#1 Ministry of Energy & Petroleum’s Role in Oil and Gas Industry

ministry of energy

Ministry of energy is a key institution in any country that has hydrocarbon resources.

It is important to note, that the amount of oil a company can produce at a profit will be different depending on circumstances in the jurisdiction within which the oil is found.

For example, even if circumstances such as physical infrastructure and distance to market were the same, a 300 million barrel discovery in one country with favorable policies concerning tax and other factors can be commercial.

However, in a neighbouring country it will need a 500 million barrel discovery because the terms are not so attractive.

Countries therefore attract investment and compete with each other based on risk profile of a country and currently East Africa is being de-risked.

Role of the Ministry of Energy

If we were to use Kenya as the case study, the Constitution of Kenya 2010 gives powers for vetting of licenses to the Parliament.

It vests the ownership of hydrocarbons to the national government while granting powers over the sector to the Cabinet Secretary of the Ministry of Energy and Petroleum (MoEP).

The National Government is the licensor to the oil and gas companies and is in charge of regulating and monitoring the sector. This includes the upcoming crude oil pipeline.

The MoEP is the entity responsible for formulation and articulation of policies governing the sector, legal functions of negotiating and licensing process, providing an enabling environment for all stakeholders, and mobilization of resources (both human and financial).

Farm in and Farm out

It is normal industry practice for companies to spread risk by bringing in new partners (farm in) during the life cycle of oil exploration.

In the case of Kenya, small to medium sized companies, who were willing to take higher risk in the initial exploration activities have now had larger companies farm in.

The new partners have equity into an acreage after the previous owners have collected data and de-risked exploration to an acceptable level.