocks had increased following the discovery of natural gas in the area.

“Following the discovery of hydrocarbons with oil in Sala-1 well, announced by Africa Oil Corp, Vanoil believes the economic value of blocks 3A and 3B may have increased.

“While we would have preferred to proceed with the two well programme approved by the Ministry of Energy, we are looking forward to pursuing all legal remedies,” said Vanoil’s chairman James Passin in a statement.

INCREASED VALUE

In the arbitration, the Canadian firm will be seeking to recover its investment costs in the two blocks.

Local exploration blocks have generated increased interest from exploration companies following the first oil discovery at Block 10BB in March 2012.

This has prompted the government to embark on revision of current petroleum exploration laws and enlist the help of the World Bank and the International Monetary Fund to develop contract terms for companies exploring for natural gas in a bid to secure maximum revenue once production starts.

Delay in enactment of the revised law has, however, derailed fresh issuance of licences for blocks that have been surrendered by some exploration firms, despite pressure piling on the government to carry out the allocation.

Kenya is expected to start producing oil by 2018, according to reports by the Ministry of Energy and Petroleum.

Since the first oil discovery, 16 exploration wells have been drilled, of which eight located in blocks 10BB and 13T were found to contain crude oil deposits. 

Two wells are for natural gas and one, located in block 10A of Lamu Basin and operated by BG Group, has both crude oil and natural gas deposits, according to the Energy Ministry.