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Tullow Oil surrender blocks - Kenya

Scramble for oil blocks looms as firms give up sites
By ZEDDY SAMBU - Posted Wednesday, December 5 2012 at 21:54

Kenya faces a scramble for oil exploration blocks as majors led by Tullow Oil surrender five, paving the way for new investors.

Under the production sharing contracts (PSCs), the exploration firm must cede 25 per cent of their licensed acreage should they fail to do work on blocks after two years if the site is onshore or three years for offshore one.

This rule has prompted Tullow Oil to surrender two blocks while Anadarko of US, Afren Plc of UK and Statoil give up a block each.

In recent months, East Africa has been a centre of oil and gas exploration after several big discoveries, including Kenya’s second ever oil find announced by British explorer Tullow Oil and Canadian venture partner Africa Oil last week.

Licensing of the deep water offshore blocks at the Kenya coast has also been enhanced by discoveries along the coastlines of Tanzania and Mozambique.

Now, Kenya plans to gazette and the auction the new blocks that are expected to be snapped by other oil majors as demand for oil blocks in East Africa increases.

“It is prestigious to own huge blocks but the idea was for the oil companies to cede areas they were not presently working on,” said commissioner for petroleum Martin Heya.

“We have sent the maps of the blocks to the Survey of Kenya for re mapping. We are reconstituting and will gazette them into new blocks,” said Mr Heya on telephone.

All of Kenya’s mapped blocks have been awarded. Some of the latest entrants include French oil major Total and Eni of Italy.

Industry consultant Mwendia Nyaga said PSC laws stipulate that companies release one quarter of their acreage over an agreed time frame.

Surrender of the blocks comes at a time that the ministry is planning to switch to bidding rounds to license its oil exploration blocks, moving away from one-on-one negotiations with firms as interest increases following a recent oil discovery.

“Medium-sized companies are asking for these blocks. They should wait until we produce coordinates for the blocks,” said Mr Heya.

Tullow Oil could give up a quarter of its territory in block 10BB, where it made its March oil discovery, as well as a quarter of block 13T. Both are onshore. Anadarko will also surrender parts of its five offshore blocks.

Norwegian oil giant Statoil has suffered a blow after Kenya expelled it from exploring oil for flouting contract terms. The company was among the latest entrants in the Kenya oil search that had attracted more than 24 players by August after it was awarded block L26 in the deep offshore and had planned to start drilling in January.

The Ministry of Energy expects explorers to drill at least a dozen more wells in the next 12 months onshore and offshore.

Kenya aims to take a bigger slice of the profits from its natural resources exploration boom by seeking a 25 per cent stake in the production activities of oil and gas companies operating in the country.

The proposal is one of many the government has put forward in the past month to increase the state’s take from oil and gas resources, including new capital gains tax rules, a more competitive licensing process and higher fees for petroleum explorers.

At present, most of the contracts with oil explorers give state-owned National Oil Corporation of Kenya a 10 per cent stake in the production business once commercial quantities of oil or gas are found. This means that the parastatal contributes 10 per cent of production costs and receives 10 per cent of profit

http://www.businessdailyafrica.com/Corporate-News/Scramble-for-oil-blocks-looms-as-firms-give-up-sites-/-/539550/1637556/-/nhm7hr/-/index.html

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