Cost of playing east Africa oil game on the rise

Fri Nov 2, 2012 3:06pm GMT

By Ed Stoddard

CAPE TOWN (Reuters) - A few years ago governments in east Africa would practically pay companies to come and explore for oil or gas on their territory.

Those days are gone.

Promising discoveries from Mozambique to Kenya have put governments in the driver's seat and the rising fees they will demand from oil and gas companies will start to weed out the smaller players that have blazed the region's exploration path.

Kenya has said it will revamp its tax rules to benefit more from profits earned by foreign oil and gas exploration.

Energy Ministry Permanent Secretary Patrick Nyoike said last week the country was proposing to raise the signature bonuses companies pay for exploration and drilling licences to $1 million from $300,000.

This remains small change on a global scale but the upward trend is clear.

Oil producing countries, established or emerging, are keen for exploration companies to pay to signature bonuses and other fees, not least because they are instant cash for government coffers.

The joint venture Sonangol-Sinopec International (SSI) in 2006 bid $2.4 billion for the rights to prospect for oil in the relinquished areas of Blocks 17 and 18 in Angola, setting a new record at the time for a single signature bonus with $1.1 billion.   Continued...

An oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, is seen in Turkana County March 26, 2012. REUTERS/Tullow Oil plc/Handout
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