When bidding in Tanzania’s fourth Offshore Licensing Round was officially closed on 15 May, the Tanzania Petroleum Development Corporation (TPDC) announced bids by CNOOC, RAK Gas, ExxonMobil/Statoil, Mubadala and Gazprom, with other licensing rounds in the region scheduled
There remain opportunities for exploration companies with an eye on the market to secure fresh acreage, write international law firm Bracewell & Giuliani’s partner Ben James and senior associate Paul Jones.
Country-by-country:
Tanzania
• The fourth licensing round, consisting of seven offshore blocks and the onshore North Lake Tanganyika block, closed on 15 May 2014 with five bids submitted by CNOOC (Block 4/3A), RAK Gas (Lake Tanganyika North), ExxonMobil/Statoil (Block 4/3A), Mubadala (Block 4/2A) and Gazprom (Block 4/3B).
• Regulatory update - Gas Policy was published in October 2013 and draft Local Content Policy was published in April 2014. A draft of the Natural Gas Bill is currently expected in October 2014 with the Natural Gas Utilisation Master Plan; an upstream-focused Petroleum Policy and Petroleum Bill are to follow.
Mozambique
• The launch of fifth licensing round, which is understood to consist of 12 blocks (onshore and offshore), is on hold pending ratification of the new Petroleum Law and is now expected Q4 2014.
• Regulatory update – The new Petroleum Law is currently expected to be approved in the next parliamentary session.
Kenya
• The launch of the first licensing round, understood to consist of eight blocks, is on hold pending finalisation of the Energy Bill and Energy Policy, and is now expected Q4 2014.
• Regulatory update – The draft Energy Bill alters the current regime to add royalties and provide gas-sharing terms and windfall profits. The Energy Bill also sets out a new framework of environmental regulations to be enforced by the Cabinet Secretary under a newly-established National Fossil Fuels Advisory Committee. More stringent local content requirements are also expected.
Uganda
• The launch of the first licensing round is also on hold pending finalisation of regulations related to the new Petroleum (Exploration, Development and Production) Act, which will, among other things, set applicable signature bonuses. It is also now expected Q4 2014.
• Regulatory update – The National Oil and Gas Policy, 2008; Petroleum (Exploration, Development and Production) Act, 2013; and Petroleum (Refining, Conversion, Transmission and Midstream) Storage Act, 2013 were all recently put in place. The formation of a new national oil company (NOC) will be a significant change going forward.
10 key points for international oil companies (IOCs):
• Legislative change – As indicated above, unsuitable petroleum legislation and policies are being updated across the region, which is creating a moving regulatory target for investors.
• Production sharing contracts – Tanzania, Mozambique, Kenya and Uganda each grant oil and gas exploration and production rights through a form of production sharing contract/agreement. Each jurisdiction has its own model from which it provides a basis for negotiations.
• Bidding process – Licensing rounds are generally characterised by a public launch and a period for due diligence before bids are submitted and evaluated. Mandatory data packages are made available – often costing millions of dollars a time – and bids will be evaluated against criteria including strength of the proposed work program; technical capability; financial capability; fiscal package; and health, safety and environmental protection policy. In Tanzania, Tanzania Petroleum Development Corporation (TPDC) indicated that IOCs bidding in consortium or as part of a joint venture with domestic companies would be preferred.
• Bonus/tax/royalties – In Tanzania, the new 2013 Model Production Sharing Agreement (MPSA) introduces bonuses of USD$2.5mn and USD$5mn on signature and production respectively, with no bonuses previously; makes the contractor subject to general corporate tax (30 per cent of income) as well as additional profits tax (25-30 per cent for both onshore/shelf and offshore, when it had previously only been for onshore/shelf); and applies a royalty of 12.5 per cent for onshore/shelf and 7.5 per cent for deepwater (offshore up from previous 5 per cent). Global trends have seen bonuses increase and this is likely to be reflected in forthcoming East African licensing rounds.
• Production sharing/cost recovery – Again, the trend is towards a higher state-take and Tanzania’s 2013 MPSA has reduced the contractor’s share of profits from deepwater gas finds from 20-50 per cent to 15-40 per cent. There was also a significant reduction in the deepwater cost recovery limit from 70 per cent of production net of royalty to 50 per cent.
• Participation rights – In Tanzania, TPDC has an option to acquire a minimum 25 per cent interest and greater state participation can be expected in future across the region. In Mozambique, the country’s national oil company ENH has an interest in existing blocks ranging from 10-30 per cent. States can also be expected to take a more forward role in the development of their own blocks and two blocks were held back from Tanzania’s licensing round for development by TPDC in conjunction with a ‘strategic partner’.
• Local content – Specific local content policy is likely to strengthen the force of local content provisions included in production sharing agreements. Under Tanzania’s 2013 MPSA, contractors are required to comply with the government’s local content policy.
• Domestic market supply obligations – Tanzania’s 2013 MPSA provides that TPDC and contractors must ‘satisfy the domestic market in Tanzania from their proportional share of production’.
• Capital gains – Capital gains tax regimes are being tightened across the region to capture disposals of assets via the sale in shares of offshore companies.
• Investor protection – Recent trends are against the inclusion of economic stabilisation clauses in East African production sharing agreements and Tanzania’s 2013 MPSA does not contain any stabilisation provisions. Various Bilateral Investment Treaties are in place with East African states and Tanzania, Mozambique, Kenya, and Uganda are each a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
East Africa country-entry specialists:
Bracewell & Giuliani’s London office focuses exclusively on the energy sector. Our lawyers have spent significant time on the ground in East Africa and provide a comprehensive legal service to companies looking to participate in licensing rounds or acquire existing interests in the region.
About the authors:
Ben James is a partner with the law firm Bracewell & Giuliani LLP who has advised clients on the development, sale, purchase and financing of oil and gas assets. James has particular experience in relation to African transactions, having advised on deals in over 25 jurisdictions across the continent and he has worked extensively in East Africa.
Paul Jones, a senior associate with the law firm Bracewell & Giuliani LLP, is an oil and gas specialist with experience of working in Africa including on long-term secondment to law firms in Ghana and Tanzania. Jones has advised exploration companies entering markets across East Africa.
