Kenya oil explorers demand new revenue sharing contracts for gas
By WASHINGTON GIKUNJU Posted Tuesday, September 18 2012 at 21:14
In Summary
* The four companies are now demanding a revision of the terms to give them a bigger share of income generated from the operations.
* The companies had, however, been licensed to explore only for oil reserves, and the operators say they need to sign separate revenue sharing contracts with the government.
* Energy Permanent Secretary Patrick Nyoike said the exploration firms have rejected a “conversion factor” that would have modified their current oil revenue sharing terms to a contract for natural gas mining.
* The exploration firms are demanding a bigger share of revenues based on the argument that tapping gas reserves costs more than developing oil wells.
* America’s Apache Corporation leads the consortium with a 50 per cent stake. Other partners include Origin Energy Limited (20 per cent), Tullow Kenya BV (15 per cent) and Pancontinental Oil and Gas of Australia (15 per cent).
* The Energy PS said the government has sought assistance from the World Bank and the African Development Bank (AfDB) to draft revenue sharing contracts for exploitation of natural gas wells.
International oil exploration companies that recently discovered natural gas reserves off the Kenyan coast have rejected revenue sharing contracts signed with the government.
The four companies are now demanding a revision of the terms to give them a bigger share of income generated from the operations.
The consortium early this month announced the discovery of significant reserves of natural gas in the Mbawa-1 well — making it Kenya’s first ever gas find.
The companies had, however, been licensed to explore only for oil reserves, and the operators say they need to sign separate revenue sharing contracts with the government.
Energy Permanent Secretary Patrick Nyoike said the exploration firms have rejected a “conversion factor” that would have modified their current oil revenue sharing terms to a contract for natural gas mining.
“We don’t have a (revenue sharing) model for gas,” said Mr Nyoike in an interview. “We had given them oil terms, we’ll modify the contract,” he added.
The exploration firms are demanding a bigger share of revenues based on the argument that tapping gas reserves costs more than developing oil wells.
America’s Apache Corporation leads the consortium with a 50 per cent stake. Other partners include Origin Energy Limited (20 per cent), Tullow Kenya BV (15 per cent) and Pancontinental Oil and Gas of Australia (15 per cent).
The discovery of gas reserves came barely five months after Tullow Oil, a London Stock Exchange listed firm, announced it had struck significant reserves of oil in Turkana County, near Kenya’s border with South Sudan.
Commercial viability of the gas and oil reserves is however yet to be determined.
“We now require a comprehensive policy to cover all aspects of exploration. Prospecting for gas and oil are totally different and we need a law to harmonise such issues and spare investors any form of frustration,” George Wachira, a consultant at Petroleum Focus said.
The Energy PS said the government has sought assistance from the World Bank and the African Development Bank (AfDB) to draft revenue sharing contracts for exploitation of natural gas wells.
Mr Nyoike said the World Bank is expected to bring to the table the best international practices in revenue sharing between governments and firms involved in tapping of natural gas deposits, while AfDB is expected to share the African experience.
A team from AfDB is expected to discuss the matter with Mr Nyoike Wednesday.
African countries that have already developed natural gas wells and could therefore offer draft revenue sharing models include Libya, Algeria and Egypt.
Uganda has also made major strides towards adopting a comprehensive oil exploration policy. The country is expected to conduct a licensing round for hundreds of square kilometres of exploration acreage after Parliament passes new oil laws expected by the end of this year.
Deposits
Tanzania and Mozambique have also recently announced the discovery of huge natural gas deposits, but these are yet to be developed for commercial exploitation.
Recently in Ghana, the push for transparency in contracts has seen Tullow Oil and Kosmos Energy post contracts online in US Securities and Exchange Commission filings, and the Ghanaian government has now asked that all agreements be made public.
In July 2010, the US Congress passed the Dodd-Frank Act requiring greater transparency of oil, mining and gas companies listed on US exchanges.
The Kenyan government’s revenue sharing contracts with oil exploration companies are negotiated by the ministry of energy, and have not been made public.
A draft contract that the PS had showed the Business Daily in March showed that 40 per cent of the first 20,000 barrels of crude produced from an oil field would belong to the government.
The proportion rose in a graduated scale to more than 70 per cent of the production as the daily output increased.
Each contract is unique to accommodate special circumstances of each explorer, and includes provisions for the government to acquire stakes of more than 10 per cent in firms that strike commercially viable deposits.
In a research note released early this month, analysts at Deutsche Bank said that excluding “State back-in rights,” the Tanzania government’s share of revenues from a generic offshore development was close to 60 per cent, compared to Kenya’s 40 per cent, meaning contractors would make more from Kenyan deposits.
Tanzania has ordered a review of all existing contracts with gas and oil exploration companies by November 30, 2012, saying some were not in the country’s interest.
Earlier in September, state-run Tanzania Petroleum Development Corporation (TPDC) delayed a licensing round for nine deep-sea oil and gas blocks previously set for this month until a parliamentary vote on a new gas policy in October.
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