Kenya’s upstream petroleum sector moved from a single 1984-era statute to a modern, consolidated legal framework with the Petroleum Act 2019. For any company considering exploration, production, or investment in Kenya’s oil and gas blocks, understanding how licensing actually works, who grants what, and what obligations attach to a petroleum agreement is the starting point for any serious engagement with the sector.

The Legal Framework

The Petroleum Act, No. 2 of 2019 repealed the Petroleum (Exploration and Production) Act, Chapter 308, which had governed the sector since 1984 and addressed upstream operations only. The new Act, developed alongside the Energy Act 2019, consolidates the legal framework for contracting, exploration, development, and production of petroleum, while also addressing midstream and downstream regulation. Upstream operations, exploration, development, production, separation, treatment, storage, and transportation up to the agreed delivery point, sit at the centre of this guide, since this is where new entrants to the sector typically begin.

Petroleum operations in Kenya are jointly regulated by the Cabinet Secretary responsible for petroleum, through the Ministry of Petroleum and Mining, and the Energy and Petroleum Regulatory Authority, commonly known as EPRA. The Cabinet Secretary holds the power to negotiate, award, and execute petroleum agreements on behalf of the National Government, while EPRA carries out the day-to-day regulatory and technical oversight of upstream activity, including licensing administration, infrastructure coordination, and safety inspections.

Kenya’s Sedimentary Basins and Exploration Blocks

Exploration activity in Kenya is organised around four sedimentary basins: Lamu, Anza, Mandera, and the Tertiary Rift, together covering an area of roughly 485,000 square kilometres both onshore and offshore. There are 63 gazetted petroleum exploration blocks across these basins, a number of which have already produced commercial hydrocarbon discoveries, most notably in the Tertiary Rift Basin around Turkana County, where blocks 10BB and 13T have confirmed oil fields including Ngamia, Amosing, and Twiga. Offshore discoveries have also been recorded in the Lamu Basin. As at the most recent published figures, 94 exploration wells have been drilled across the four basins, giving a well density well below comparable frontier basins elsewhere, which the government has flagged as an area requiring further investment.

The Production Sharing Contract Model

Kenya licenses petroleum blocks primarily through Production Sharing Contracts, commonly called PSCs, negotiated between the Cabinet Secretary and prospective contractors on behalf of the National Government. The Model PSC sets out the standard framework for these negotiations, covering work programmes, cost recovery, profit-sharing arrangements between government and contractor, and the contractor’s minimum work and expenditure obligations for each exploration period. Blocks are licensed either through direct negotiation or through competitive bidding rounds, which the Ministry periodically opens to prospective investors.

A defining feature of the PSC structure is the security contractors must provide for their committed exploration spend. Contractors are typically required to deposit guarantees, split between bank guarantees and parent company guarantees, covering their minimum work and expenditure obligations for each exploration phase. This is a material commercial consideration for any company structuring an entry into the sector, since it requires upfront financial commitment well before first production revenue.

Licence Types Under the Act

The Petroleum Act distinguishes between exclusive and non-exclusive rights at the exploration stage. A non-exclusive exploration permit, sometimes referred to as a prospecting permit, gives the holder the right to conduct reconnaissance and general investigation of an area, including acquiring geological, geochemical, and geophysical data, and may permit limited drilling to a prescribed depth, without conferring the broader rights of a full exploration block licence. Full upstream petroleum operations within a defined block, by contrast, require the licence or permit issued under a negotiated petroleum agreement, evidenced in the prescribed form and entered into the public register of licences and permits that the Act requires EPRA to maintain.

Local Content and Local Employment Obligations

The Act introduces a mandatory local content compliance requirement that materially shapes how contractors structure their Kenyan operations. Priority must be given to services provided and goods manufactured in Kenya, where these meet the technical specifications required by the petroleum industry, and to the employment and engagement of qualified and skilled Kenyan citizens at all levels of the value chain. Contractors are required to submit local content plans to EPRA before commencing operations, and to submit annual local content plans corresponding to their work programmes in every subsequent year. Companies entering the sector should treat local content compliance as a structural requirement from the outset of contract negotiation, not as a downstream operational detail, since procurement and staffing decisions made early in a project’s life are difficult to unwind later.

Transparency and Reporting Obligations

The Act creates a framework for accountability that did not exist under the repealed 1984 statute. The Cabinet Secretary is required to establish a framework for publishing petroleum agreements, records, annual accounts, and reports covering revenues, fees, taxes, royalties, and other charges arising from petroleum operations. This extends to data supporting both payments made by the contractor and payments received by national and county governments and affected local communities. For contractors, this means that petroleum agreements entered into under the current Act are subject to a level of public disclosure that earlier-generation contracts were not, which has implications for how commercially sensitive contract terms are negotiated and drafted.

Parliamentary Ratification of Petroleum Agreements

Petroleum agreements and their associated field development plans must be reviewed and ratified in conformity with Article 71 of the Constitution, which requires parliamentary approval for agreements involving the grant of a right or concession to exploit natural resources, with public participation built into the ratification process. This requirement generally applies to agreements entered into after the Petroleum Act and the Natural Resources (Classes of Transactions subject to Ratification) Act 2016 came into force, while earlier agreements concluded under the repealed statute retain the rights, privileges, and obligations under which they were granted.

The National Upstream Petroleum Advisory Committee

The Act establishes the National Upstream Petroleum Advisory Committee to advise the Cabinet Secretary on upstream petroleum operations and on the terms of petroleum agreements to be negotiated. The Committee draws representation from the Ministry responsible for petroleum, the National Oil Corporation, the Attorney-General’s office, the National Treasury, the National Environment Management Authority, the Kenya Revenue Authority, EPRA, and the Council of Governors, reflecting the cross-cutting fiscal, environmental, and devolution interests that a major petroleum project inevitably engages.

Why This Matters for Investors

Kenya’s upstream petroleum sector remains at a relatively early stage of development compared to established East African producers, which creates both opportunity and structural uncertainty for new entrants. A prospective investor needs more than the headline PSC terms; the local content obligations, the guarantee structure for exploration commitments, the parliamentary ratification process, and the public disclosure framework all materially affect deal structuring, timelines, and risk allocation. Companies considering Kenyan petroleum blocks should also factor in foreign exchange and regulatory compliance considerations that arise once production revenue begins to flow, since upstream petroleum projects rarely operate in isolation from the broader regulatory environment governing capital movement and corporate structuring in Kenya.

How We Can Help

Clay & Associates Advocates advises investors and contractors on upstream petroleum licensing, Production Sharing Contract negotiation, local content compliance, and the regulatory interface between the Ministry of Petroleum and Mining and EPRA. If you are evaluating an entry into Kenya’s oil and gas sector or need advice on an existing petroleum agreement, our regulatory and compliance team can guide you through the licensing process and the surrounding legal framework.

For the governing legislation, see the Petroleum Act, 2019 on the Kenya Law website, and the Energy and Petroleum Regulatory Authority’s upstream petroleum overview for current licensing guidance.