Kenya’s first licensing round has been postponed due to a new proposed national energy bill and energy policy, which will bring significant changes to the fiscal and regulatory environment of the country’s oil and gas industry, according to research and consulting firm GlobalData.
The company’s latest report states that Kenya’s first licensing round was originally scheduled for June 2013 and was to offer eight blocks for bidding, but plans have now stalled pending the passage of the new energy bill, expected in June this year.
Under the proposed bill, the current regime is expected to be altered to add royalties and provide gas-sharing terms and windfall profits. Although the details of the royalty have not yet been outlined, GlobalData believes that the introduction of such an upfront payment would undoubtedly represent a setback in the relative attractiveness of the regime.
Another significant change is the introduction of licensing rounds for hydrocarbon blocks.
John Sisa, GlobalData’s Analyst covering Upstream Oil & Gas in the Sub-Saharan region, says: “The emergence of direct competition for oil and gas blocks should strengthen the link between the level of industry interest in the area and the severity of the fiscal regime, since production sharing terms are likely to be part of the bidding criteria. Therefore, if more discoveries are made, this could probably result in the introduction of licensing rounds with a tougher fiscal regime for new entrants.”
Additionally, the regulatory climate is also expected to tighten under the new terms. The draft energy bill sets out a framework of environmental and other regulations for upstream oil and gas activities, and proposes that these should be enforced by the Cabinet Secretary under advisement by a new body, the National Fossil Fuels Advisory Committee.
Furthermore, more stringent local content requirements are expected to be placed on exploration and production companies, which will potentially increase costs.
“With the new energy bill and policy plans, we are expecting Kenya’s first licensing round to be postponed until at least Q4 2014. While this would mean a delay before the awarding of new oil and gas blocks for exploration, it could also result in greater industry interest when the round is held, as the delay will provide more time for further commercial discoveries or developments that could increase the country’s prospectivity and attractiveness to new investors in the area,” Sisa concludes.
