By Geoffrey Muchiri
26th May 2012 is a date that will forever remain etched in the minds of Kenyans as it is the day when the announcement was made that vast quantities of oil had been discovered in Turkana County. Commercial viability of those discoveries had not been determined but from that date Kenya became a new petroleum province of great interest to all in the global oil and gas industry. It is in the context of this discovery that Kenya’s numerous oil blocks are seeing a renewed interest from International Oil Companies(IOC) (be they: small independents or the oil majors/seven sisters and their successors in title) or National Oil Companies from other countries.
The exploration and production of oil and gas is a very expensive capital intensive undertaking as the preliminary shooting of seismic and the drilling of exploratory wells in an oil block in accordance with the work programme agreed with any Government in any country may cost between US$1 million to over US$ 15 million and Kenya is no exception (this is coupled with the attendant risk that there is always a great possibility that the oil(if any that is found) may not be in commercial quantities). The development and production phase may involve the construction of the infrastructure necessary to transport the oil from the wellhead to the port of Mombasa or Lamu and may cost hundreds of millions of dollars.
For that reason any IOC that seeks to sign a Production and Sharing Contract (PSC) with the Kenyan Government in respect of the available oil and gas blocks (be they onshore or offshore) would like to ascertain up front what taxes if any are applicable during the exploration phase as well as the production before the IOC can proceed to make any contractual commitment by signing and sealing the PSC. This accords with what Lord Mansfield stated in 1774, that in all mercantile transactions the great object should be certainty. This aphorism holds true to this day especially in the oil and gas sector.
The taxes applicable to the oil and gas company undertaking exploration and production of oil in Kenya are as follows:
Ring-fencing is applicable to the upstream oil and gas sector in Kenya. This means that losses from one oil block cannot be used to reduce the taxable income in respect of another profitable oil block.
The Kenyan Government is currently at an advanced stage of concluding the preparation of new legislation that will govern the upstream oil and gas sector in Kenya.
She has been involved in notable corporate & commercial transactions including advising on the government-to-government collaboration between the Government of Kenya and China National Petroleum Corporation on a proposed USD 1.8 billion project to develop up to 350 MW of geothermal power.
In 2014, she was awarded a Commonwealth Professional Fellowship at the law firm of Hogan Lovells LLP in London, where she practiced with its project finance team. She was further awarded a Power Africa Fellowship in 2019 at the law firm of Shearman & Sterling LLP in New York, where she practiced with its project development and project finance teams.
Cindy holds a Master of Laws in Commercial Law from the University of Bristol, a Bachelor of Laws from Durham University, United Kingdom and a Post-graduate Diploma from the Kenya School of Law.
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