New rules requiring oil and mineral companies to disclose all payments made to governments around the world have come into force in the United States, turning the heat on oil exploration and mining firms with operations in Kenya, including Tullow Oil.
The newly published industry rules, derived from the Dodd-Frank Wall Street Reform and Consumer Protection Act, require extraction firms to make public all financial dealings with government agencies for commercial development of oil, natural gas or minerals.
Petroleum principal secretary Andrew Kamau said Kenya plans to adopt and localise the American statute, arguing that it sets a new global threshold and best practice in the governance of the extractive sector.
“It’s a good move and we have even covered it in the Petroleum Bill. If passed, oil firms will have to make these declarations in countries they are domiciled,” Mr Kamau said.
The list of payments that qualify to be declared includes taxes, royalties, fees (including licence fees), production entitlements, bonuses, dividends, payments for infrastructure improvements, and, if required by law or contract, community and social responsibility payments.
The transparency rules for oil, gas and mining come as Kenya opened a fresh search for a consultant to audit Tullow Oil’s finances, more than three years after an earlier hunt failed to attract qualified candidates.
The Ministry of Energy said the consultancy firm will carry out a comprehensive audit of Tullow Oil Kenya’s costs, and classify the costs as appropriate into the qualifying/non-qualifying, as per the production sharing contract agreement.
Kenya has so far licensed 44 out of its 46 oil blocks for exploration and to date only Tullow Oil has discovered commercially viable deposits. Tullow plans to begin exporting 2,000 barrels of oil per day from the Lokichar fields beginning mid-2017, the firm said in a June trading update.
Tullow said the deal dubbed ‘early oil pilot scheme’ involves “transporting oil from South Lokichar to Mombasa, by road or a combination on of road and rail”.
The fresh impetus to audit Tullow Oil comes two months after the Irish oil explorer disclosed that it has so far incurred $1.5 billion (Sh150 billion) in exploration costs to be recovered once production begins.
Even though Tullow Oil shares a work programme and budget update with the Kenyan government on a quarterly and annual basis, Mr Kamau could not vouch for the authenticity of the reports in the absence of an audit.
The government is yet to begin auditing the expenses four years since Tullow Oil announced the discovery of Kenya’s first commercial oil deposits in March 2012.
The list of global explorers scouring for oil in Kenya and are therefore directly affected by the new regulations includes New York Stock Exchange-listed Erin Energy (formerly CAMAC Energy), Texas-based Anadarko, American firm ERHC Energy, and BG Group, which was acquired by Royal Dutch Shell plc.
Other oil explorers with interests in Kenya and are expected to make full disclosures on their payments to governments and costs incurred are Australia’s Swala Energy, Canada’s Vanoil Energy, Statoil from Norway, London-based Ophir Energy, Italian multinational Eni, Edgo from Jordan, Nigerian firm A-Z Petroleum and State-owned National Oil Corporation of Kenya (Nock).
“I am pleased that the commission has completed these final rules, which will provide enhanced transparency to further the statutory goal,” said Mary Jo White, chairperson of the U.S. Securities and Exchange Commission.
Credit: Business Daily