KENYA: Gulf Energy Granted Major Concessions in Revised Turkana Oil Contract

The Government of Kenya has signed a far-reaching Addendum to the Production Sharing Contract (PSC) for the Turkana oil blocks, handing Gulf Energy E&P B.V. significant new fiscal and operational advantages as the company moves toward developing Blocks T6 and T7.

The Addendum signed in late November 2025 between the Ministry of Energy & Petroleum and Gulf Energy renews the terms of the original PSC initially awarded in 2008 and subsequently held by partners including Platform, Africa Oil, Tullow Oil, Maersk, Total, and MOGAS before finally consolidating under Gulf Energy.

Sweeping Tax Exemptions Granted

One of the most consequential changes is the introduction of a new Clause 32A, which exempts Gulf Energy and all its subcontractors from several major taxes on goods and services used in petroleum operations. These include:

• Value Added Tax (VAT)
• Railway Development Levy
• Import Declaration Fee
• Withholding Tax on services and interest on petroleum-related loans

The exemptions apply to petroleum exploration, development, production, processing, and transportation activities.

Higher Cost Recovery Cap Reduces Kenya’s Share

The Addendum significantly revises the cost-recovery structure. Gulf Energy can now recover up to 85% of annual crude oil production as “cost oil,” compared to the 65% cap under Tullow’s original contract.

This means the State will only begin receiving “profit oil” after the contractor deducts a much larger portion of crude to cover costs—reducing Kenya’s immediate revenue share from early production years.

Expanded Recoverable Capital Costs

The Addendum broadens the definition of “capital expenditure,” allowing the contractor to write off a wider range of costs including:

• drilling, testing, and cleaning wells
• geological and geophysical surveys
• development, appraisal, and decommissioning costs
• road-building, land-levelling, and transportation associated with operations

This expansion increases the pool of expenses eligible for recovery before profit-oil sharing begins.

Crude Oil Lifting Point Moved to Turkana

The government has replaced all references to Mombasa with Turkana as the lifting point for crude oil.

Under new Clause 27(6), the contractor may lift all crude oil produced, including the government’s share, on terms to be agreed. This centralizes export logistics under Gulf Energy’s control.

Contract Shielded from Future Legal Changes

A new Clause 33A ensures the PSC is protected from retroactive changes in law:

“…any amendment, repeal, or enactment of laws… shall not apply retrospectively to alter, diminish, or impair rights, privileges, and obligations under this contract.”

This stabilisation clause secures the contractor against future regulatory or fiscal adjustments—including those arising from petroleum law reforms.

Gulf Energy Now Sole Owner of Block T7

After years of partner exits—including Tullow, Total, Africa Oil, Maersk, and MOGAS the Addendum confirms that Gulf Energy E&P B.V. now holds 100% interest in Block T7.

The company recently restructured its identity, shifting from Tullow’s Kenyan branch to Gulf Energy E&P B.V., a Netherlands-incorporated entity.

Government Approves Field Development Plan (FDP) A Major Turning Point

The Addendum confirms that Gulf Energy has already submitted the Field Development Plan (FDP) for discoveries in Blocks T6 and T7, which EPRA has reviewed and forwarded to the Cabinet Secretary.

The government has now approved the South Lokichar Basin Field Development Plan, officially marking Kenya’s transition from exploration to commercial oil development for the first time.

Key FDP highlights:

Total investment: USD 6.1 billion

• Phase 1 production: 20,000 barrels per day
• Ramp-up: Production expected to reach 50,000 barrels per day by 2032
• Scope: Development of six oil discoveries across Blocks T6 and T7 in the Tertiary Rift Basin, operated by Gulf Energy E&P BV (GE)
• First oil target: December 2026

This approval represents the most significant advancement in Kenya’s oil sector since the original discoveries more than a decade ago.

A New Chapter for Turkana Oil—But With Tough Trade-offs

• The revised PSC and approved FDP demonstrate Kenya’s determination to revive the long-delayed Turkana oil project. But the generous fiscal concessions broad tax exemptions, expanded cost recovery, and legal stabilisation signal a high price paid to keep the project alive.
• Whether the deal unlocks long-awaited economic benefits or sparks renewed debate over value for Kenyans will hinge on execution in the critical years ahead.