Senegal targets bigger royalties, stakes in new oil code

By alonso soto on 11/9/2018
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Photo: BP.

DAKAR, Senegal (Bloomberg) -- Senegal is considering raising royalties and taking a bigger stake in oil and natural gas projects as part of the West African nation’s overhaul of its oil code, according to a document obtained by Bloomberg.

Senegal is revising its code as a string of major discoveries off its coast is expected to make the country an oil exporter in coming years, with explorers including BP Plc and FAR Ltd. due to make investment decisions on projects within the next 12 months. Existing regulations are two decades old and were adopted when the nation wanted to attract investment for largely untested resources.

A draft of the new code is proposing that state-owned oil producer Societe Des Petroles Du Senegal, also known as Petrosen, take a stake of between 10% and 30% in operational fields and a carried interest of the same size when projects are being developed, according to the document. Existing regulation limits Petrosen’s holding to 20% for these stages.

Petrosen stake

The state company’s carried stake in exploration projects is proposed to remain unchanged at 10%, according to the document. Whereas royalties can currently vary from 2% to 10%, the new code proposes fixed percentages, depending on the nature of the operation:

  • Onshore crude 10%
  • Shallow offshore crude 9%
  • Deep offshore crude 8%
  • Ultra-deep offshore crude 7%
  • Gas 6%

While the document doesn’t state whether the changes will apply retroactively, a spokesman for the ministry said that the government has agreed stability clauses with existing license holders, while declining to comment further on the issue. The new code’s other provisions are still being finalized, he said in an emailed response to questions. A final draft is likely to be submitted to lawmakers next month, he said by phone.

The adoption of the new code would help dissipate uncertainty over regulations and accelerate investments in Senegal, said Lennert Koch, principal analyst for sub-Saharan Africa at Wood Mackenzie in Edinburgh.

The code “will not surprise many players that are looking at Senegal,” Koch said by phone. “There are some items such as fees that could be a deterrent for some smaller players. They are trying very hard to attract the financially stable, strong international players.”

Other envisaged proposals for the new code include signature bonuses, the allocation of funding for social projects and the compulsory participation of domestic private investors, according to the document.

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