Kenya set to auction five oil, gas blocks as new rules take effect

Saturday January 05 2013
oil kenya

Exploration sites up for grabs in Lamu Basin and northwestern region are set to trigger excitement among big names as government seeks the highest bidder to exploit resources. Photo/FILE/TEA Graphic

This year starts off with good news for oil explorers: Kenya will in the next two weeks gazette five new crude oil and gas exploration areas to be offered to prospecting firms through competitive bidding.

The blocks fell vacant following the announcement late last year of new rules requiring exploration firms to cede 25 per cent of their licensed acreage if they failed to work on the sites in the stipulated time.

READ: Oil majors in jitters as Kenya brings in tough new rules

Energy Permanent Secretary Patrick Nyoike said the Ministry of Energy will in the coming weeks publish the new three offshore and two onshore acreages in the Kenya Gazette upon completion of the demarcation of exploration areas surrendered by two licensed companies — Anadarko and Tullow.

Anadarko Petroleum Corporation gave up offshore areas L5 and L7 in Lamu basin while Tullow Oil Plc surrendered area 10BB and 13T in northwestern Kenya. The demarcation is being undertaken by the Survey Department.

The five new blocks will increase Kenya’s exploration areas to 51 from the current 46 and the auction is expected to trigger a fresh jostle among oil exploration majors keen to tap into Kenya’s oil and gas business, which has in the past year attracted huge interest among explorers following two finds. Of the 46, only one is yet to be leased out after negotiations for a production sharing contract between Kenya and Statoil of Norway failed in December.


With the Ministry of Energy’s one off fee of $1 million per exploration area, Kenya will pocket at least Ksh425 million ($5 million) from the sale of the five blocks.

According to Mwendia Nyaga, the lead consultant of Oil & Energy Services, the amount would be “in addition to other charges. But in open bidding the amount could be less or more.”

It will be the first time Kenya will be allocating oil and gas blocks through an auction, one of the changes introduced in the new rules requiring that acreage is awarded to the highest bidder who offers the best terms to the government and agrees to pay requisite fees.

The auction will be publicly done, replacing the current system where exploration rights are issued on first come first serve basis.

The regulations, being rolled out this year, sharply increase licensing fees and introduce tough penalties on exploration schedules.

Other changes include more royalties, increased taxes and revoking of mining and exploration licences of companies that do not keep to their exploration schedule, as the country sought a bigger slice of the profits from a boom in the oil, gas and minerals exploration business.

According to Nyoike, “Firms are expected to retain portions of acreage deemed most valuable to them and surrender 25 per cent of original contract area at or before end of the initial exploration period of three years.”

Licensed firms must also surrender obligations of 25 per cent of remaining contract area at or before the end of first additional exploration period of two years under PSCs signed with the Kenyan government.

Mr Nyoike said the five new areas will be offered to prospecting firms in first half of 2013 through competitive licensing bid round for acreage to be awarded to highest bidder who offers the best terms to the government.

“We have taken for gazettement term sheet for licensing rounds. To qualify for award of acreage, firms will be required to have balance sheet of $100 million and agree to pay requisite fees for PSC to be signed,” he said.

International interest

By introducing competitive bidding, Kenya will join countries like Tanzania. Uganda plans competitive bidding too.

International interest in new three offshore exploration acreage expected to be code named L29, L30 and L31 with onshore zone slated be called area 15 and 16 respectively is bound to be high as firms seek to enter Kenya.

Kenya ushered in 2013 with two oil and gas wells expected to be sunk beginning last week in Lamu in a fresh round of drilling activity which is projected to significantly increase in the next 12 months.

READ: Prospectors to sink two oil and gas wells in 2013

Anadarko Petroleum Corporation had indicated it would from January 3, 2013 sink two oil and gas (hydrocarbons) offshore wells in Lamu, on the Coast of Kenya.

Kenya expects drilling of eight more wells later in the year as BG Group, Afren Plc, Ophir Energy, Africa Oil Corporation and Vanoil Energy among other firms intensify search for hydrocarbons in what oil and gas experts said could greatly transform global energy flows.

Analysts, led by Australian consulting firm Hartleys, project that drilling activity will rise in offshore Kenya with up to 10 wells expected in 2013.

Firms are expected to increase investment as competition in Kenya, Uganda, Tanzania and Mozambique for acreage tightens on the back of discoveries.

In March British explorer Tullow Oil and Africa Oil found oil in the Ngamia-1 well on Block 10BB and encountered more a few months later, but its commercial viability has yet to be ascertained.

In September, Tullow Oil and Australia’s Pancontinental Oil & Gas announced their licence consortium’s operator Apache Corp had found gas in the shallow target offshore well Mbawa-1.

As Kenya transforms into a hotspot for oil, gas and mineral exploration, the country has in the past three years attracted multimillion dollars in foreign investments as the government toiled with regulations to ensure the country earns more from oil, gas and mining.