An oil rig worker at Ngamia-3, one of the oil wells drilled by Tullow
Oil and its partner Africa Oil in Turkana County. 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. PHOTO | FILE
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.
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