State puts ‘idle’ oil explorers on notice
The Government has put oil exploration firms licensed to operate in the country on notice for failing to meet their contractual terms. The State has also threatened to kick them out and repossess their licences.
Licensed firms are required to undertake minimum investments in the exploration works as well as community projects.
The level of investments is stipulated in the Production Sharing Contracts (PSCs) that they sign with the State.
Several firms have, however, failed to meet the conditions set out in the agreements, some of them being in outright violation of their licence terms.
The Ministry of Mining and Petroleum said it planned to penalise them.
About 19 companies have been licensed to explore oil and gas across 35 blocks in the country – which is 56 per cent of the available 63 blocks.
Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens. Text the word ‘NEWS’ to 22840
Out of these, only a handful have reported consistent work on their areas.
A few have reported difficulties in their work, including being unable to access their areas of exploration, which the Ministry of Petroleum and Mining says are acceptable but are being probed further.
A number of them are, however, silent on their progress, which could be taken to mean that they have not been undertaking any works.
Where to invest in Sh5.8b Kakuma camp economy
The ministry has warned the non-performers that it will re-acquire the blocks with the intention of licensing other firms that would make good use of them.
Among those that the ministry said are on the verge of losing their licences include the financially troubled American firm Erin which in April this year filed for bankruptcy.
Petroleum Principal Secretary Andrew Kamau said the ministry had already written to companies that have not been meeting their end of the bargain, warning them that the Government was likely to take away their licences.
Other than Erin, the PS declined to name the other non-performers but noted that the ministry has been closely monitoring all exploration firms in the country.
“Not everyone has met their work obligations. We have written to those who have not been working and put them on notice. When the time comes for renewal and they have not moved, of course, we will not renew,” he said in an interview.
He did not, however, say the exact number of firms that are under scrutiny, only saying “we have written to a few of them.”
Despite the few firms reporting any works on their fields, Kamau said the ministry is contented with the work undertaken considering that the level of investments in oil exploration globally has been low.
“Given the low oil prices, we are happy with the progress,” he said.
Kenya in 2016 put a freeze on the issuance of new licences to exploration companies.
One of the reasons cited was the low level of investments in the upstream sector, following the collapse of oil prices that saw a barrel of dip to a low of $28 (Sh2,800) in January 2016.
It has since gone up to $77 per barrel by last week, the highest since November 2015.
The ministry is yet to resume the issuance of licences.
PS Kamau said that while oil prices have over the last year been recovering, the country is not in rush and would start issuing licences to companies new to Kenya as well as existing ones that have expressed interest in exploring at an opportune time.
The blocks up for grabs will include those that will be reposed from idle exploration firms.
“There are exploration firms that have expressed interest to work on the Kenyan blocks that have promise for oil,” said PS Kamau
This is especially following the rise in the price of crude oil over the last year.
People constantly call and have written to us enquiring about the blocks that they think have been given up,” he said.
Following the degree of success that Tullow Oil has experienced in Turkana as well as the potential that regions like Lamu have after initial surveys, Kamau said global oil majors have shown more interest in the country.
He, however, said the ministry would shop for the best firms and deals for the country as it goes in its next of issuing exploration licences.
“We are always looking for serious companies, not anybody but serious people. With the new high price regime and if it is sustained, we will see what happens. When prices are low, you do not get serious companies but then there is no rush,” he said.
While the ministry has suspended the licensing of new operators largely to ward off speculators, the country has in the past attracted speculative companies that lacked capacity – only waiting for their assets to appreciate and sell off to more financially stable companies.
The State has in the past had issues with such firms, with the one that stood out being Canada’s Vanoil Energy whose licences for Block 3A and 3B were revoked in 2013 for failure to meet minimum work obligations.
The firm has, however, instituted legal proceedings against Kenya at the International Centre for Settlement of Investment Disputes where it is trying to recover “not less than $150 million (Sh15 billion) as full and proper restitution for its seven years of exploration and development”.
Vanoil had cited insecurity and disturbance by the local community as among the factors that prevented it from drilling its Modogashe I exploration well in Garissa.
Lupita in Kenya on investment mission
Other firms that have been unable to undertake work on their exploration areas have cited similar challenges.
Separately in their annual reports for 2017, Australian oil firms Pancontinental and Far Ltd said they were unable to undertake work on their block L6 due to inability to access it.
“Due to uncertainties over the security of field operations in this area, activity has been suspended… in conjunction with joint venture partner and operator of the offshore area, FAR Ltd, future activities for Block L6 are in review,” said Pancontinental in its latest report to shareholders.
Far Ltd, which operates a block in Lamu, said it did not undertake any technical work during the year to December 2017 due to land access issues.
“Once these access issues are rectified, FAR is planning to proceed with the 2D onshore seismic survey,” said the company.
“In the interim, the Ministry of Petroleum and Energy has consented to a temporary suspension of the permit work commitments.”