Petroleum and Mining Cabinet Secretary Terminates Petroleum Contracts

By Charles Wanguhu

The cabinet secretary for petroleum and mining has issued notices to terminate contracts
issued to six oil and gas exploration companies within the Lamu Basin.
According to media reports, these notices were issued on the 27 th of August 2021, citing failure
of the companies to meet their obligations as outlined in their respective petroleum
agreements. These companies are Zarara Oil and Gas, Octant Energy, A-Z Petroleum Products,
Simba Africa Rift Energy, Lamu Oil and Gas, and Milio/Castac Oil.
We have not had access to the termination notices but as per section 25 of the Petroleum Act,
one of the reasons the Cabinet Secretary may terminate petroleum agreements at the
exploration stage would be failure by the exploring company to meet their minimum work and
expenditure obligations.
Firstly, it is crucial that companies that have exited and moreso those that had undertaken
work in the blocks are followed up to ensure remedial works including plugging of wells,
restoration of sites are undertaken. It is crucial that the country and moreso communities in the
vicinity of the wells are not impacted by the abandoned activities of the company. The Ministry
should undertake engagement in the area of the operations of departing companies to inform
communities and address concerns.
Secondly, a review should be undertaken of how some of the companies were handed huge
acreages of exploration with little to no financial capability to undertake the extensive work
they signed on in their production sharing contracts. It brings further focus on need for contract
transparency in ensuring that only capable companies are given contracts and the need for
competitive bidding where possible.
Thirdly, it would be useful to get an update from the ministry on the current status of the
remaining issued contracts vis a vis work obligation requirement. If companies were
undertaking their required work under obligations the Oil and gas sector would be different
within the country.
Lastly, it is critical to complete the transparency and accountability framework as part of the
petroleum act to ensure that all future contracts are disclosed publicly.