Ministry of Mines, Industry and Energy (“MMIE”) of Equatorial Guinea announced on 16 June 2014 that a licensing round will open on 1 July 2014. In this briefing we set out: a short overview of the oil and gas industry and regulatory regime in Equatorial Guinea; and details of the forthcoming licensing round.
Background
According to the US Energy Information Administration, Equatorial Guinea is the eighth largest crude oil reserve holder and tenth-largest gas reserve holder in Sub-Saharan Africa, with 1.1 billion barrels of proved oil reserves and proved natural gas reserves of 1.3 trillion cubic feet as of January 2013. The country’s economy is heavily reliant on its oil and gas resources.
The main legislation governing oil and gas exploration and development is the Hydrocarbons Law (Decree Law No. 8/2006 of November 2006). This is supplemented by various regulations made pursuant to the Hydrocarbons Law (in particular the Petroleum Regulations made by Ministerial Order No. 4/2013 dated 20 June 2013) and general taxation legislation. GEPetrol (Guinea Ecuatorial de Petroleos), established in 2001, is the national oil company of Equatorial Guinea. Sonagas (Sociedad Nacional de Gas de Guinea Ecuatorial), established in 2005, is the national gas company.
PSC terms
International oil companies wishing to participate in the industry bid for licences and, if successful, will enter into a production sharing contract (“PSC”) with the Government and GEPetrol. The main terms of the current 2006 model PSC are as follows: initial exploration period: normally of four to five years divided into two subperiods, extendible twice on a yearly basis; relinquishments: 40 per cent after the initial exploration period, with a further 25 per cent of the remaining area at the end of each renewal period; exploration commitment: an obligation to carry out seismic acquisition and/or exploration drilling in the initial exploration period and a well in each of the annual extensions; royalty: minimum rate of 13 per cent, escalating with increases in average daily production; cost recovery: costs can be recovered from a share of “total disposable production”, net of royalty, with the percentage share individually negotiated for each PSC. Unrecovered costs are carried forward; production sharing: from profit oil according to a stepped scale related to cumulative production. Once again, this is individually negotiated for each PSC; bonus payments: payable on contract signature, on notification of a commercial discovery and on reaching set production targets. Bonuses are individually negotiated and are not publicly disclosed; state participation: a minimum of 20 per cent carried working interest during exploration phase, plus a right to acquire an additional 25 per cent if a commercial discovery is made; local content: an obligation to use local services and materials, so long as the cost is not more than 10 per cent higher than other equivalent services and materials. There is also an obligation to employ local personnel, as well as local supply obligations; and income tax: payable currently at the rate of 35 per cent.
The 2014 licensing round
The licensing round is scheduled to open on 1 July 2014 and close on 30 September 2014. A data room will be open in Henley-on-Thames, UK from 1 July. The MMIE has said that companies interested in bidding will need to pre-qualify by submitting to the MMIE a completed pre-qualification document, together with a pre-qualification fee, by 15 August 2014. Companies who successfully pre-qualify will be notified by 29 August 2014 and will be invited to bid on their selected blocks.
The MMIE has said that further information, including the pre-qualification documents
that must be completed and guidelines for bidders, will be published on its website in
due course.
The Ashurst oil and gas team has extensive experience of advising on acquiring
petroleum rights and transactions in Equatorial Guinea and across Africa more broadly. If you would like any further information on this new licensing round, please do not hesitate to contact the team members listed below or your usual Ashurst contact.
