20

EAST AFRICAN PETROLEUM CONFERENCE MARCH 5-7, 2003 SAFARI PARK HOTEL, NAIROBI. COUNTRY PRESENTATION ON

PETROLEUM POTENTIAL OF KENYA Albert Maende EXPLORATION & PRODUCTION MANAGER, NATIONAL OIL CORPORATION OF KENYA

EXPLORATION HISTORY PREVIOUS DRILLING ™ Petroleum Exploration in Kenya began in the 1950’s with the first well being drilled in 1960. ™ Between 1960 and 1981, 15 wells were drilled. ™ 4 of these wells were in Anza Basin while the remaining 11 were in Lamu. ™ None-penetrated what the Operators could consider as commercial deposits of petroleum. ™ Two of these wells tested gas at 3.1 mcf/d and 12.7mcf/d respectively. ™ However, all the 14 wells were plugged and abandoned. ™ Between 1981 and 1993, 15 wells were drilled in Kenya.

™2 of these wells were offshore Lamu basin, one onshore Lamu , 10 were in Anza while 2 were drilled in the Tertiary Rift. ™9 of these wells encountered oil and gas shows. ™One well tested gas, one recovered a trace of paraffinic oil while from another, 2 litres of oil were recovered. ™These exploration phases that began in 1985 and led to the drilling of 12 wells, ended in 1993 when licenses for all the blocks were relinquished.

Lamu Basin Study ™The National Oil Corporation of Kenya in 1991 initiated an in-house study of the Lamu Basin, which was completed in 1995. ™This study integrated for the first time all the well logs, seismic, gravity, aeromagnetic, geological and geochemical data of the basin into a single basin synthesis entitled ‘The Hydrocarbon Potential of the Lamu Basin’.

Tertiary Rift Study ™In addition tothe Lamu basin study, the Tertiary Rift has also been synthesized into a basin study package. This was accomplished in a year 2000 to 2001 program.

ANZA BASIN STUDY ™

NOCK is currently carrying out the Anza Basin Study.

™

Anza Basin covers an area of 94,220 sq Km.

™

11 exploratory wells have been drilled in this Basin.

™

A total of 14,362 Km seismic lines, 64,061 Km aeromagnetic data and 15,891 Km of gravity data have been acquired during previous petroleum exploration work in this Basin.

SUDAN

??

0

?

200

KILOMETERS

?

ETHIOPIA

ZA N SI

SUGUTA

LOKICHAR (LOPEROT) TROUGH

BA

UGANDA

MA ND

AN

ER

A

BA S

IN

TURKANA BASIN

LOTIKIPI BASIN

100

SOMALIA SOUTH KERIO TROUGH

NAIROBI LAMU EMBAYMENT

OC

EA N

MAGADI TROUGH

LAKE VICTORIA

NYANZA TROUGH

KENYA

DI A IN

Sedimentary Basins

N

KEY

WELLS DRILLED IN KENYA

Oil Shows;

969 - 3643m mud cut fluorescence and oil staining 1799 - 1951m C1 - C4 in Cretaceous and Miocene Sands Gas Shows:

RFT DST 2:

1110.2m 9.5 litres of waxy oil 0 29.4 API in Miocene 952 - 977m 5 litres of Oil 160 API

Oil Shows;

970 - 1020m 1160 - 1720m 2799 - 2800m Gas Shows: 2984 - 2988m Tar Staining 2150 - 4269m C1 - C4 Gas kick DST #1 3543 -B 3557m DST #2 3448 - 3451m 600 - 780 in L. Cretaceous Sands

Oil Shows;

2753 - 3384m Mud cut fluorescence Gas Shows: 2216 - 3479m C1 - C4 In U. Cretaceous Sands and Shales Oil shows:

1300 - 2258m Tarry 945 - 1200m 1488 - 2637m C1 C4c DST #2: Gas + H20 1660 - 1663m DST #3: Oil + H2O 1515 - 1520m DST #4: with gas saturation in Cretaceous and Paleogene Sands

Oil show: 40.4 - 44.5m in U. Triassic - L. Jurassic Sands

Gas Shows: -

Gas Shows:

1780 - 2474m C1 - C3 2474 -2992m C1 - iC4 in L. Cretaceous Sands and Shales Oil show:

2799 - 2800m 2984 - 2988m 2150 - 4500m C1 - 1C4 In U. Cretaceous Sands Gas Show:

Gas Shows:

2411 - 2761m C1 - 1C4 in Eocene Sands

Oil Shows;

3445 - 3475m Mud cut fluorescence in Paleocene - Oligocene Sands

Gas Shows:

201 - 700m 1091 - 1200m 1480 - 3599m up to 0.2% C1 Trace C1 - nC4 In Jurassic and Neogene Sands , Shales and Carbonates Gas shows:

1040 - 3092m 150 gas units C1 in Cretaceous Shales and Carbonates

DST : Gas 3.1 Mof/day 3588 - 3628m in U. Cretaceous - Paleocene Sands

DST : Gas 12.7 Mcf/day 1564 - 1614m in Paleocene - Oligocene Sands

Gas Show at: 3942 - 4120 C1 - C4 in Eocene Sands

Gas Shows at; 1110m 1620 - 1710m 1900 - 2050m 3260 - 3360m in U. Cretaceous and Tertiary Sands

Note: Rec overies of oil and g as in DST’s and RFT’s a re highlighted in yellow. Other oc c urrenc es may be m ud gas.

Oil Shows:

1740m 2780 - 3500m Mud cut fluorescence 240 - 3540m C1 - nC4 10 - 154 gas units in Cretaceous and Paleogene Sands Gas Shows:

Oil Shows:

3660m Mud cut fluorescence 3320 - 3606m 93 gas units C1 - C5 in Miocene Carbonates Gas Shows:

Oil Shows; 650 - 1250m Tarry & Bituminous in Permian Grits

OIL SHOW

GAS SHOW

GAS WELL

DRILLED & ABANDONED WELL

OIL AND GAS SHOW OIL SEEP

BASINS OIL SHOW

Gas Shows: 1389 - 3080m 0.7% C1 (on gas chromatography) in U. Cretaceous - Miocene Sands and Carbonates

BASEMENT

GAS SHOW

SUMMARY OF WELLS DRILLED IN KENYA WELL

OPERATOR

TOTAL DEPTH (M)

WALU – 1

BP/SHELL

1,768

PANDANGUA – 1

BP/SHELL

1,982

MERI – 1

BP/SHELL

1,941

MARARANI – 1

BP/SHELL

1,991

RIA KALUI

MEHTA & CO.

1,537

WALU – 2

BP/SHELL

3,729

DODORI

BP/SHELL

4,311

WAL MERER

BP/SHELL

3,794

GARISSA

BP/SHELL

1,240

PATE

BP/SHELL

4,188

KIPINI

BP/SHELL

3,663

TEXAS PACIFIC

3,092

ANZA

CHEVRON

3,662

BAHATI

CHEVRON

3,420

SIMBA (Offshore)

TOTAL

3,604

MARIDADI 1 – B (offshore)

CITIES

4,196

KOFIA (offshore)

UNION

3,658

PETRO-CANADA

3,863

HAGARSO

KENCAN – 1

WELL

OPERATOR

TOTAL DEPTH (M)

ELGAL – 1

AMOCO

1,280

ELGAL – 2

AMOCO

1,908

NDOVU – 1

TOTAL

4,269

SIRIUS – 1

AMOCO

2,638

BELLATRIX – 1

AMOCO

3,479

DUMA – 1

TOTAL

3,337

HOTHORI – 1

AMOCO

4,394

CHALBI – 3

AMOCO

3,643

ENDELA – 1

WALTER

2,780

KAISUT – 1

TOTAL

1,450

LOPEROT – 1

SHELL

2,950

ELIYE-SPRINGS – 1

SHELL

2,964

CURRENT ACTIVITIES EXPLORATION OF BLOCKS L5, L7, L10 AND L11 BY DANA PETROLEUM TOGETHER WITH GLOBAL PETROLEUM ™Dana Petroleum of the U.K. together with Global Petroleum of Australia jointly hold Exploration Licences for 4 blocks offshore Lamu Basin. ™3 of these Blocks were leased in 2000 while the 4th one was leased in 2001. ™During the first two years that Dana who are the operator and Global, have held these blocks, they have compiled and interpreted previously acquired geological and geochemical data in their Leased area and subsequently interpreted data from over 4,500 seismic lines previously shot in these 4 blocks.

™ As a result of these interpretation, they have mapped 4 main plays offshore Lamu Basin. ™ During this year, Dana will acquire a minimum of new 2000 Km seismic data in all the four Blocks that they have leased. ™ These data will be integrated with the over 4,500 Km seismic data that they have already synthesized for purposes of locating drillable petroleum prospects. ™ It is anticipated that Dana will drill their first well in 2004.

EXPLORATION OF BLOCKS L6, L8 AND L9 BY AFREX LTD TOGETHER WITH PANCONTINENTAL OIL & GAS ™ Afrex together with PanContinental Oil & Gas of Australia jointly hold Exploration licenses in 3 blocks offshore Lamu Basin. ™ They acquired these licenses in August 2002. ™ During the past two years that these licenses were in force the two Companies focused on compilation and interpretation of available data in their blocks. ™ Subsequently, in 2005, at the latest, Afrex and PanContinental are expected to acquire a minimum of 900 Km of new seismic data in their three Blocks and drill a well to test their mapped petroleum prospects.

Bl ock 1 2 3 9 10A 10B 11 12A 12B

Ar ea (km2) 33,636 15,528 24,539 27,778 15,289 25,512 35,786 18,788 4,169

Bl ock L-1 L-2 L-3 L-4 L-5 L-6 L-7 L-8 L-9 L-10 L-11 L-12

Ar ea (km2) 19,305 21,979 9,636 7,025 11,571 6,148 9,155 8,632 6,474 14,167 9,943 4,829

GEOLOGY AND HYDROCARBON POTENTIAL 1. Hydrocarbon Potential of Kenya’s Sedimentary Basins ™ Kenya’s petroleum potential is best depicted by the four large sized sedimentary basins that straddle the country. ™ These are Lamu, Mandera, Anza and Tertiary Rift basins. ™ The structural framework map of Kenya shows the four basins and their sedimentary theickness.

1.1.

Lamu basin

™Areal extent is 132,720 sq. Km. Covering both onshore and offshore. ™ It is Upper Carboniferous to Tertiary as depicted in the Lamu Basin representative stratigraphy. ™The sediment package reaches a thickness of over 12Km.

™ Drill Stem Tests carried out on two wells drilled in the Lamu Basin tested gas of 3.1MCF/D in Dodori well (at 3588-3628m in Paleocene sands) and 12.7MCF/D in Pandangua well (at 1564-1614m in Eocene sands). ™ These hydrocarbon occurrences are indicative of a Paleogene Petroleum System. ™ The source rock is considered to be the Paleocene/Early Eocene Pate Limestone and the Eocene Kipini Shales. ™ The delta reservoirs have not yet been penetrated by a well.

0

34 00'

0

40000'

0

36 00'

38 00'

0

42 00'

SUDAN ? ? ?

NO RT H

LOTIKIPI BASIN

BOLOL BASIN

ETHIOPIA EX T.

4000'

0

4 00'

AN ZA BA SIN

MANDERA BASIN (WEST FLANK)

GALA BASIN

CHALBI BASIN

NORTH ANZA BASIN

UGANDA TURKANA

2000'

2000'

LOKICHAR (LOPEROT) TROUGH

SU KA B- ISU BA T SI N

BASIN

C MO

SOUTH KERIO TROUGH

SA HE

R ME

IL

H HIG

SOMALIA

OW

0

0 00'

0000'

KENYA

NYANZA TROUGH

TANA RIVER SYNCLINE H

AG AR SO

HI GH

0

2 00'

2000' WESTERN LIMIT OF JURASSIC SALT BASIN

INTERIOR SYNCLINE

BASEMENT

APPROXIMATE DEPTH TO BASEMENT

DATA UNAVAILABLE

0.5 Km OR LESS

LOW AREA

4.0 - 8.0 Km

TEMBO ANTICLINE

FAULT ZONE

HIGH AREA

2.0 - 4.0 Km

0

0

6 00'

6 00'

AREA OF SALT DIAPIRISM

8.0 Km PLUS

0 0

FORMOSA TROUGH

MAJOR FAULT OR FLEXTURE

0.5 - 2.0 Km

34 00'

MO M HI BA NG SA E

0

4 00'

4000'

MALINDI HIGH

LEGEND

0

36 00'

38000'

120 Km

40000'

42000'

OLIGOC. PALEOC.

EOCENE

D,P,K

D,P,K,S

D,P,K,S

K

Kipini-1

™ The Pate Limestone source rock character is best depicted in Pate # 1 well. ™ Similarly the source rock character of Kipini Shales is depicted in Kipini # 1 well. ™ The reservoir units for this Paleogene petroleum system are the Paleocene/Eocene Kipini Sands and their age equivalent to Dodori, Linderina and Pate Limestones as indicated by the occurrence of a 441m net porous Kipini Sands unit at Kipini # 1 well. This includes a 62m thick porous Dodori Limestone unit.

SOURCE ROCKS IN THE LAMU BASIN Kipini # 1 Rock unit:

Kipini Shales

Depth interval:

2073-2561 m

Thickness:

448 m

Age:

Middle Eocene

Source rock character: •

Marginal richness

•

Fair potential

•

Marginally mature

•

Type II to Type III Kerogen (oil and gas prone)

Pate # 1 Rock unit:

Pate Limestone

Depth interval:

3231-3292 m

Thickness:

61 m

Age:

Lower Eocene

Source rock character: •

Good richness

•

Fair potential

•

Marginally mature

•

Type II Kerogen (oil prone)

1.1

Mandera Basin

™

The Lamu Embayment’s Northern boundary is a triple junction where it meets the Mandera basin to the North and the Anza basin to the North West.

™

The Mandera Basin is shared between Kenya, Ethiopia and Somalia.

™

The Kenyan portion of this basin covers an area of 51,920 sq. Km and has a sediment thickness of up to 10Km whose age ranges from Karoo equivalent (Upper Carboniferous to Lower Jurassic) up to Tertiary.

™

The Mandera Basin has a carbonate platform cap and the petroleum system is yet to be determined.

™

The only oil seep documented in Kenya to date occurs within this basin at Tarbaj # 1 well.

™

This well established the presence of at least 200m thick sand impregnated with tar.

™

This sand which is called the Mansa Guda Formation has reservoir rock potential since it has good porosity consisting of 5% free porosity plus 15% secondary porosity plugged with tar.

™

The tar has been established to be biodegraded asphalts and not pyrobitumen.

™

Other potential reservoir units are the Limestone beds overlying the Mansa Guda.

™

Source rock potential units are shales interbedded within the Mansa Guda Formation and overlying Limestone Formations as well as the Rahmu Shale which is an equivalent of Uarandab Shale that is considered to have sourced oil seeps in Ethiopia’s section of the Mandera.

FIG 9 SOURCE ROCK POTENTIAL OF THE MANDERA BASIN HOL # 1 WELL

TARBAJ # 1 WELL

(Km)

Statigraphic Equivalent

BASIN

(Somalia)

Depth

S1+S2

0

PORT KIMM

0

Muri Fm. Lower and Upper Hamanlei

2.0

0

3

6

9

0

(’000pmm) 2

+50

0

2

4

S1/(S1+S2) 0.1 0.3

0.5

0.7

HI 0

80 150 300

CPI 0

0.8

REMARKS

1.0 1.5

Seir

Rukesa

BATH - L.CAL

BAJ

0.8

Rahmu

Upper Hamanlei

U.CAL. - L. OXF

1.0

0.4

Ro

Busul Gabredarre Uarandab

U.OXF

% TAI

% TOC

(Kenya)

(Km)

Didimtu Formation

Depth

MANDERA

The Uarandab shales in Somalia and Ethiopia are equivalent to the Rahmu Shales in Kenya. The Uarandab Shale is suspected to be the source for the oil seeps in the Ethiopia part of Mandera basin

Upper evaporite section may contain source rock intervals since TOC is between 0.45 - 0.8% Middle Hamanlei has source rock potential since TOC is 0.45 -0.8

3.0

The lower Hamanlei section has source rock potential. Productivity index values of between 0.1 - 0.5 are recorded. H1 values range between 250 - 300 (Oil generating potential) and S1+S2 values are >2000 (fair potential) occur.

PLIENS

HETTANGIAN U. TRIASSIC

UPPER TRIASSIC

Mansa Guda Fm

0.022 0.055 0.170 0.180

TD Mansa Guda Fm.

4.0

Adigrat

Source rock intervals in the Mansa Guda Formation are present: TOC of upto 4.56% (rich potential) Additional note: Shales in the Permo-Triassic (Karoo) section penetrated by the Elgal wells in the southern part of the Mandera Basin at > 500m (more than 5000m of Mesozoic section is eroded) are thermally over-mature.

1.1

Anza Basin

™

The Anza Basin occurs to the Northwest of the Lamu Embayment.

™

It is part of the Central Africa Rift System, which crosses Africa linking the Atlantic and Indian Oceans through Nigeria, Cameroon, Chad, Central Africa Republic, Sudan and Kenya.

™

Anza Basin covers an area of about 94,220 sq. Km and has isolated Jurassic but mainly Cretaceous to Tertiary aged sediments up to 10 Km deep.

™

It is a failed rift basin.

™

The petroleum system in Anza Basin is considered to be similar to that of the Muglad Basin in Sudan.

™

The current drilling results in Anza Basin include recovery of oil and identification of potential source rocks.

™

During a Drill Stem Test of Sirius # 1 well in this basin, a paraffinic crude oil and natural gas were recovered from the depth intervals (4200-4874ft) 1281-1284m and (3860-3870ft) 1177-1180m.

™

The lithological column of Sirius # 1 well is representative of the stratigraphy of Anza Basin.

™

Source rocks within the Upper Cretaceous and Lower Cretaceous intervals have been identified in Sirius # 1 and Ndovu # 1 wells respectively.

CENTRAL AFRICAN RIFT SYSTEM

GEOLOGICAL COLUMN OF SIRIUS # 1 WELL SIRIUS -1 WELL Depth (KB) in ft

AGE 0

LITHOLOGY

HYDROCARBON SHOWS

POROSITY VALUES

DEPOSITIONAL FACIES

110

728

Lava Flows

2000

FLUVIAL

TERTIARY

1000

3000

28% (3860-3870)

3941 4195

5000

UPPER CRETACEOUS

4000

25% (4200-4210)

Campanian igneous intrusion

27% (4997-4987) 27% (5446-5456) TOC=1-4.6%

6000 20% (6586-6596)

7000

6928

Hauterivian gabbroic intrusion

7150

8000

9000

10000

LACUSTRINE /DELTAIC /FLUVIAL

3178

7858 8336 8521 8652

SHALLOW MARINE (TD)

RTF TESTS 3865-7975 ft DST TESTS 6586-6596 5446-5456 4977-4987 4200-4210 3860-3870

SIRIUS # 1 The primary source rock is present at the following interval •

4910-5900 ft (1500-1800m)

Age:

Upper Cretaceous

Lithology:

Shale

Depositional Environment:

Lacustrine

TOC Rо HI Tmax

-

1-4% (good source richness)

-

0.8% - 0.9% (inception of oil window) -

75-400 (oil and gas prone) -

435˚C -445˚C (inception of oil window)

NDOVU # 1 Two source rocks are present at the following intervals: •

2650-2700M

•

3000-3200M

Interval: 2650-2700M Age: Lithology :

Aptian – Albian (Lower

Cretaceous)

Dark grey shale, silty

Depositional Environment:

Deltaic and Lacustrine

TOC

-

1-4% (good to excellent)

H1

-

50-200 (gas prone)

Rо

-

0.65 % (inception of oil window)

PI

-

0.1-0.4 (oil window)

Tmax

-

44º-46ºс (oil window)

Interval: 3000-3200 m Age: Barremian – Lower Aptian (Lower Cretaceous) Lithology:

Dark grey shale, silty

Depositional environment: Deltaic and Lacustrine TOC

-

1-6% (good to excellent)

H1

-

50-200 (gas prone)

Rо

-

0.74-0.85 % (oil window)

PI

-

0.1-0.4 (oil window)

Tmax

-

44º-46ºс (oil window)

Comparison with an equivalent interval from the Muglad Basin in Sudan (Source of information – Schull, 1988) Age of primary source rock: Cretaceous)

Albian – Aptian (Lower

Lithology:

Dark grey shale

Formation:

Abu Gabra Fm.

Depositional environment:

Deltaic and Lacusrine

TOC:

1-5% (average 1.3%)

-

Geothermal gradient:

26˚ C/km

1.4

Tertiary Rift Valley

™

The fourth basin is the youngest geologically. This is the Tertiary Rift Valley.

™

It covers an area of about 38,904 sq. Km.

™

The thickness of sediments in this basin is at least 3 Km as per current drilling results but could even be over 4Km particularly in Lake Turkana.

™

The sub-basins within the Tertiary Rift Valley are Lodwar South (Loperot), Lotikipi, Turkana, Suguta, Magadi, South Kerio and Nyanza.

™

The Petroleum System of the Tertiary Rift Valley is dependant on individual sub-basins.

™

With the exception of the Lodwar South (Loperot) sub-basin, the systems in the other sub-basins are yet to be deciphered.

™

The System in Lodwar South sub-basin (Loperot) revolves around the proven Oligocene to Miocene Loperot Shale source rock.

™

The stratigraphy is represented in the geological column encountered in Loperot # 1 well.

™

Two Loperot Shale source rock units have been delineated.

™

They are of Oligocene to Miocene age.

™

In Loperot # 1 well one of these source rocks is barely mature while the other one is highly mature.

™

The barely mature one is considered to have sourced the oil recovered during the Drill Stem Test at the interval 952-977m.

™

Interbedded sands with porosities between 15-40% are considered to be potential reservoir units if the right trapping configuration can be established.

GEOLOGICAL COLUMN OF LOPEROT # 1 WELL AGE LITHOLOGY

200 400 600 800

1200 1400

1386

2000 2200 2400

3000

15 - 40% ( 950 - 1110m )

TOC = 4 - 17% (Barely mature Loperot shale) (1189-1241m )

Oligoc ene - Lower Mioc ene

1800

2601

?Paleoc ene or younger

2800

0

16 API (DST# 2 oil 952-977m)

9 - 19% ( 1385 - 1750m )

1600

2600

12 - 35% ( 100m - 950m )

1057

Lower Mioc ene

1000

POROSITY VALUES

258

Lower - Middle Mioc ene

0

DSTOIL And the two Loperot shales

Middle Mioc ene

Depth (KB) in m

2950 (TD)

5 - 10% ( 1750 - 2250m )

TOC = 1 - 3% (Highly m ature Loperot shale): (2435 -2600m )

8 - 15% ( 2250 - 2950m )

The two Loperot shale source rocks: LOPEROT # 1 Two source rocks are present at the following intervals: •

1050-1390 m

•

2430-2600 m

Interval: 1050 – 1390 m Age:

Lower Miocene

Lithology:

Shale

Depositional Environment:

Lacustrine

TOC

-

1-17 % (excellent source richness)

Rо

-

10 (excellent source potential)

HI

-

> 500 to > 500 (oil prone) Type 1(11) (Algal)

Interval: 2430-2600 m Age:

Oligocene – Lower Miocene

Depth:

Shale (partly silty)

Depositional Environment:

Fluvial-Lacustrine

TOC

-

0.2-3.3% (good source richness)

Rо

-

0.7 – 1.10 (mature to post mature)

S2

-

1 to 4 (fair source potential)

HI

-

80 – 120 (gas prone)

Hydrocarbon recoveries made in Loperot #1 Well. ™

From an RFT at 1110.2, oil and water was recovered. This was waxy oil of algal lacustrine origin with some land plant contribution.

™

Oil was collected from shakers while circulating at 1587m.

™

Drill Stem Test # 2 conducted at the depth interval: 952977m recovered oil while reverse circulating.

™

The Loperot Well proved the existence of two excellent source rocks in Lodwar South Sub-basin.

LEGAL AND FISCAL REGIMES ™

The Kenya Government Oil Sector Policy.

™

Procedures that Govern Oil Prospecting in Kenya.

The Kenya Government Oil Sector Policy ™

Petroleum Exploration and Production Legislation in Kenya was enacted in 1984 by Parliament and revised in 1986 to give incentives aimed at attracting International Oil Companies to invest and thus stimulate oil exploration in our country.

™

This legislation comprises of clauses that apply to all investors in the Oil Exploration and Production Sector who have duly signed Production Sharing Contracts, popularly referred to as PSC, with the Government of Kenya.

The clauses that provide incentives are: 1. The Customs and Excise Act which exempt investors from any payment of duties and taxes on all imported or re-exported materials and equipment for Petroleum Operations provided the Minister responsible for energy or his representative has certified that the equipment and materials are to be used solely in Petroleum Operations. 2. The Exchange Control Act has been repealed and subsequently an Investor is allowed to open and operate foreign bank accounts, to retain abroad all proceeds from his Petroleum Operations not required to cover his liabilities in Kenya and to pay outside Kenya his expatriate employees and all goods and services necessary for the Petroleum Operations.

3. The Income Tax Act provides a specific method for computing the gains or profits of Petroleum Companies and the taxation of Petroleum Service sub-contractors and ensures that there is no double taxation for U.S. Companies and other Companies, which require such a protection. All these exemptions are done through the appropriate legal notices published by the Government as provided in the Model Production Sharing Contract.

PROCEDURES THAT GOVERN OIL PROSPECTING IN KENYA ™ The Petroleum Exploration and Production Act that was enacted in 1984 and revised in 1986 regulates the negotiations and conclusions of Production Sharing Contracts with Potential Investors. ™ This Act together with its attendant Regulations provides the format and terms through which Petroleum Operations must be conducted. ™ A model Petroleum Agreement is used as a basing for negotiations with Potential Investors. This model, The Production Sharing Contract is included in the Petroleum Exploration and Production Act Regulations. ™ In pursuant of the provisions of this Act, the Government of Kenya has divided all areas available for exploration into Blocks. These are shown here on the map entitled ‘Kenya Petroleum Exploration Open and awarded Blocks.’

™

The significance of Petroleum to Kenya’s economy is demonstrated by the fact that in 1999, the Net Oil Imports cost the country Kshs.29, 954.8 million while the net export earnings from commodities was Ksh.105, 976 million thereby meaning that 28.3% was the ratio of the net oil imports to net export earnings from commodities in 1999.

™

In the year 2000 the net oil imports costed the country Kshs.53, 667 million while the net export earnings from commodities were worth Kshs.109, 522.3 million thereby showing that the ratio of cost of net oil imports to net export earnings from commodities was 49%.

™

This state of affairs is unfortunate and is one that the Government of Kenya is committed to do everything possible to redress and this is why investment in Petroleum Exploration in Kenya is of major interest to us.