Kenya slaps oil explorers with capital rules

Saturday March 16 2013
Ngamia 1 px

An oil rig at Ngamia 1 in Turkana County, Kenya. Photo/FILE

Kenya has revised upwards the minimum amount of money oil exploration firms have to spend on work programmes in onshore and offshore areas.

To qualify for award of exploration rights, firms applying for new acreage from this month will be required to commit to spending $28.2 million in the initial two years onshore and $31.2 million offshore in the first three years.

A new term sheet by the Ministry of Energy details the minimum work and exploration obligations, the mechanism for firms to recover money spent on exploration if commercial oil discoveries are made and profit sharing with the government.

Energy Permanent Secretary Patrick Nyoike said production-sharing contracts (PSCs) will be signed with firms that agree to pay $1 million as one-off commitment fee for an exploration area. The commitment fee has been raised from $300,000 and explorers must have a balance sheet of $100 million.

The changes are the latest in a string of regulations Kenya has been rolling out in the past two months as it seeks a bigger slice of the profits from a boom in the oil, gas and minerals exploration business.

Other changes include more royalties, increased taxes and revoking of mining and exploration licences of companies that do not keep to their exploration schedules.


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On March 3, Kenya said any transfer of assets involving both exploratory and marketing oil companies will be subject to the new withholding tax.

The new law imposes a withholding tax of 10 per cent of gross value of property or shares transacted where the seller is a resident taxpayer and 20 per cent where the seller is a non-resident.

Kenya has become a hot spot for exploration due to gas and oil discoveries by Apache Corporation in Mbawa offshore in Lamu basin and Tullow in Turkana county respectively.

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However, on March 1, Tullow said it had suspended exploration of its third well in Marsabit County after failing to find oil some 4,255 metres below the surface. The British oil explorer has announced that drilling on Paipai-1 within block 10A has been temporary closed as further evaluation options are carried out to determine its suitability.

Firms awarded new exploration areas onshore will spend a minimum of $350,000 on field studies as well as $850,000 to reprocess and interpret existing two dimensional (2D) seismic data on potential oil deposits.

Mr Nyoike said $15 million is capital expenditure to acquire new 2D seismic data of 1,500 kilometres and $8 million has to be spent on 400 square kilometres of 3D data to enhance precision to locate sites to drill for oil.

“Work obligations will be strictly enforced. There will be penalties for non-compliance and acreage can even be repossessed. Offshore, $350,000 is minimum expenditure on field studies of an offshore area,” he said.

Firms will be required to spend $850,000 to reprocess existing 2D data of an offshore area. $7.5 million is expenditure to 3,000 kilometres of new 2D and $8 million on 1,500 square kilometres of 3D data.