Kenya has granted sweeping tax incentives and increased cost recovery allowances to Gulf Energy Ltd. in a bid to accelerate development of the South Lokichar oil project, with first commercial exports now targeted for late 2026.
Under an amended production sharing agreement submitted to Kenyan lawmakers, the Nairobi-based energy firm will be exempted from paying value-added tax, withholding taxes, and import levies on goods and services used in developing the South Lokichar basin. The original deal required developers to pay 16 percent value-added tax, 5 percent and 5.625 percent withholding tax on local and imported goods and services respectively, along with a 2 percent railway development levy and a 2.5 percent import declaration fee.
The developer of the $6.1 billion project will also be allowed to recover as much as 85 percent of exploration and production expenses annually, a significant increase from the initial cost-recovery ceiling of 55 percent and 65 percent for blocks T6 and T7.
The amendments are designed to harmonize provisions in the two blocks’ agreements and accelerate project progress, according to National Oil Corp. of Kenya Chief Executive Officer Leparan Morintat. Kenya has also agreed to set its back-in rights for the oil project at 20 percent for both blocks, which will be held by the state-owned oil firm.
Kenya’s Energy Minister Opiyo Wandayi approved Gulf Energy’s field development plan last month, and it now requires parliamentary approval. The Ministry of Energy and Petroleum has authorized Gulf Energy E&P BV to advance development of the South Lokichar project and adjacent blocks within the Tertiary Rift region.
The development plan outlines large-scale drilling operations, construction of a heated pipeline connecting Lokichar to the port of Lamu, and upgrades to existing pilot infrastructure. It also provides for central processing facilities with expansion capacity, field gathering systems, water injection operations, and power generation facilities that will progressively transition from diesel to grid electricity and renewable energy sources.
Kenya’s share of profit will start at 50 percent in the initial stages and increase to 75 percent at peak production, where output is expected to exceed 150,000 barrels per day. Oil prices of at least $50 per barrel will trigger a windfall tax of 26 percent, according to the agreement.
Gulf Energy acquired the assets from Tullow Oil in April for $120 million. Tullow agreed to sell after attempts over more than a decade to develop the finds, as it focuses on paying down debt. The agreement includes potential milestone-based and price-linked payments.
The government says the project marks a major step toward establishing Kenya as an oil-producing nation while creating long-term economic opportunities for the region.
Source: worldoil.com, angolanminingoilandgas.com