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KENYA: Petroleum Ministry Cancels 6 PSAs Over Default of Obligations

The Cabinet Secretary for Petroleum and Mining John Munyes has issued demand notices and notices of termination to six production sharing contracts in a Kenya Gazette notice dated 10th September 2021.

According to the notice the Cabinet Secretary on the 27th August 2021 issued demand notices and notices of termination to six international companies including:

Contractor                                                          Production Sharing Contract

                                                                                    Block

Zarara Oil and Gas Limited                           L4

Zarara Oil and Gas Limited                            L13

Octant Energy (do Castor Vall)                   L17/18

Simba Africa Rift Energy Limited                2A

A—Z Petroleum Products Limited            L1A

A—Z Petroleum Products Limited            L3

Milio/Castac Oil Limited                                 L20

Lamu Oil and Gas Limited                             L14

Following the cancellation of the licenses, OilNews Kenya visited the Zarara Oil & Gas leased Pate Island site which was part of the Pate 2 and Pate 3 well pad has been decommissioned and the Christmas tree on the Pate 2 well sealed with concrete with restoration activities ongoing in partnership with the community. The land tenure has also been reversed to the original owners with the company having ceded all rights back to the community starting 1st September 2021.

Pate 2 & 3 well site with sealed Pate 2 well in the middle

The Cabinet Secretary exercised powers under the Petroleum Act and the production sharing contract which allows the cabinet minister to terminate a contract by giving the contractor written notice, if the contractor:

(a) fails to make any payment to the Government or the Minister required under this contract for a period exceeding one (1) month;

(b) is in material breach of any other obligation under this contract; or

(c) becomes insolvent, makes a composition with creditors, or goes into liquidation other than for reconstruction or amalgamation. OilNews Africa can confirm one of the license holders a subsidiary of a Mauritius registered IOC has gone under liquidation and is facing numerous court cases in Kenya over non-payment of contractors.

Following the issuance of the notices the contractor has between one to three months to remedy the the breach within the period of the notice or show the ministry best efforts to remedy the default which can lead to the extension or withdrawal of the notice.

When the cabinet secretary terminates the contract the contractor shall conclude the petroleum operations in the area in an orderly manner minimizing harm to the Government and third parties.

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