Kenya to penalise slow oil and gas explorers

* Some firms fall behind on work commitments

* Officials plan to enforce contract terms

* Small companies could be squeezed out

By Kelly Gilblom

NAIROBI, Oct 1 (Reuters) - Kenya wants licensed oil and gasexplorers to speed up their work to meet the terms of theircontracts, and may invoke its right to cash in their guaranteesif they fail to do so, a senior Ministry of Energy officialsaid.

A squeeze in global capital markets has hurt independentfirms' ability to raise money to drill exploratory wells,causing a handful of oil companies in Kenya to fall behindschedules they are contractually obliged to meet.

The government's tough new stance could have majorimplications, pushing out smaller firms in favour of those withgreater investment capacity.

"We just want them (explorers) to do their work. If theydon't do the work we cash the bank guarantee," Martin Heya,Kenya's petroleum commissioner, told Reuters.

Bank guarantees are usually agreed when companies signexploration contracts, specifying an amount of money payable tothe government should they fail to meet their obligations. Thegovernment can also revoke licences.

Explorer Tullow Oil struck a promising oil find inthe northern county of Turkana last March, heightening interestin the East African nation's natural resources.

"Now the interest that is there (in Kenya's resources) is sooverwhelming. If you just sit on the block and do nothing wewill take action," Heya said.

John Malone, who studies the sub-Saharan African petroleumindustry for New York-based Global Hunter Securities, said: "Themarket has had no interest in taking any risk, it's made itharder for them to go to equity markets and raise money ...that's punished a lot of these smaller oil companies."

Australian firm Lion Petroleum fell behind on its workcommitments this year, causing the government to charge thecompany a $4 million fee to extend its contract by 12 months.

Newly-formed Canadian company Taipan Resources saidit was acquiring the firm in July. It raised $11.5 million tocover the fee and meet Lion's contractual obligations, includingconducting surveys and drilling an exploratory well. TaipanResources was unavailable for comment.

Other companies, such as Zarara Oil and Gas Resources, havealso had difficulty meeting work schedules, according to theMinistry of Energy.

Peter Worthington, head of Zarara's parent company MidwayResources, said the firm was unwilling to discuss the issuebecause of its contractual relationship with the government.

Heya said Zarara was working to catch up and the ministrywas not planning any immediate action against the company.

He added that most other companies working in Kenya were ontrack to meet contract schedules.

(Editing by James Macharia and Pravin Char)

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Keywords: KENYA EXPLORATION/