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Kenya to Switch to Bidding Rounds for Oil Blocks

Source: Reuters 10/25/2012, Location: Africa

Kenya said it plans to switch to bidding rounds to license its oil exploration blocks, moving away from one-on-one negotiations with firms, as interest in east Africa's largest economy increases following a recent oil discovery.

In March British explorer Tullow Oil and Africa Oil found oil in the Ngamia-1 well on Block 10BB and encountered more a few months later, but its commercial viability has yet to be ascertained. In September, Tullow Oil and Australia's Pancontinental Oil & Gas announced their licence consortium's operator Apache Corp had found gas in the shallow target offshore well Mbawa-1.

"We have been practising (an) open door policy for licensing of blocks but this will be replaced in due course with licensing rounds where investors will compete and whoever comes with the best (deal) will be the one given the licence to operate that block," Hudson Andambi, senior petroleum geologist at Kenya's Energy Ministry, told a regional petroleum conference.

"The discovery of oil and valued gas and the intensified drilling activities are therefore a good transition for Kenya from a frontier area to one that is going to have a discovery phase," said Andambi.

East Africa has become a hotbed of exploration after several oil discoveries in the area pushed the region into the international limelight. However, Kenya has yet to determine whether it has commercially viable quantities of hydrocarbons.

Andambi said Kenya planned to increase the signing bonus companies pay when they are granted new licences, which now stands at $300,000. He said Kenya had no problem attracting exporters and should therefore demand more favourable contract terms.

The size of new exploration blocks Kenya leases in the future will also be minimised so more companies can explore. Recently Tullow and Anadarko relinquished acreage on seven separate blocks they had licensed years earlier in accordance with the terms of their production sharing contracts.

In a conference in New Delhi last week Kenya's Energy Minister Kiratu Murungi said it would use the acreage to demarcate and licence six new blocks by the end of 2012.

At present Tullow Oil and its partners Africa Oil and London-listed Afren are drilling the Paipai-1 well on onshore Block 10A. Tullow and Africa Oil are also drilling one other well known as Twiga-1, on Block 13T, about 30 kilometres west of where it made its oil discovery in March.

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