The Driller Gets Paid First: Kenya's Turkana Oil Rules Decoded, Barrel by BarrelThe Driller Gets Paid First: Kenya's Turkana Oil Rules Decoded, Barrel by Barrel

That rule, more than the December start date, decides what the country earns from its first commercial oil. With exports targeted to begin in December at about 20,000 barrels a day, as Mwenendo reported on the Turkana crude sales plan, here is how a barrel of Kenyan crude turns into money for the Treasury, Turkana County and the families who live on top of the oil.

Cost Oil: Gulf Energy Gets Paid First

Kenya's oil fields in the South Lokichar Basin run under production sharing contracts. The idea is simple: a private company takes the risk of finding and producing oil, and in return it is allowed to recover its spending from the oil itself before anyone shares profit.

That first slice is called cost oil. Gulf Energy, the Nairobi-based fuel trader that bought Tullow Oil's entire Turkana stake for about KSh 15.58 billion ($120 million) in a deal finalised in September 2025, can claim up to 85% of each year's crude to cover its investment and running costs under the revised terms. The earlier Tullow contracts capped that share at 65%.

A higher ceiling means the company gets its money back faster. It also means that in the heavy-spending early years, far less oil is left over for sharing. Gulf has pledged roughly KSh 778.86 billion ($6 billion) to develop the fields, so the cost oil bucket will stay full for a long time.

Profit Oil: The 50/50 Split and the Higher Tiers

Whatever remains after cost oil is profit oil, and that is what the contractor and the government divide.

Under the field development plan, the first phase, running at about 20,000 barrels a day, uses a 50/50 split. The government's slice rises as output grows: 65/35 at 50,000 barrels a day, and 75/25 above 150,000 barrels a day, a level not expected before about 2040.

So the government's percentage is tied to volume. A small, slow start keeps Kenya on the least generous tier.

The Petroleum Act Splits Kenya's Share Three Ways

Once the national government has its share, the Petroleum Act, 2019 divides it again. Section 58 gives the county government a share "equivalent to twenty percent of the national government's share", and the local community a share "equivalent to five percent", paid into a trust fund run by trustees the county sets up.

In practice that works out at 75% for the national government, 20% for Turkana County and 5% for the community. Parliament must review those percentages within ten years of the law, which means by 2029.

A 100-Barrel Worked Example

Put the rules together and follow 100 barrels in a year when cost recovery is at its 85% ceiling:

1. 85 barrels go to Gulf Energy as cost oil.
2. The remaining 15 barrels are profit oil, split 50/50: 7.5 barrels to the contractor and 7.5 to the government.
3. Of the government's 7.5 barrels, Turkana County's 20% is 1.5 barrels, the community trust's 5% is 0.375 barrels, and the national government keeps 5.625 barrels.

Scale that up to 20,000 barrels a day and the government's profit oil comes to about 1,500 barrels a day. Turkana County's share is about 300 barrels, and the community trust's about 75.

Money makes this clearer. Using an illustrative price of about KSh 9,087 ($70) a barrel, chosen only for round arithmetic, the government's 1,500 barrels would be worth about KSh 13.63 million ($105,000) a day, or roughly KSh 4.97 billion ($38.33 million) a year. Turkana County's slice would be close to KSh 995 million ($7.67 million) a year, and the community trust's about KSh 248.75 million ($1.92 million).

Two cautions apply. Taxes, any royalty and the state's own stake in the project sit outside this example, and their full terms have not been published. And Turkana's crude is waxy, so it must be kept warm in transit and may sell below benchmark prices.

The Early Oil Pilot Scheme Gave a Preview

Kenya has already run this experiment once. Between 2018 and 2020, the Early Oil Pilot Scheme trucked small volumes from Turkana to Mombasa for export.

Those cargoes sold for about KSh 3.68 billion ($28.34 million), and the government earned about KSh 248.59 million ($1.92 million) in royalties from them, roughly 6.76% of the sales. The scheme cost about KSh 8.14 billion ($62.73 million) for drilling, storage and transport. It proved the oil could be sold; it did not prove it could pay.

Transport remains the weak link. An 895-kilometre export pipeline to Lamu was shelved as too expensive, so early output is expected to move by road, needing up to 200 trucks to carry 20,000 barrels a day. Gulf Energy has also pushed for a rail option using the standard gauge railway. Every shilling spent moving the crude is a cost the company can try to recover before profit oil is counted.

Cost Audits Decide the Real Number

Because cost oil comes first, the most important number in Turkana is not the oil price; it is the size of the bills the contractor claims.

The Energy and Petroleum Regulatory Authority plans to hire consultants for 24 months to check contractor costs against market rates and disallow or reduce claims that look inflated. Inflated costs do not just hurt the Treasury; they shrink the profit oil that funds Turkana County and the community trust.

That is why the details matter more than the ribbon-cutting. As Mwenendo's analysis of the Lamu refinery's crude needs showed, Turkana's volumes are modest. With modest volumes, a cost-recovery ceiling of 85% and a 50/50 split, Kenya's take in the early years depends heavily on how hard regulators police the bills.

The next items worth following are Parliament's handling of the revised field development plan and any tax exemption Gulf has sought, the first published cost-recovery audit, and whether the first cargo in December names a buyer and a price.