Vanoil Energy Ltd. has commenced an international arbitration against the Government of Kenya after the minister for Energy Davis Chirchir declined to renew the company’s exploration licenses citing speculation.
In the suit Vanoil seeks to resolve a dispute arising from the government’s (Respondent) breach of the Production Sharing Contracts for Blocks 3A and 3B.Vanoil says it commenced drilling operations at the Madogashe-I drill site (Block 3A) in Kenya prior to July 31, 2013, as part of the Company’s commitment specified in the amended PSCs for Blocks 3A and 3B but was unable to drill,
The company says this was because of because drill site operations were significantly impaired by a number of incidents of local disturbance and unrest with local government authorities directing it to reduce and then delay operations until a safe return to the site could be provided.
The Company’s decision to proceed with a formal arbitration demand follows prolonged discussions with Kenyan officials regarding an extension of the PSCs for Blocks 3A and 3B in order to accommodate the lengthy delays experienced at the drill site and give the Government of Kenya sufficient time to provide Vanoil with secure and safe access to its site, in order to complete its two-well program.
According to a statement signed by Chairman James Passin Vanoil is seeking not less than US$150 million as full and proper restitution for its seven years of exploration and development, based upon the net present value of its investment in Kenya, to which it is entitled under the PSCs.
Kenya’s parliament has also backed the decision to terminate the oil exploration license of Vanoil Energy after a report tabled in parliament by the energy and transportation committee says the Canadian company was unable to explore any oil in the country after it ran into losses.
The committee through its vice chairman John Munuve also said that the company’s inability to explore for oil showed that the company was only in the country to speculate thus being in breach of contract.
Vanoil’s blocks cover 24,912 km2 in Kenya’s Anza Basin and are geologically analogous to the prolific Muglad and Melmut Basins of South Sudan and geographically in close proximity to the recent PaiPai and Sala-1 discoveries in Kenya.
In July Vanoil announced it will now seek arbitration in order to recover its significant investment and lost profit opportunity in Blocks 3A and 3B.