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Kenya to step up crude oil exploration on 17 new blocks

BUSINESS
By Paul Wafula | May 14th 2016

The Government has created 17 new oil blocks from the unused land that was returned by oil prospecting companies  and raised the number of exploration blocks to 63.

An oil rig used in drilling of oil at Ngamia-1 well on Block 10BB, in the Lokichar basin, Turkana County. [PHOTO: FILE/STANDARD]

The Ministry of Energy yesterday gazetted the 63 oil blocks with their new coordinates and location in what annuls the previous blocks. “In exercise of the powers conferred by section 7(1) of the Petroleum (Exploration and Production) Act, 1986, the cabinet secretary for energy and petroleum has constituted 63 petroleum exploration blocks,” Energy Secretary Charles Keter said in the gazette notice.

Keter said in the notice that 37 of the blocks are located in the Lamu basin, seven in the Anza basin, five in the Mandera basin, and 14 in the Tertiary Rift Basin. The notice shows all the blocks defined by their longitudes and latitude, their sizes and block maps.

This means that the country now has 17 new oil blocks that it can issue to prospective firms as it steps up its oil exploration initiatives.

“We gazetted 46 oil blocks in 2012. But after the new production sharing contracts, we agreed with companies to relinquish between 20 to 25 per cent of their blocks. This gave us a lot of acreage that we used to create the new blocks,” Mr Martin Heya, the Commissioner for Petroleum Energy at the Ministry of Energy, said.

The Energy ministry said it expects to hold its first ever auction of petroleum exploration licences in 2017 and this development is expected to clear the way for the process. The country discovered 600 million barrels of crude oil in South Lokichar and it hopes to increase yields from the new blocks. In the past, “briefcase” companies have landed on exploration licences for speculation purposes and only to sell them to prospective explorers at exorbitant prices. 

“It is a long process that we did with the Survey of Kenya. We constituted all the blocks and the country now has 63 blocks as published in the gazette notice. This was necessary so that we annul the previous gazette notice that had only 46 blocks and have the current ones. We now have 17 blocks to license,” Mr Heya explained.

This comes days after Kenya started the process to build its own crude oil pipeline days after attempts to team up with Uganda failed. The country, which is now going it alone, is scouting for consultants to carry out an engineering design — Front End Engineering Design (FEED) — for the pipeline from Lokichar in Turkana to Lamu and another consultant to conduct an Environmental and Social Impact Assessment (ESIA).

Kenya is going alone after Uganda chose an alternative route through Tanzania in what will see its neighbours build a similar facility at Tanga port. Kenya’s case has been further complicated after South Sudan said it was contemplating an alternative route via Ethiopia to Djibouti instead of South Lokichar in northern Kenya through Isiolo to Lamu on the Indian Ocean.

Commercial production

The country has also moved to shield itself from having to pay taxes for oil companies ahead of the much-anticipated commercial production of oil. The new oil production-sharing model tips the scales in favour of the country and removes some of the clauses in the previous model that would have seen oil companies produce oil at a great advantage.

A report by civil organisation group Oxfam released last month projects that the 2015 Model Production Sharing Contract will see the country earn at least an extra Sh50 billion from the Turkana oil alone. “The 2015 terms would generate an additional $500 million (Sh50 billion) for the Government over the life cycle of the project,” the report read in part.

The report, Potential Petroleum Revenues for the Government of Kenya, authored by Don Hubert, looks at the implications of the proposed 2015 Model Production Sharing Contract (PSC). The new model will also see Kenya shift the burden of paying taxes to the oil companies instead of the previous model where the country was to pay the taxes on their behalf from its share of oil revenues.

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