Kenya Developing New Oil & Gas Regulation

A senior official from the Kenyan energy ministry announced on 17 September 2013 that the government would be releasing seven oil blocks totalling 30,000 square metres in Marsabit, Lamu, and Turkana exploration basins.The blocks were surrendered due to production sharing contract (PSCs) regulations that require exploration firms to cede 25% of their licensed acreage to the government if they lay dormant for two years (onshore) or three years (offshore). 

Unlike previous licensing arrangements, which were agreed on a first-come, first-serve basis, energy ministry officials have repeatedly stated that new blocks will be assigned following public bidding rounds. However, the bidding round is unlikely to be held until the current review of the energy legislation is completed.

Cabinet Secretary for Energy and Petroleum Davis Chirchir has stated the new draft bill, which is intended to update the 1984 Petroleum (Exploration and Production) Act, will be sent to parliament in November and will bring the sector in line with the 2010 constitution, particularly as related to the devolution process. However, the passage of the bill is likely to be delayed until early 2014 by the ongoing trials of President Uhuru Kenyatta and Deputy President William Ruto at the International Criminal Court (ICC).

New oil and gas legislation is likely to include a number of profit-maximising measures including new taxes, a minimum state stake in projects and local content provision laws. Under the current legislation, the NOCK receives a 10% share in production once commercial quantities of oil or gas are found. However, in October 2012, the then-energy minister, Kiraitu Murungi, stated that this would be amended to a 10% initial stake, which increases to 25% once production begins.

In January 2013, then-Commissioner for Petroleum Energy Martin Mwaisakenyi Heya stated that once production had begun, oil companies would be entitled to recover 60% in ‘cost oil'. The 'profit oil' would then be split between the oil companies and the government on a sliding scale, with the government claiming 50% of up to 30,000 barrels per day (40,000 b/d offshore) and 78% of 100,000 b/d or above (120,000 b/d offshore).

If companies fail to find oil within a two-year (onshore) or three-year (offshore) period, they are required to return 25% of acreage to the government. Although many of these proposals were drafted under the previous administration, the current energy secretary is unlikely to deviate from them.

In July 2013, the government, supported by the World Bank, commissioned consultants Hunton and Williams and Challenge Energy to review the draft legislation. The government has already committed to a number of the consultant's suggestions, including the use of competitive public bidding rounds. The consultants also recommended the introduction of a capital gains tax, which the government is likely to adopt given their desire to maximise revenue from the oil sector in order to balance the current account.

Significance 

Since it is unlikely that a clear regulatory framework will be in place in the six-month outlook, existing investors will become increasingly dependent on political influencers, or industry gatekeepers. These are well-connected business stakeholders or policy-makers that wield considerable influence over energy sector licensing, regulations, and policy. Gatekeepers are likely to be members of the National Fossil Fuel Advisory Committee (NFFAC), as well as senators of the oil-producing regions.

Following the implementation of the new energy bill, the government has committed to review the terms for the natural gas sector, which are omitted from the current regulations. Due to the lack of legislation, energy ministry officials have stated that energy companies have avoided drilling in areas with the potential for natural gas as their contracts were solely focused on crude oil exploration.

Tullow makes another oil discovery - Ekales-1 Oil Discovery in Kenya

Tullow Oil plc has announce that the Ekales-1 well, located in Block 13T in Northern Kenya, has made a new oil discovery. Results of drilling, wireline logs and samples of reservoir fluid indicate a potential net oil pay in the Auwerwer and Upper Lokone sandstone reservoirs of between 60 and 100 metres. Future flow testing will be carried out to confirm productivity from these zones
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Ekales-1 is located in between Ngamia-1 and Twiga South-1 --where oil was also discovered-- and the oil explorer says that “reservoir properties at this location appear similar to those previously encountered.”

Tullow also disclosed that it had started drilling at the Agete-1 well mid this month and it expected the third rig to be operation in fourth quarter of 2013.

“This success at the Ekales-1 wildcat is further evidence of the exceptional oil potential of our East African Rift Basin acreage,” said Angus McCoss, the exploration director at Tullow Oil.

“Having opened the first basin with the Ngamia-1 well last year, we are now increasing the pace of exploration in Kenya aiming for 12 wells over the next 12 months.”

The firm said it would undertake further testing of the area to ascertain productivity.

Tullow, in July, also found 40 metres of oil reserves in Etuko-1 which are estimated to have combined resource of 300 million barrels (mmbo).

Tests on Twiga-1 and Ngamia-1 have confirmed the two wells alone have a potential of 250 mmbo, Tullow said.

The discovery comes a few weeks after Africa Oil, Tullow’s prospecting partner, raised fivefold the estimated deposits in the Lokichar basin to 368 million barrels of oil.

“Based on the drilling and testing programme over the past year we have confirmed the South Lokichar Basin contains gross contingent resources of 368 million barrels of oil, an increase of 557 per cent,” said Africa Oil chief executive Keith Hill, earlier this month.

Tanzania to cash in on gas bonanza

Tanzania has closed a deal with Malaysian company Huchems Fine Chemical Corporation to invest US$800million dollars to build east Africa’s first ammonia-based chemical manufacturing plant. The plant will be located in Tanzania and will use country’s abundant natural gas resources. The parties expect to conclude a final agreement before the end of 2013.

The planned chemical plant represents an important development in the African energy and petrochemical sectors, tapping local energy supplies for domestic industrial production rather than export, creating locally produced, value- added chemical products that are critical to other sectors of the domestic economy, such as fertilizer for agriculture. The project is expected to create hundreds of stable manufacturing jobs, while increasing the availability and lowering the cost of key chemical products.

Tanzanian exploration to go ahead

Tanzania’s fourth round of allocating oil and gas exploration to private companies will go ahead as planned next October despite strong opposition from the local private sector and politicians, says the Tanzanian Daily News.

Minister for energy and minerals Professor Sospeter Muhongo told Daily Newsthat those opposing the allocation on grounds that the country has no legal framework to regulate the sector wanted to confuse the public.

“Nothing has changed, the exploration blocks allocation schedule remains the same,” said Muhongo. He argued that the country has a 1960s law which established Tanzania Petroleum Development Corporation and a 1980 Petroleum Act that governs such oil and gas investments.

“We are improving the laws so that they can meet modern day demand. We cannot suspend the block allocation exercise because we are competing with others like Mozambique,” said the geologist turned politician who suspended the exercise last year soon after his appointment following opposition from lawmakers.

Mozambique has established it has almost 200 trillion cubic feet of natural gas reserves while Tanzania has so far managed 43 million cubic feet. “We have to continue allocating these blocks for exploration so that we can know our full potential,” the minister argued.

Turkana oil five times initial estimate

According to Africa Oil, the Canadian company prospecting for petroleum in northern Kenya, has raised the estimated deposits in the Lokichar basin to five times higher, affirming a recent report by British exploration firm Tullow Oil. Africa Oil's statement said Northern Kenya has commercially viable oil and gas reserves. Africa Oil is a joint exploration partner with Tullow Oil in some of the northern Kenya wells with fuel deposits.

“Based on the drilling and testing programme over the past year we have confirmed the South Lokichar Basin contains gross contingent resources of 368 million barrels of oil, an increase of 557%,” said Africa Oil chief executive Keith Hill.

The company has rights to exploration blocks in both Kenya and Ethiopia. It said Ethiopia has a potential to produce 155 million barrels. The explorer estimated that the gross prospective resources or the best case scenario of how much oil the basin carries is 20,1-billion barrels.

Tullow comes up Empty Offshore Mozambique

Tullow Oil says the Buzio-1 exploration well in Area 2 offshore Mozambique has not encountered hydrocarbons and, following the completion of logging operations, has been plugged and abandoned.

The Buzio-1 well is the second deep water exploration well drilled in Area 2 and targeted stratigraphic traps in channel systems of Tertiary and Upper Cretaceous ages. Good-quality water-bearing reservoir sandstones were found in both targets. The Discoverer Americas dynamically positioned drill ship drilled Buzio-1 to a final depth of 3,333 metres (m) in water depths of 1,534 m.

Tullow has a 25% interest in Areas 2 and 5 in the Romuva Basin, offshore Mozambique. Statoil 40% are the operator while Inpex have a 25% non-operated interest. Empresa Nacional de Hidrocarbonetos has a 10% carried interest.

Angus McCoss, exploration director at Tullow Oil plc, commented: “Having encountered hydrocarbons with the Cachalote-1 well, we have acquired valuable information from the Buzio-1 dry hole. We will now combine the data from both offshore Mozambique wells with our extensive seismic in this licence area and determine our next steps”.

Kenya Sets Framework to Manage New Petroleum Wealth

• Country-owned framework involves local communities in managing petroleum wealth
• New oil find in northern Kenya’s Turkana County could reduce poverty for over 900,000
• Transparent revenue-sharing, skills programs for youth essential to sustainable development

Kenya is abuzz with talk of boosted economic prospects following recent oil and natural gas discoveries. The million dollar question—how to avoid the oil curse that has crippled many natural resource-rich countries?

The country’s government, with the support of the World Bank, is reviewing petroleum sector laws and engaging stakeholders at national and local levels discussing, among others, how to share revenues between the central government and resource-rich county authorities.

Kenya’s Ministry of Energy and Petroleum convened a high level stakeholders’ workshop to discuss a review of the legal, regulatory and fiscal framework of Kenya’s oil and gas sector development. Its goal was to align recent developments in Kenya’s petroleum sector with global best practices.

“We will put together an all-inclusive framework owned by Kenyans and endorsed by parliament to ensure that contracting is done properly and that the local communities are fully on board,” said Davis Chirchir, Kenya’s Cabinet Secretary in the Ministry of Energy and Petroleum.

A final report presented to a stakeholders’ workshop in Nairobi on July 11, 2013, gave participants an opportunity to make critical inputs on the management of the institutions and structures of the future oil and gas business.

Technical support from the World Bank is supporting Kenya as it seeks to develop the right governance and accountability systems to manage its future wealth and avoid the curse that has befallen some oil and gas producers in Africa, and elsewhere.

“The potentially substantial revenues from the oil and gas sector will come with significant challenges, that require careful management,” says Diarietou Gaye, World Bank Country Director for Kenya. “Kenya has a window of opportunity of a few years to take the right steps that will determine the shape of the oil and gas sector for decades to come.”

The Bank is working with the government to develop the country’s petroleum resources to support growth in public and private sectors, while proactively forestalling adverse macro-economic, social and environmental impacts. An effort is under way to channel anticipated resources to support growth in domestic businesses, increase employment across the country, develop infrastructure to support expanded economic activities, and expand access to training/education opportunities.

The consultative process is geared to avoid potential conflicts by creating awareness among local communities, who are demanding greater transparency in contracting arrangements between the government and oil prospectors.

The largest oil find is in Turkana County in semi-arid Northern Kenya. Here, Britain’s Tullow Oil has discovered significant oil reserves, prompting the company to raise its resource estimate for Kenya by 20%, to over 300 million barrels of oil equivalent. This find has transformative potential to reduce poverty, and expand health and education services in Turkana, currently among the country’s poorest counties. To realize this potential, however, mechanisms are needed to channel resource revenues for projects that fight poverty and improve people's lives.
Turkana Governor Josphat Nanok seeks a transparent framework for monitoring oil exploration and production costs, and a clearly defined arrangement of sharing benefits between the authorities and the communities. “I want our people to be well advised on the costs and benefits of oil business,” Nanok said.

With Turkana’s majority being nomadic pastoralists and peasant farmers, county leaders are championing land issues, culture and values of the local communities. “We want a transparent revenue sharing mechanism and a defined corporate social responsibility program which will ensure transfer of technical skills to our youth,” said Benjamin Cheboi, Governor of the Baringo County.

Local and international NGOs are active on the ground, advising local communities on how to negotiate the best deals when the revenue starts flowing, and lobbying for respect of human rights of the local communities and for the environment.

A critical issue is whether the local counties will have the capacity to manage their share of the oil and gas revenue.

“Depending on how much oil will be discovered, even a small percentage of revenue transfer to the local counties could be quite significant,” says Alexander Huurdeman, the Bank’s Senior Expert on Oil, Gas and Mining. “That’s why it is crucial to support the government on effective policy making and capacity building of local authorities and communities.”

For a country that has been prospecting for oil since 1937 without a discovery until last year, excitement is high with hopes that an oil boom could propel Kenya through the middle-income threshold much earlier than its Vision 2030 anticipated.

Source: World Bank

East Africa Oil and Gas Summit II Press Launch in Nairobi

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Ministry of Energy and Petroleum, Kenya sets out plans to be a good example of hydrocarbons management in Kenya

The East Africa Oil and Gas Summit (EAOGS) 2013 Press Launch took place on August 29^th 2013 at the Sankara Hotel to promote the EAOGS Summit which takes place on 29-30 October at the Intercontinental Nairobi.  

The EAOGS Press Launch featured presentations from the guest speaker Eng. Joseph Njoroge, Principal Secretary, Ministry of Energy and Petroleum, Dr Mukhisa Kituyi, General Secretary UNCTAD and Former Chairman, Global Event Partners (K) Ltd, Elly Karuhanga, Chairman, Ugandan Chamber of Mines and Petroleum and Danny Grogan, Managing Director of the organisers Global Event Partners (K) Ltd.

The Principal Secretary spoke about the necessity to build up Kenya’s infrastructure to ensure the successful development of the hydrocarbon industry for the benefit of all parties: ‘’We want to be a good example of the hydrocarbons in Kenya. I do know that one of the most important success factor of this industry is setting up of the infrastructure so that by the time you are extractive industry reaches its maturity stage, the infrastructure should be in place to avoid wastage and to avoid pilferage, to ensure the industry itself brings in the benefits to the investor, to the country and to the local community. ‘’ said the Principal Secretary.

He also spoke of his commitment to the EAOGS programme and the importance of knowledge transfer so Kenya is ready to develop the hydrocarbon sector: ‘’I have been assured by the team from Global Event Partners that this Summit is one of a difference. Global Event Partners are ready to engage the stakeholders including our Ministry so that they can identify the gaps in awareness and focus more in their summit in filling those gaps. ‘’

Dr Mukhisa Kituyi, General Secretary UNCTAD and Former Chairman, Global Event Partners (K) Ltd spoke about his excitement at the latest developments in the sector: ‘‘I’m particularly happy to notice the new found attention that’s been given to shared experiences and shared thinking  among the leaders of East Africa on the way forward for the Petroleum Industry,’’ he continued: ‘’It’s very important for us that the intelligencia starts appreciating the importance of priming up the hydrocarbons sector as a driver of wealth creation and regional integration.’’ Dr Kituyi also gave his farewell speech as the Chairman of Global Event Partners (K) Ltd as he leaves to take up his position as the General Secretary of the United Nations Conference on Trade and Development (UNCTAD) becoming Kenya’s highest ranking diplomat.

Elly Karuhanga, Chairman, Ugandan Chamber of Mines and Minerals spoke of the huge potential East Africa has for the development of its resources: ‘‘East Africa has reigned in a new dawn; a completely new phenomenon of resource exploration and findings. We are now sitting here right from Mozambique to Tanzania to Kenya to Rwanda to Burundi to Uganda to Southern Sudan to Djibouti to Ethiopia and Somalia as a new province, a great, great province of the world’s resources and we are probably number 1 and therefore we are the focus of world attention’’ said Mr Karuhanga.

Danny Grogan, Managing Director of the organisers Global Event Partners (K) Ltd thanked the EAOGS Platinum Sponsors Afren and Ernst and Young and spoke of his gratitude of the many eaogs partners and supporters which have contributed to much to the its success: ‘’With the continued support and guidance from the Ministry of Energy and Petroleum and the National Oil Company Kenya as well as many domestic and international players; the East Africa Oil and Gas Summit has gathered increasing momentum and we are delighted that EAOGS now has a world-class panel of speakers confirmed providing a value-adding programme that will address the key issues.’’ And Grogan concluded:  ‘’EAOGS looks set to break new ground and attract 500 domestic and international participants to the event this October.’’

EAOGS is the event of choice of both sponsors and supporting organisations. Afren and Ernst and Young have signed up as Platinum Sponsors, Africa Oil, ABS and Barclays as Gold Sponsors, Aggreko, Simba Energy, SMTS, DAC Aviation and Tenaris as Bronze Sponsors and Afex Group as Associate Sponsor. EAOGS is also supported by leading industry and government associations including The Eastern Africa Chambers of Commerce, UKTI, Delegation of German Industry and Commerce in Kenya, Kenya National Chamber of Commerce & Industry Mombasa County, Business Council for Africa, Danish Trade Council and the US Commercial Service.

The latest programme and speakers list and transcripts of the EAOGS press launch presentations can be found at www.eaogs.com under the Media Centre

Press contact

Rosie Topp, Global Event Partners Ltdrtopp@gep-events.com UK Direct line: +44 20 3488 1193 UK Mobile: +44 7581 130130 ---------------------------------------------------------------

Organisers:

EAOGS is organised by Global Event Partners (K) Ltd, a specialist international event organiser in the oil and gas, infrastructure and financial sectors. Our team at Global Event Partners has more than 40 years’ experience in organising leading industry conferences and exhibitions around the world.

Global Event Partners is affiliated to the dmg::events network. dmg::events are the organisers of world renowned oil and gas events including Gastech, ADIPEC, the Global Petroleum Show and the  World Heavy Oil Congress and are a subsidiary of the Daily Mail and General Trust plc, one of the largest media companies in the UK. www.gep-events.com

Find below links related to the launch:

1.       EAOGS 2013 Press Launch Short Video Clip- 3 minutes

2.       EAOGS 2013 Press Launch Photos

3.       Video presentation by Dr Mukhisa Kituyi, General Secretary UNCTAD and former Chairman of Global Event Partners

4.       Video Presentation by  Eng. Joseph Njoroge, Principal Secretary, Ministry of Energy and Petroleum Kenya

All these documents and more and links are  on the website on the MEDIA CENTRE tab.