The Energy and Petroleum Regulatory Authority (EPRA) has proposed stringent new regulations aimed at enhancing oversight of Kenya's upstream petroleum industry. The Draft Petroleum (Upstream Petroleum Cost Management) Regulations, 2026, currently under public review, empower EPRA to impose fines of at least Sh20 million on oil companies that refuse inspectors access to their facilities or records.

Under the draft rules, any contractor denying authorised inspectors access commits an offence liable to heavy penalties. Furthermore, providing false or misleading information to the government is also punishable under the Petroleum Act.

Expanded EPRA Powers

  • Right to review and audit company books and records related to petroleum operations.
  • Authority to inspect all sites, plants, warehouses, and offices connected to petroleum activities.
  • Requirement for contractors to cooperate fully, providing complete and verifiable documentation during audits.

Financial Controls and Reporting

The regulations impose new financial management rules on petroleum projects, including a maximum debt-to-equity ratio of 70:30 for development costs. Companies seeking to exceed this borrowing limit must obtain Cabinet Secretary approval based on EPRA's recommendation, with an absolute cap at 75% debt financing.

Additionally, oil firms must secure government approval before recovering project costs from petroleum revenues. Overspending beyond 10% of approved budgets also requires further authorization.

To promote transparency, contractors will submit monthly, quarterly, and annual financial reports detailing expenditures, production, sales, inventories, cost recovery, and profit-sharing. Annual audits by independent auditors approved by EPRA are mandatory.

Restricted Cost Recoveries

The draft regulations limit recoverable expenses, excluding costs such as loan interest, foreign exchange losses, charitable donations, community projects, litigation, research and development, undocumented costs, and penalties under Kenyan law. Costs exceeding international market prices or arising from negligence or misconduct are also barred.

Broader Audit Scope

EPRA's audit jurisdiction extends beyond production sites to any operations affecting petroleum measurement and valuation. The authority may also reopen finalized reports if fraud, misconduct, or significant errors are detected later.

If enacted, these regulations will establish a robust legal framework for financing, auditing, and monitoring upstream petroleum ventures as Kenya advances toward commercial oil production in Turkana.