The journey of oil exploration in Kenya commenced in the early 1950s when the first Oil Exploration License (OEL1) was issued to B.P Shell Development Company, allowing them to operate in the Lamu Embayment. Since then, a total of ninety-four (94) exploration wells have been drilled by various companies across Kenya's four sedimentary basins. Despite these efforts, the density of exploration wells remains low, with an average of approximately 1 well per 12,200 square kilometres. To accelerate hydrocarbon discoveries, it is essential to increase this well density across all basins. Optimism for future discoveries has grown, driven by advancements in exploration technology that enhance data acquisition, processing, and interpretation. Recent hydrocarbon finds in Block 13T and Block 10BB in the Tertiary Rift Basin, Block 9 in the Anza Basin, and Blocks L8 and L10A in the offshore Lamu Basin provide solid evidence of an active hydrocarbon system in Kenya.

 

Overview

Upstream Petroleum Operations involve all or any of the operations related to the exploration, development, production, separation and treatment, storage and transportation of petroleum up to the agreed delivery point. Such operations are undertaken at the initial stage of the petroleum value chain. The success of these operations is crucial for ensuring a steady supply of petroleum, which is essential for the energy security and economic development of Kenya. 

 

Current Status of Upstream Petroleum Operations in Kenya

Exploration activities are active both onshore and offshore in Kenya. To date ninety-four (94) exploration wells have been drilled by various oil exploration companies in the four sedimentary basins. The four Sedimentary Basins encompass the following areas:

    • Lamu Basin:  261,000 km2 

    • Mandera Basin: 43,000 km2

    • Anza Basin: 81,000 km2

    • Tertiary Rift Basin: 100,000 km2

    • Total Surface: 485,000 km2 

Out of the sixty-three (63) gazetted petroleum exploration blocks, there are thirteen discoveries to date: 

    • Blocks 10BB and 13T in the Tertiary Rift Basin has oil discovery fields (Ngamia, Amosing, Twiga, Ewoi, Etuko, Ekunyuk, Ekales, Etom, Agete and Erut).

    • Block L8 in offshore Lamu Basin, Mbawa-1 well is a gas discovery.

    • Block L10A offshore Lamu Basin, Sunbird-1 well has both oil & gas discoveries. 

    • Block 9 in Anza Basin, Sala-1 well has gas discovery.

    • Blocks L8, L10A (Offshore Lamu Basin) and Block 9 in Anza Basin have since been surrendered back to the Government

Legal and Regulatory Framework

In Kenya, the petroleum sector is governed by: The Constitution of Kenya, 2010, Energy Act, No. 1 of 2019, Petroleum Act, No. 2 of 2019 and the Model Production Sharing Contract (PSC). The Petroleum Act, 2019 provides a framework for the contracting, exploration, development and production of petroleum; cessation of upstream petroleum operations and to give effect to relevant articles of the Constitution in so far as they apply to upstream petroleum operations. The model PSC provides the framework for negotiations of terms with oil exploration companies in Kenya. The Cabinet Secretary responsible for petroleum enters PSCs with oil exploration companies on behalf of the National Government.

 

EPRA Mandate- Upstream Petroleum

The core mandate of the Authority for the regulation of the upstream petroleum subsector include –

 

    (a) Exploration, extraction, production, processing, transportation, storage exportation, importation and sale of coal bed methane gas and other energy forms;

    (b) Regulate, monitor and supervise upstream petroleum operations in Kenya in accordance with the law relating to petroleum, the regulations made thereunder and the relevant petroleum agreement;

    (c) Provide such information and statistics in relations to upstream petroleum operations in Kenya to the Cabinet Secretary responsible for matters relating to petroleum as may be required from time to time;

    (d) Collect, maintain and manage upstream petroleum data;

    (e) Receive, review and grant an application for a nonexclusive exploration;

    (f) Co-ordinate the development of upstream petroleum infrastructure and promote capacity building in upstream petroleum operations;

    (g) Inspect and test any machinery or equipment that has been used, is used or shall be used in upstream petroleum operations;

    (h) Assess field development plans and make recommendations to the Cabinet Secretary responsible for matters relating to petroleum for approval, amendment or rejection of the plans;

    (i) Assess tail-end production and cessation of upstream petroleum operations and oversee decommissioning by a contractor;

    (j) Verify the measurements of petroleum production to allow for estimation and assessment of royalties and profits of oil and gas due to the National Government;

    (k) Verify the recoverable cost of oil and gas due to the parties to a petroleum agreement;

    (l) Audit contractors for cost recovery;

    (m) Monitor in consultation with the Competition Authority conditions of contractors’ operations and their trade practices;

    (n) Provide information to the relevant authority for the collection of taxes and fees from upstream petroleum operations;

    (o) Set, review and approve contracts, tariffs and charges for common user upstream petroleum facilities;

    (p) Make proposals to the Cabinet Secretary responsible for matters relating to petroleum in relation to regulations which may be necessary or expedient for the regulation of the upstream petroleum sector or for carrying out the objects and purposes of this Act;

    (q) Work with the relevant statutory authorities to formulate, enforce and review environmental, health, safety and quality standards for the upstream petroleum sector;

    (r) Develop guidelines, in consultation with other statutory authorities, in relation to the implementation of treaties, conventions or protocols affecting the upstream petroleum sector that have been ratified by Kenya;

    (s) Regulate contracts on upstream petroleum operations not specifically provided for under the law relating to petroleum;

    (t) Advice the Cabinet Secretary responsible for matters relating to petroleum in the evaluation of the bids and applications made for upstream petroleum blocks;

    (u) Ensure that contractors uphold the relevant laws, regulations and petroleum agreement terms;

    (v) Ensure optimal levels of recovery of petroleum resources;

    (w) Promote well planned, executed and cost-efficient operations;

    (x) Ensure optimal utilization of existing and planned facilities;

    (y) Ensure the establishment of a central database of persons involved in upstream petroleum operations

    (z) Manage upstream petroleum data and provide periodic updates and publication of the status of upstream petroleum operations;

    (aa) Take such action as is necessary to enforce the requirements in a petroleum agreement or any regulations and to protect the environment, the health and safety of workers and the public;

    (bb) Ensure and facilitate competition, access and utilization of facilities by third parties;

    (cc) Prescribe the form and manner in which any application for any authority, consent or approval under the law relating to petroleum shall be made;

    (dd) Investigate complaints or disputes arising from petroleum operations; 

    (ee) Enforce local content requirements;

    (ff) Issue operational permits and non-exclusive exploration permits in accordance with the law relating to petroleum;

    F. Functions of EPRA- Upstream Petroleum

Regulatory Oversight

EPRA's primary function is to regulate the exploration, extraction, production, processing, transportation, storage, exportation, importation, and sale of petroleum. To establish a robust regulatory framework, EPRA has developed and reviewed several draft regulations in collaboration with various stakeholders, including the Economic Planning, Legal, and Regulatory departments, and the State Department of Petroleum. The draft regulations include:

    (a) Petroleum (Upstream Petroleum Rights Management and Administration) Regulations, 2024

    (b) Petroleum (Upstream Petroleum Operations) Regulations, 2024

    (c) Petroleum (Local Content) Regulations, 2024

    (d) Petroleum (Upstream Petroleum Cost Management) Regulations, 2024

    (e) Petroleum (Upstream and Midstream Environmental, Health, and Safety) Regulations, 2024

By maintaining a robust regulatory framework, EPRA promotes transparency, accountability, and efficiency in the upstream petroleum sector.

 

Licensing and Permit Issuance

The regulation of upstream petroleum operations involves the issuance of licenses and permits, setting standards and guidelines, and ensuring compliance with legal and regulatory requirements. Applications for Upstream petroleum licenses and permits are classified into the following categories:

    (a) Application for Field Development Plan Review

    (b) Application for Issuance of Upstream Petroleum Permits

    (c) Application for Review of Environmental and Social Impact Assessment (ESIA) Reports

    (d) Application for Issuance of Non-Exclusive Exploration Permits

    (e) Application for Conducting Risk-Based Technical Audits

 

Data Management and Information Dissemination

Effective management of upstream petroleum data is crucial for informed decision-making and strategic planning. EPRA is responsible for collecting, maintaining, and managing data related to petroleum operations. This data includes geological and geophysical information, production statistics, and financial records. EPRA also provides timely and accurate information to the Cabinet Secretary responsible for petroleum matters, enabling the government to make informed policy decisions.

 

Infrastructure Development and Capacity Building

EPRA plays a pivotal role in coordinating the development of upstream petroleum infrastructure. This includes promoting the construction of pipelines, storage facilities, and other essential infrastructure that supports exploration and production activities. Additionally, EPRA focuses on capacity building by promoting training and development programs for professionals in the petroleum sector. By enhancing the skills and knowledge of the workforce, EPRA ensures that Kenya remains competitive in the global petroleum industry.

 

Technical and Environmental Audits, Inspection and Testing

To ensure the safety and reliability of petroleum operations, EPRA conducts regular inspections and tests on machinery and equipment used in upstream activities. This includes assessing drilling rigs, production facilities, and transportation systems to ensure they meet safety and environmental standards. Through rigorous inspection and testing, EPRA mitigates risks and prevents accidents, protecting workers, communities, and the environment.

 

Field Development Planning and Decommissioning

EPRA assesses field development plans submitted by petroleum contractors and makes recommendations to the Cabinet Secretary for approval, amendment, or rejection. This process ensures that development plans are technically sound, economically viable, and environmentally sustainable. EPRA also oversees the decommissioning of upstream petroleum operations, ensuring that contractors adhere to legal and regulatory requirements when closing down operations and restoring sites to their original condition.

 

Cost Recovery and Revenue Management

Accurate measurement and verification of petroleum production are essential for determining royalties and profits due to the National Government. EPRA verifies production measurements and assesses recoverable costs, ensuring that the government receives its fair share of revenues from petroleum operations. Additionally, EPRA audits contractors to verify cost recovery claims, promoting transparency and accountability in financial transactions.

 

Enhancing Local Content

EPRA is committed to promoting local content in upstream petroleum operations. This involves encouraging the participation of local businesses and professionals in the sector, fostering the development of local industries, and enabling employment opportunities for Kenyans. EPRA enforces local content requirements and monitors compliance, ensuring that the benefits of petroleum development are shared broadly across the country.

 

Ensuring Competition and Fair-Trade Practices

To foster a competitive and fair market environment, EPRA monitors the conditions of contractors' operations and their trade practices. This includes ensuring non-discriminatory access to upstream petroleum facilities and promoting fair competition among industry players. EPRA works in consultation with the Competition Authority to address any anti-competitive behaviour and protect consumer, investor, and stakeholder interests.