Markets & Finance

Oil and gas explorers in Kenya forecast a rise in licensing fees

ngamia

The Ngamia 3 oil exploration site in Turkana South. Governments should make business easier for explorers. PHOTO | AFP

Industry players in the oil and gas sector expect the government to raise exploration fees in 2016, says a sector report by PwC.

The consultancy’s review 2015 says Kenya is among markets where explorers expect governments to review licensing fees.

“In contrast to previous years, respondents are generally uncertain about what to expect with acreage/licence acquisition costs as there is a spread across the spectrum with respondents believing they could decrease, stay the same or increase,” said the report.

“Thirty-six percent believed acreage costs would increase, and this is especially noted in Kenya and Mozambique.”

The survey covered upstream, midstream, downstream and oilfield service companies and other industry stakeholders. It did not indicate by how much more those surveyed expect fees to increase. Levies are not standard but are negotiated between explorers and the Energy ministry.

Regulatory filings by Houston-based ERHC Energy in the meanwhile show the explorer has signed a production sharing contract where it is paying the government $5 (Sh500) per square kilometre for the first stage of work on its three blocks.

The second phase of exploration on its Turkana-based blocks will see the company pay the Energy ministry $10 (Sh1,000) per square kilometre. This this is set to rise to $100 (Sh10,000) per square kilometre should ERHC move to the production stage.

PwC however says governments should make business easier for explorers.

“While the oil price has caused activity to drop, it has also served as a wake-up call to many African governments which are working hard to pass favourable oil and gas legislation in order to attract investment into the sector,” said PwC Africa Oil and Gas advisory leader Chris Bredenhann.