Kenya grants Gulf Energy tax exemption in Turkana oil plan
Kenya has granted tax and duty exemptions to Gulf Energy E&P B.V. under a newly signed addendum restructuring the Production Sharing Contract for Turkana’s Block T7 oil project in favour of Gulf Energy.
Under the revised deal, Gulf Energy and its subcontractors will no longer pay Value Added Tax (VAT) on goods and services used directly in petroleum operations and will be exempt from railway development levies, among others.
In effect, the government has lowered the cost of doing business for Gulf Energy by removing taxes that ordinarily add significant overhead to capital-intensive oil developments effectively making the National Treasury, already contending with chronic revenue shortfalls, to forgo billions of shillings in taxes it would traditionally collect during the exploration and development phases.
Parliament is now expected to ratify the new contract framework.
Similarly, Cabinet Secretary for Energy and Petroleum Opiyo Wandayi recently approved Gulf Energy’s field development plan covering Blocks T6 and T7, outlining a two-phase rollout targeting early output in December 2026 and eventual ramp-up to 50,000 barrels per day.
Feasibility studies show that the recoverable reserves across the basin are estimated at 326 million barrels, with total investment projected at US$6.1 billion over the 25-year contract period.
The firm will be exempted from import declaration fees on equipment and withholding tax on services and interest tied to petroleum activities.
The addendum removes the taxes and levies that previously applied to the project, wiping out the 16% value-added tax, 5% withholding tax on local services, 5.625% on imported services, the 2% Railway Development Levy, and the 2.5% Import Declaration Fee.
Gulf Energy will also be able to recover up to 85% of annual crude output as cost oil, up from 65% in the original contract, increasing the ceiling for recovering exploration, development, and production expenses. Capital expenditure definitions have been expanded to include drilling, surveys, hauling, mobilization, and decommissioning, bringing clarity and widening the scope of reimbursable spending.
The addendum also formalizes the renaming of the acreage from Block 13T to Block T7 following the government’s April reorganization of petroleum blocks. It also codifies the chain of ownership transfers that began with Platform Resources and passed through Africa Oil and Tullow Kenya before Gulf Energy acquired Tullow’s upstream business in a US$120 million transaction completed in October.
According to the new plan, the government’s minimum entitlement from contractor sales rises to 20%, up from 15% in the original T7 agreement, while state back-in rights are set at the uniform 20% held through the National Oil Corporation. Profit-oil splits, according to parallel agreements, begin at 50% for Kenya in initial phases and climb to 75% at peak production, with a 26% windfall tax triggered at oil prices of US$50 per barrel.
Logistics terms have been revised to allow the contractor to lift the government’s share of oil from Mombasa or another agreed location, replacing earlier provisions.
With Gulf Energy holding full participating interest in Block T7 and serving as operator across the South Lokichar basin, the addendum sets the fiscal and operational terms that will govern the next phase of Kenya’s bid to join Africa’s oil-producing nations.
Tullow signed a head of terms agreement with Gulf Energy to sell the entire working interests in Kenya, for a total consideration of at least $120 million.
