Upstream Operations in Kenya: Changes under the Petroleum (Exploration, Development and Production) Act, 2017


Although a burgeoning field, Kenya’s petroleum sector remains a lucrative market with a buoyant future that can strategically position Kenya in the global oil market.  Being a commercially viable prospect, and with the Government keen on leveraging this potential, a number of key policies and legislation have been put in place to  realise this objective.  These include Vision 2030 that recognises the petroleum sector as a key catalyst in attaining middle-income status, the Constitution of Kenya that guarantees revenue sharing between the government and local communities, the newly enacted Energy Act 2017 which covers downstream and midstream petroleum operations, and the newly enacted Petroleum (Exploration, Development and Production) Act of 2017 (New Act) which governs upstream petroleum operations.

This article seeks to compare and contrast the new developments and changes in law as provided under the New Act alongside the provisions of the repealed the Petroleum (Exploration & Production) Act of 1984 (Old Act) as highlighted below:

 

 

Petroleum (Exploration Development & Production) Act of 2017

[New Act]

Petroleum (Exploration &Production) Act of 1984

 

[Old Act]

Scope

  • applies to the exploration, production, development of upstream petroleum operations only
  • covers exploration, production, development, and transportation of petroleum operations

Role of the Cabinet Secretary and the Authority

  • the Cabinet Secretary’s role includes (i) negotiating petroleum agreements and (ii) developing national petroleum policy

 

  • the Authority’s role includes: (i) issuing permits and (ii) monitoring upstream petroleum operations
  • the Minister’s role was negotiate petroleum agreements, issue permits and monitor petroleum operations carried out under the petroleum agreement

Conduct of operations

  • the Government conducts upstream petroleum operations through National Oil Corporation of Kenya or through contractors
  • the Government conducted petroleum operations through National Oil Corporation of Kenya or through contractors

Bodies/Institutions

  • the Cabinet Secretary
  • the National Petroleum Advisory Committee
  • the Upstream Petroleum Regulatory Authority (Authority)
  • no designated bodies
  • the Minister had centralised powers

License requirements

  • one must execute a petroleum agreement and obtain a non-exclusive exploration permit any upstream production activities
  • obtain non-exclusive exploration permit

Permits

  • non-exclusive exploration permits
  • operational permits
  • non-exclusive exploration permits

Data Management

  • the new Act mandates the Authority to establish a National Data Centre where petroleum data is to be centrally stored and analysed
  • previously all data was submitted to the Minister

Training and Local content

  • requires the use of local content, local goods and services
  • does not provide any traineeship funds; this may be captured in a petroleum agreement
  • had in place a training fund for purposes of training Kenyan nationals in petroleum operations and required contractors to make use of local products

Dispute resolution

  • establishment of a tribunal to adjudicate appeals against decision of the Authority
  • no dispute resolution mechanism against decisions of the minister were in place; one would have to go to court

Property in petroleum

  • vested in the National Government in trust for the people of Kenya
  • Emphasis that a contractor does not have any proprietaryrights
  • property in petroleum was vested in the Government

 

Penalties

  • Undertaking upstream operations without approvals attracts a fine of KShs. 20 Million or serving a 10 year jail term or both.
  • the Old Act was silent on this issue.

Security

 

  • provision of security as a guarantee of the contractor’s minimum work.

 

  • the Regulations provided for this.

 

Signature bonus

 

  • payment of a single, non-recoverable lump sum upon executing the petroleum agreement
  • no such condition is imposed on contractors

Decommissioning

  • a contractor is required to submit a decommissioning plan to the Authority before procuring a production permit which will cover the abandonment, removal or disposal of facilities
  • no such requirement although contractor had an obligation to decommission

Resource sharing

  • The profits derived from upstream petroleum operations are to be apportioned between the national government, county government and local community.
  • previously not provided for

 

 

 

 

Access to private property

  • contractor is required to seek prior consent of the concerned property owners
  • no consent was required, a contractor was required to give a 48 hour notice to the owner.

Transparency, Reporting and Accountability

  • Cabinet Secretary is required publish a framework for reporting
  • no such requirement

Points to note:

  • The Authority has not yet been operationalised and in the meantime the Energy Regulatory Commission shall perform the functions of and exercise the powers of the Authority.

 

Midstream and Downstream operations are now governed by the Energy Act 2017.

The Authority has a board whose powers include: (i) ensuring compliance by the contractors, (ii) ensuring optimal levels of recover of petroleum resources, (iii) promoting cost efficient operations and (iv) ensuring establishment of a central database of individuals involved in upstream petroleum operations.

The New Act provides for various other penalties.

The applicable revenue sharing ratios are National Government – 75%: County Government – 20%: Local Community – 5%.





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