Saturday, 1 June 2013

BLOCKS, OIL AND GAS COMPANIES AND THE GOVERNMENT - DEALS OR DISASTER IN WAITING?





 March 26 2012 : “We have good news for Kenyans. The good news is that we have struck oil in the Ngamia-1 well in Turkana.”  A beaming Former President Mwai Kibaki announced. Since then a flurry of conferences, seminars, meetings and deals have been signed. Nothing tangible has come out of it but hope still lingers.
However the then Minister of Energy Hon. Kiraitu Murungi was optimistic with a pinch of caution
“We have been very cautious about this. We have drilled 31 other wells in Isiolo and Lamu without success, but now we can authoritatively say we have oil.”
Kenya currently has 51 exploration blocks. Originally there were only 46, that include offshore and inland blocks. The term Tullow’s Turkana Block 10BB has become synonymous with oil in Kenya being the block where substantial oil was first struck by British company Tullow.
A non-refundable fee of $ 1 million is paid to the government to purchase one of these blocks and this was originally on a first come first serve basis. With the oil find, stakes were raised. Now purchase of blocks is done in a public auction with the highest bidder getting the rights to the block. Four blocks are up for auction. The four originally belonged to Tullow and Norwegian Company Statoil who relinquished rights to the blocks. This is because explorers are now required to relinquish 25% of their acreage every two years meaning the bidding wars could become more fierce as the years go by.
In dealings with these international oil companies the government enters into Production Sharing Agreements. These are basically contracts signed between them and oil companies where it awards the execution of exploration and production to the oil company. When production eventually starts the company has to split the profits from the sale of its product with the government. The country currently has over 24 companies with oil and gas licenses with the number expected to rise with the sale of the new blocks.
Concern however is the number of international companies that hold licenses. Apart from government owned National oil Company NOCK and Rift Energy the rest are international companies some with local subsidiaries. Most of them hold these parcels of land in part ownership with each other. Tullow for example hols 50% stake in BLOCK 10BB and 70% in BLOCK 10A with Africa Oil owning the remainder both in Northern Western Kenya. Canadian company Taipan Resources recently bought BLOCK 2B near Mandera and also holds 20% rights in BLOCK 1 owned 80% by Lion Petroleum also near Mandera.  Off shore blocks in the coast are mostly gas blocks and major players have a joint PSC agreement with the government. BLOCKS L10A and L10B are jointly owned by The B.G group, Cove Energy, Premier Oil, And Pancontinental Oil and Gas. In BLOCK 10 B.G group owns 40% while Cove, Premier and Pancontinental hold 25%, 20% and 15% respectively. In BLOCK 10B, B.G Group owns 45% equity while Premier Oil owns 25% equity. The rest is shared equally between Cove and Pancontinental at 15%. France’s Total holds 40% stake in 5 oil BLOCKS in Lamu L5, L7, L11A, L11B together with Anadarko and Cove energy all off the coast. First Australian Resources (FAR) also holds 60% stake in block L6 also off the coast with 40% held by Pancontinental. Pancontinental also jointly owns block L8 and L9 off the coast. China also hasn't been left behind as its influence in Africa grows as the West keeps playing politics. China National Offshore Oil Corporation CNOOC and Africa Oil jointly hold rights in BLOCK 9 (50% equity) in the oil rich Anza Basin. Africa Oil also holds 20% and 50% share in BLOCKS 2A and 13T all inland blocks. The map below shows some of the blocks in Kenya and ownership.


Credits
Investment in oil is an extremely expensive venture and partnerships are the norm rather than the exception. But the oil industry is a very volatile one especially when it comes to the issue of sharing the proceeds. The Government should ensure that these partnerships are beneficial to themselves and more importantly to the country. I think the National Oil Corporation should have been more involved to make sure it gains, most importantly, from expertise rather than financially but then again time will tell if we are on the right track.

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