Kenya seeks 25 pct stake in oil production ventures

Wed Nov 14, 2012 5:33pm IST

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* Kenya making bigger demands on oil and gas explorers

* Planned changes to bring more revenue to state-run oil company

By Kelly Gilblom

NAIROBI, Nov 14 (Reuters) - Kenya aims to take a bigger slice of the profits from its natural resources exploration boom by seeking a 25 percent stake in the production activities of oil and gas companies operating in the east African nation.

The proposal announced by Kenya's energy minister 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 Kenya's contracts with oil explorers give state-owned National Oil Corporation of Kenya (NOCK) a 10 percent stake in the production business once commercial quantities of oil or gas are found. This means that NOCK contributes 10 percent of production costs and receives 10 percent of profit.

However, the government now wants companies to give NOCK an initial 10 percent stake, increasing to 25 percent once production has started, Energy Minister Kiraitu Murungi told reporters on the sidelines of an east African oil and gas conference organised by Global Event Partners.

Rajesh Shah, an oil and gas expert and at PricewaterhouseCoopers, said it was unclear whether the rule would scare off potential producers because contracts are based on one-on-one negotiations with companies and the Ministry of Energy.

"It depends on how it's structured and how it's sorted out," Shah said. "I think people will get wary if it's getting something for nothing. If there's a fair share of whatever somebody has spent ... I think people will be pragmatic and see it as something reasonable."

Kenya's exploration boom has been fuelled further by gas discoveries in Tanzania and Mozambique and oil discoveries in Uganda.

British explorer Tullow Oil and Africa Oil found oil in the Ngamia-1 well on Block 10BB in March and discovered more a few months later.

In October, Tullow and Africa Oil encountered oil in a wildcat well known as Twiga-1 on onshore Block 13T, about 30km west of the Ngamia-1 well. The commercial viability of both finds has yet to be ascertained.

Tullow and Australia's Pancontinental Oil & Gas announced in September that their licence consortium's operator Apache Corp had found gas in the shallow offshore well Mbawa-1.

Experts predict that it will be at least five years before any petroleum can be produced, but in the meantime the government is using its new position as an established hydrocarbon province to squeeze better terms out of explorers wanting to drill and produce in Kenya.

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