Page 5 - AfrOil Week 44 2019

AfrOil COMMENTARY AfrOil
 Closing the gap
It remains to be seen how Shell’s challenge to Abuja plays out. In the meantime, though, Nige- rian officials have said publicly that they do not expect to recover all of the money the govern- ment has said it is owed.
Last month, for example, Minister of State for Petroleum Resources Timipre Sylva told reporters after a weekly meeting of Nigeria’s cabinet that the government had tempered its expectations.
“Nobody can bring out that kind of money,” he remarked. “I mean, we can’t get $62bn. We can maybe get something from them, but not $62bn. It’s an opportunity we have lost.”
Sylva then described the amendments to the Deep Offshore and Inland Basin Production Sharing Contract Act as Nigeria’s best chance of avoiding such problems in the future. He was speaking shortly after President Buhari specu- lated that the amendments might generate an additional $500mn for the federal budget in 2020 and $1bn more in 2021.
Pro and con
Thus far, Shell and other foreign operators work- ing in Nigeria have not commented publicly on
the amendments to the 1993 contract law.
The new legislation does have an upside, at least in theory. It replaces the provisions of the act that permit the federal government to seek a larger share of oil revenues whenever crude prices top $20 per barrel with a royalty. Specifi- cally, it provides for Abuja to apply a 10% royalty charge to offshore fields in waters more than 200 metres deep and a 7.5% royalty to onshore fields in frontier and inland basins. As such, it gives investors no room to construct a case based on the fact that world oil prices have consistently remained above the $20 threshold for more than
20 years.
Even so, there are downsides – such as the
likelihood that the additional royalty charge will affect the economics of offshore projects. Deepwater development tends to be a costly undertaking, and profit margins are already thin enough given the fact that world oil prices have remained sluggish this year. IOCs may there- fore be more reluctant to launch new deepwater projects in Nigeria now that the government is looking to claim a larger share of revenues. If so, the president’s forecasts about the new revenue stream may prove to be overstated in the long run. ™
“ royalty charge
The additional
could negatively affect the economics of offshore projects
INVESTMENT
Senegal launches first bidding round
Dakar could face difficulties, since one of the assets on the auction block is the subject of an arbitration dispute with PetroNor’s subsidiary Africa Petroleum Senegal
SENEGAL
SENEGAL’S Oil Minister Mahamadou Makhtar Cisse launched the country’s first oil and gas bidding round on November 5. Speaking at an energy conference in Cape Town, Cisse said Senegal was inviting investors to submit offers for three offshore blocks. “We are launching today for the first time in the history of petro- leum exploration in Senegal a licensing round ofthreeblocksofsedimentbasin,”hedeclared.
Senegal is carrying out the auctions in two phases, he stated. The first phase of the process will cover legal matters and will include road- show presentations of the legal framework for the projects in Dakar, Houston and London, he said. This phase will end in late January of next year, he said.
The second phase, he added, will give oil and gas operators the opportunity to assess the potential of the offshore blocks. This phase is due to begin next February and will end on July 31, 2020, he said.
Controversy
Dakar had originally planned to launch the licensing round on October 9. It recently opted to push the date back, though, explaining that it had not been able to finalise certain contract documents in time for the original deadline.
Some observers have speculated that the delay may be related to an ongoing investiga- tion into the activities of Aliou Sall, the brother of President Macky Sall. Senegalese prosecutors began an inquiry earlier this year into allegations of fraud related to an offshore natural gas project that BP joined in 2017.
Cisse has downplayed speculation on this front.Lastmonth,hetoldReutersthattheprobe had not had any discernible effect on Dakar’s decisions about the licensing round.
But the brief postponement of bidding is not the only problem facing Senegal as it seeks to bring its oil and gas reserves on stream. Petro- Nor E&P has noted that Senegal’s latest licensing round includes a block that is currently the sub- ject of a legal dispute.
In a statement dated November 5, the Oslo- listed company identified the block in question as Senegal Offshore Sud Profond (SOSP). Sen- egalese authorities launched the bidding round that includes SOSP and two other blocks during the Africa Oil Week conference in Cape Town, it reported.
Arbitration
PetroNor said in the statement that it had not relinquished its claim to the disputed block.

Week 44 06•November•2019 w w w . N E W S B A S E . c o m
P5