Petroleum Exploration Service Contract (Kenya)

A Petroleum Exploration Service Contract in Kenya governs the relationship between the parties by fixing what each must do.

The Petroleum (Exploration and Production) Act Cap. 308 grants the Government of Kenya, through the Cabinet Secretary for Petroleum, the authority to enter into Production Sharing Contracts with petroleum exploration companies under Section 4 of Cap. 308. Exploration companies holding PSCs — including past licence holders such as Tullow Oil Kenya B.V., Total Energies EP Kenya B.V., and Africa Oil Corp, as well as state participation through the National Oil Corporation of Kenya (NOCK) — routinely engage specialist oilfield service companies through petroleum service contracts to conduct specific technical operations within their PSC blocks.

The Energy and Petroleum Regulatory Authority (EPRA) — established under the Energy Act No. 1 of 2019 and the Petroleum Act No. 4 of 2019 — is the primary petroleum sector regulator in Kenya, having absorbed the functions of the former Directorate of Petroleum. EPRA approves drilling programmes, work programmes, and technical operations through the Work Programme and Budget mechanism in the relevant PSC. Petroleum service contracts must be structured consistently with the approved Work Programme and Budget under the PSC, and service providers operating in Kenya's upstream sector must comply with the EPRA Petroleum Upstream Regulations.

The Local Content provisions in the Petroleum Act No. 4 of 2019 — specifically Part IV — impose local content obligations on petroleum companies and their contractors, requiring preference for Kenyan goods, services, and personnel. The National Content Framework under the Petroleum Act No. 4 of 2019 requires that petroleum service contracts include local content commitments, preferential engagement of Kenyan subcontractors, and training and skills transfer provisions for Kenyan nationals. The Kenya National Chamber of Commerce and Industry (KNCCI) and the Kenya Association of Manufacturers (KAM) track local content compliance in the petroleum sector.

Kenya's Petroleum (Exploration and Production) Act Cap. 308 applies to onshore and offshore petroleum operations, including the onshore Lokichar Basin in Turkana County where commercial oil discoveries have been made, and any future offshore exploration in Kenya's Indian Ocean Exclusive Economic Zone. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.

A Petroleum Exploration Service Contract in Kenya is required whenever an exploration company operating under a Production Sharing Contract (PSC) with the Government of Kenya engages an external specialist to perform oilfield services in support of its exploration or appraisal programme.

A service contract is required for seismic data acquisition — engaging a geophysical contractor to conduct 2D or 3D seismic surveys within a PSC block. Seismic acquisition is the first major technical operation in any exploration programme and requires a detailed service contract covering mobilisation, crew management, environmental compliance under the Environmental Management and Co-ordination Act No. 8 of 1999 (EMCA), National Environment Management Authority (NEMA) licences, Health, Safety and Environment (HSE) standards, and delivery of processed seismic data.

A service contract is required for exploratory or appraisal drilling — engaging a drilling contractor to provide a drilling rig, crew, and associated services to drill exploration or appraisal wells within the PSC block. Drilling contracts are the highest-value petroleum service contracts and require detailed provisions on rig day rates, standby rates, force majeure, well control procedures under the IADC Well Control Manual, indemnity and liability allocation, and completion and plugging and abandonment (P&A) obligations.

A service contract is required for well services — including wireline logging, mud logging, directional drilling (MWD/LWD), cementing, perforating, well testing, and production testing — performed by specialist service companies. Major well services providers operating in Kenya include Schlumberger (SLB), Halliburton, Baker Hughes, Expro Group, and local service companies.

A service contract is required for environmental and social impact assessment services — engaging environmental consultants to prepare Environmental and Social Impact Assessment (ESIA) reports as required by NEMA under the EMCA and the Environmental (Impact Assessment and Audit) Regulations, 2003 (Legal Notice No. 101 of 2003) before commencing drilling or seismic operations in Kenya's sensitive ecosystems including Turkana County.

A service contract is also required for petroleum engineering consultancy, reservoir studies, petrophysical analysis, and economic evaluation services performed in connection with the PSC work programme. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.

A Petroleum Exploration Service Contract in Kenya under the Petroleum (Exploration and Production) Act Cap. 308 must address the following critical elements to protect both the exploration company and the service provider while complying with Kenyan law and the relevant Production Sharing Contract.

Parties and Recitals: Full legal names of the exploration company (the 'Company') and the service provider (the 'Contractor'), together with their company registration numbers under the Companies Act No. 17 of 2015 or equivalent foreign registration, EPRA operator licences or permits, and references to the PSC block number and the approved Work Programme and Budget under which the services are authorised. The recitals should describe the Company's PSC status and the basis for engaging the Contractor.

Scope of Work: A precise, detailed description of the services to be performed — seismic acquisition parameters, drilling well specifications, well services operations, or other technical scope — with reference to the relevant technical standards (API standards, IADC guidelines, SPE standards). Ambiguity in scope is the most common source of disputes in petroleum service contracts and should be eliminated through detailed technical annexures.

Contract Price and Payment: The commercial terms — whether a day rate contract, unit price contract, or lump sum contract — with clear schedules of applicable rates, standby rates, and mobilisation/demobilisation charges. Payment terms must specify currency (typically USD for international service contracts, though the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK) impose restrictions on foreign currency transactions for domestic services), invoice submission deadlines, payment periods, and late payment interest provisions.

Local Content Compliance: Provisions implementing the local content obligations under Part IV of the Petroleum Act No. 4 of 2019, including commitments to employ Kenyan nationals, engage Kenyan subcontractors and suppliers, procure goods and services locally where available, and submit local content reports to EPRA. Minimum local content thresholds are prescribed by the EPRA Petroleum Upstream Local Content Regulations.

HSE Standards and Environmental Compliance: Requirements that the Contractor comply with the Company's HSE Management System, the EPRA Petroleum Upstream HSE Regulations, the Environmental Management and Co-ordination Act No. 8 of 1999 (EMCA), and all applicable NEMA licences and permits. The Contractor must maintain valid insurance, carry out emergency response planning, and comply with Kenya's Occupational Safety and Health Act No. 15 of 2007 (OSHA) with respect to all personnel deployed in Kenya.

Indemnity and Liability Allocation: A knock-for-knock indemnity regime — the standard in the international upstream petroleum industry — under which each party indemnifies the other for injury to or death of its own employees and contractors, and for loss of or damage to its own property, regardless of fault or negligence. Consequential loss and indirect damages should be expressly excluded. The contract should specify applicable insurance requirements including employer's liability, public liability, and contractor's equipment insurance under the Insurance Act Cap. 487.

Intellectual Property and Data Ownership: Clear allocation of ownership of all data, reports, maps, well logs, seismic data, and technical deliverables generated under the contract. Under the Petroleum (Exploration and Production) Act Cap. 308 and the PSC, raw subsurface data is typically the property of the Government of Kenya, while interpretative work products may be shared between the Company and the Contractor under specific terms.

Forms-legal.com provides this Petroleum Exploration Service Contract Kenya template as a starting framework for upstream petroleum operations in compliance with Cap. 308 and the Petroleum Act No. 4 of 2019. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.