US company seeks to extend its Kenya oil search licence

What you need to know:

Under the Production Sharing Contract signed with the government, the explorer was expected to have finished the first phase of exploration on its two onshore blocks by last June while activities on its two offshore blocks were to have been wound up by August 8.
Government’s refusal to renew licences of explorers lagging behind in work has resulted in oil and gas companies sticking to their work schedules despite the industry’s gloomy outlook.

American oil explorer Erin Energy is pushing Kenya to extend its licence as it looks for a partner to finance work on its blocks.

Erin has asked the Energy ministry for more time to look for a partner to complete work supposed to be done in the first phase of exploration.

Under the Production Sharing Contract signed with the government, the explorer was expected to have finished the first phase of exploration on its two onshore blocks by last June while activities on its two offshore blocks were to have been wound up by August 8.

“Accordingly, the company has applied for a two-year extension of the initial exploration period for both blocks in order to bring in potential partners and complete the remaining work obligations,” said regulatory filings by the explorer.

Government’s refusal to renew licences of explorers lagging behind in work has resulted in oil and gas companies sticking to their work schedules despite the industry’s gloomy outlook.

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Suspended Energy secretary Davies Chirchir cancelled Canadian firm Vanoil Oil’s licence in January 2014 after the firm failed to carry out any work on its Garissa-based blocks since 2007 when it had begun operations.

Pancontinental Oil’s licence was also cancelled in late 2013 but the Australian explorer successfully negotiated for a one-year extension.

Erin disclosed it had incurred $6.1 million (Sh610 million) in operating losses from its Kenyan blocks for the first half of the year. The firm has assets in Nigeria, Ghana and Gambia.

Petroleum analysts expect firms will continue investing in the nascent sector on expectations that prices will rise over the next three years.

“While response to such a drastic decline is necessary, we have seen the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices,” said PwC Africa oil and gas advisory leader Chris Bredenhann.