Oil and Gas Exploration Licensing in Kenya: The Petroleum Act 2019 Framework

Anyone planning to explore for, develop or produce oil or gas in Kenya must first secure the right legal instrument. Oil and gas exploration licensing in Kenya is governed by the Petroleum Act, 2019 (Act No. 2 of 2019), which repealed the Petroleum (Exploration and Production) Act and now regulates the full cycle from licensing through decommissioning. This guide explains the licensing routes, how a petroleum agreement is awarded, the main contractor obligations and the penalties for operating without authority.

The Legal Framework

The Petroleum Act, 2019 deals with national petroleum policy, upstream petroleum rights and management, information and reporting, local content, payments and revenues, environment, health and safety, and decommissioning. Section 14 provides for property in petroleum, and section 15 for the constitution of blocks. The Cabinet Secretary responsible for petroleum negotiates, awards and executes petroleum agreements on behalf of the national government (section 18). The regulatory body is referred to in the Act as the Authority, which issues non-exclusive exploration permits and receives local content plans.

The identity of the Authority needs care. The original Act defines it as the authority established to regulate upstream petroleum operations, and its transitional provisions say that until that Authority is operationalised, its functions are exercised by the Energy Regulatory Commission and the Ministry responsible for petroleum. The consolidated text on Kenya Law now defines it by reference to the Energy Regulatory Commission under section 4 of the Energy Act (Cap. 314), while the Energy Act, 2019 establishes the Energy and Petroleum Regulatory Authority (EPRA) in section 9. Before you file anything, confirm with the Ministry which body is currently receiving applications.

Licensing Routes

Section 16(1) provides that no person may engage in upstream petroleum operations without either executing a petroleum agreement under the Act or obtaining a non-exclusive exploration permit for a block, for the purpose of obtaining geological, geophysical and geochemical information. The two applications go to different bodies:

• a petroleum agreement is applied for from the Cabinet Secretary; and
• a non-exclusive exploration permit is applied for from the Authority (sections 16(2) and 22).

An application must be accompanied by the information specified in the Regulations (section 16(3)). Under section 23, the Authority may issue the permit and impose conditions, must make information about issued permits available, and must inform each affected county government of the nature and scope of the non-exclusive exploration activities.

Penalty for Unlicensed Operations

Under section 16(4), a person who engages in upstream petroleum operations without a petroleum agreement or a non-exclusive exploration permit commits an offence and is liable on conviction to a fine of up to KES 20,000,000, imprisonment for up to ten years, or both. This is the central compliance risk for any new entrant that begins survey or data-gathering work before its paperwork is complete.

How Petroleum Agreements Are Awarded

Section 17 requires the national government to enter into petroleum agreements fairly, equitably, transparently, competitively and cost effectively, and only with a contractor that has the financial, technical and professional capacity to fulfil its obligations. The contractor must maintain that capacity throughout the contract and ensure that its subcontractors and agents have the necessary skills.

Under section 18, the Cabinet Secretary negotiates, awards and executes the agreement in the form prescribed in the Schedule, which is a model production sharing contract. The ordinary route is a competitive bidding round. Direct negotiation, on the recommendation of the Advisory Committee, is permitted only where:

• no bids were received in the bidding round;
• the bids received did not meet the minimum criteria; or
• there is insufficient data in relation to a block.

Security for Work Commitments

Section 25 requires a contractor, on or before the start of the initial exploration period and of any additional exploration period, to provide security in the form prescribed in the petroleum agreement guaranteeing its minimum work and expenditure obligations. If the contractor defaults, the Cabinet Secretary may, by reasonable written notice, suspend or terminate the petroleum agreement and recall the security. The Act deems a contractor to be in default where the Cabinet Secretary has served written particulars of the default and the contractor has neglected to remedy it within the period allowed.

The National Upstream Petroleum Advisory Committee

Section 12 establishes the National Upstream Petroleum Advisory Committee, chaired by the Principal Secretary of the Ministry responsible for petroleum. Members include the head of petroleum at the Ministry, the Chief Executive of the National Oil Corporation, the Attorney-General, the Principal Secretary of the National Treasury, the Director-General of the National Environment Management Authority, the Commissioner-General of the Kenya Revenue Authority and the head of the regulatory authority, together with other members listed in the section. Direct negotiation of a petroleum agreement may proceed only on its recommendation (section 18(3)).

Parliamentary Ratification

Section 31 requires the Cabinet Secretary, within thirty days of approving a field development plan submitted under a production sharing contract, to submit the contract and plan to Parliament for ratification in accordance with Article 71 of the Constitution. Parliament has sixty days to ratify, or to refuse and refer the documents back with reasons, and must carry out public participation. Investors should therefore treat ratification as a condition of the commercial timetable, not a formality.

Local Content

Section 50 requires anyone carrying out undertakings or works under the Act to comply with local content requirements in all operations, to give priority to Kenyan services and goods that meet industry specifications, and to give priority to the employment or engagement of qualified and skilled Kenyans at all levels of the value chain, with the cost of local content at the prevailing market rate. Before engaging in petroleum operations, the contractor must prepare and submit a long-term and annual local content plan, corresponding to its work programme, to the Authority for approval.

Information and Confidentiality

Part V of the Act imposes reporting duties on contractors. Section 47 requires every contractor to furnish the Cabinet Secretary and the Authority with the information they require, and section 48 deals with false information. Under section 46, information obtained under section 45 may not be published or disclosed to a third party without the written consent of the person who provided it, subject to listed exceptions such as disclosure to the Cabinet Secretary, to officers with functions in upstream petroleum, tax administration or environmental management, and to give effect to constitutional rights. Contractors negotiating confidentiality terms should read these exceptions closely.