Bloomberg News

Kenya’s Claim on Cove Proceeds Is Unjustified, Blaha Says

June 07, 2013

Kenya’s demand for payments to allow a transfer of Cove Energy Plc oil and gas assets isn’t justified as the company hasn’t benefited from exploration spending that’s yet to lead to a discovery, former Chairman Michael Blaha said.

The nation last year blocked a transfer of stakes in seven deepwater exploration licenses to PTT Exploration & Production Pcl (PTTEP), which paid $1.9 billion for London-based Cove, a partner in projects led by BG Group Plc (BG/) and Anadarko Petroleum Corp. (APC:US) Cove’s biggest asset was a stake in a gas field off Mozambique.

“We’ve done a lot work in Kenya,” Blaha, chairman at Cove before the takeover closed in September, said in an interview. “We’ve invested quite a lot. It’s not normal then if you do a farm-out to come up with taxation. We were a bit surprised.”

PTT Exploration, based in Bangkok, should propose a way to contribute to Kenya’s oil and gas infrastructure development, said Patrick Nyoike, an official at the Kenyan Energy Ministry.

“There is a new owner who has come on board, material assets have changed hands,” said Nyoike, who will leave his post as the ministry’s permanent secretary before July. “I am expecting feedback from them. We are not in a hurry.”

Vanduan Vijintanasarn, a spokeswoman for PTT Exploration, declined to comment.

The assets are within one of the world’s most active areas for exploration since the discovery of the biggest gas fields in a decade off Mozambique. Investor interest has sparked calls from regional politicians to raise taxation on the explorers.

Withholding Tax

Kenya this year introduced a 20 percent withholding tax on overseas fuel and mineral exploration companies that transfer shares or property, PricewaterhouseCoopers LLP said in February. “This amendment applies a tax on investments and not the fruits of the investment, which is the essence of corporation tax and good tax policy and international best practice,” PwC said.

The ruling raised concerns among companies operating in the country, including Africa Oil Corp. (AOI), which along with Tullow Oil Plc (TLW) discovered Kenya’s first petroleum last year. Kenya plans to tax shared costs when new partners join projects, James Phillips, a vice president at Africa Oil, said this year.

Simba Energy Inc. (SMB) and ERHC Energy Inc. are the latest to secure partners by spinning off part stakes in Kenyan licenses. Ophir Energy Plc (OPHR) also is seeking partners for offshore blocks.

After selling Cove, Blaha, along with the company’s former Chief Executive Officer John Craven and its previous Chief Financial Officer Michael Nolan, set up Discover Exploration Plc to search for oil and gas off the Comoros Islands.

“It was obvious,” Blaha said. “It was next door to where we were. We understand geology and we saw an opportunity.”

Discover is examining plans to expand beyond sub-Saharan Africa where it sees “good opportunities,” Blaha said.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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