Article by Ex Petrosen Executive., page-8

Written 15/09/16.
Good background on Senegal and P.E rights,Production sharing ect.
By Ex, Head Negotiator for Petrosen
For several weeks, well-known personalities are spreading statements, questions, insinuations and conjectures vis-à-vis the authorities and honest citizens, thanks to the new discoveries of oil deposits off our coast.
The virulence of the attacks that these statements convey and the adverse effects they might cause, are they a harbinger of the oil curse for our country?
What is it about ? The recent discovery of hydrocarbons (oil and gas), off the coast of Senegal, in the blocks-enabled research and Sangomar, St. Louis and Kayar, deep offshore, has been for some, a battle theme politician .
For having been for twenty years, one of the actors of the new "Eldorado" oil that becomes our country, I fulfill the duty to give my testimony to enlighten public opinion.
Indeed, the Ministry of Industrial Development and Handicrafts, in charge of the newly created Office of oil exploration in 1983 of Senegal Petroleum Company (PETROSEN) as responsible for the promotion, negotiation of contracts and oil associations between 1990 and 2005, before switching to the function MIFERSO CEO, I have traveled, with officials of the oil company, the four corners of the world to promote the petroleum potential of our sedimentary basin.
Issues of oil and gas
It is in the basement, specifically in sedimentary basins that hydrocarbons are generated in source rocks, from organic matter, in a long process of tens to hundreds of millions of years, in conditions of pressure and elevated temperature. They then migrate through permeable sedimentary layers before accumulate in "traps" set up in the reservoir rocks to become exploitable reserves or deposits.
These reserves are the targets of geophysical methods such as seismic investigations. And in case they meet certain criteria, they are subject to drilling.
In Africa, the first discoveries of oil and gas, date back to the colonial period, with western societies called "Majors" as Exxon, Mobil, BP, Shell, Chevron, Texaco, Elf, Total. This is the case of Algeria, Egypt, Libya, Nigeria, Cameroon, Congo, **on, Angola etc. These countries are known to be rich in oil provinces.
In other countries, it will be some decades after their accession to international sovereignty, to attend the first discoveries of oil and gas, thanks to the first oil shock in 1973.
Indeed, after this clash which saw oil prices climb to an unexpected level, the Western powers, with the United Nations, supported financially and technically through the third world, the creation of national companies, particularly in non-oil producing countries, but with a petroleum potential.
The aim is to fend off all power and monopoly of OPEC (Organization of Petroleum Exporting Countries), encouraging the discovery of new deposits, to ensure diversification of their sources of supply.
These countries were abandoned by the majors who turned to the already oil producing countries where the risk was low, ie, high probability of discovery.
In Senegal, the departure of Majors coincided with the 70 and 80, after results considered very inadequate as heavy oil Dome Flore (10 ° API) off the Casamance and some crude oil pockets and gas the Dakar region Diamniadio deemed not commercially viable.
Small Diamniadio crude reserves will be produced by Irish company Tullow Oil between 1987 and 1997, while the gas will be produced from 1988 to the present day respectively by Tullow and American society Fortesa.
Turning to the producing countries, the Majors have favored the birth and the arrival of smaller oil companies, newly created called "Independents" in unpromising provinces such as Senegal. Independents are most often created by expert geologists, geophysicists, retired Majors and experienced in the task.
The recent discoveries of gas and oil last twenty years in Africa, are the work of these small companies. This is the case of countries like Equatorial Guinea, Ghana, Uganda, Ivory Coast, Chad, Niger, Sudan, Mozambique. then follow the Senegal and Mauritania.
Oil promotion efforts
Years of advocacy efforts between 1990 and 2005, the most reputable oil fora of the world, did not allow managers to PETROSEN we had to convince the majors to make a "comeback" in Senegal.
These rather anxious skimming and big profits preferred to distribute millions of US Dollars "entry Bonus" in producing countries. Such bonus constitutes a barrier to entry for smaller companies.
In Senegal, the entry bonus is not payable by the petroleum legislation. The major concern is to compensate the oil risk and make our attractive destination.
Alongside these international fora, we were the "door to door" in the Majors as in the Independents who gave more interest in our presentation illustrated by seismic studies and synthesis maps, geological and geochemical conditions well contractual, tax, regulatory and environmental.
Trading oil contracts
Africa still lags behind in training and its near financial dependence on the West, forced him to turn to it for the operation and enhancement of its resources. However, these major constraints should not prevent us from defending our interests, with intelligence and patriotism.
A PETROSEN, we were aware of our strengths and weaknesses when we were in front of foreign companies, to negotiate and conclude oil contracts. We had previously passed by the Senegalese authorities, the model of "Contract Research and Production Sharing" in the Petroleum Code of 1998, in force to this day, next to the "Agreement" classic dating from the period colonial.
In these negotiations, we prepared and did, through specialized software, simulations for calculating pension oil shares for the state and for the company, operating oil and / or gas. We could find out what percentage of the ceiling "Commercial Production Total" of a deposit should we negotiate for oil recovery costs related to investments incurred by the Contractor (consisting of PETROSEN and associates).
Depending on the number of barrels produced per day, we knew what part of "Production Remaining" (Profit Oil), we could require for the state versus that of the Contractor, without damaging it.
The contractor is, however subject to payment of the Corporation Tax (IS) that is tax on income from oil operations.
A report in the research contracts and production sharing, PETROSEN has 10% interest in participation which are supported free of charge by its partners in the research development spending and operations. But after a commercial discovery of hydrocarbons in an operating concession, PETROSEN may increase its participation up to a maximum level negotiated and fixed in the contract. From that moment, PETROSEN participate in all development expenses and operating in proportion to the increase of participation.
In contract negotiations, playing on these key parameters (Cost Recovery Petroleum, Oil Profit Sharing, Corporation Tax and Share PETROSEN) we stubbed so that the share of the state and in the PETROSEN oil income is between 60 and 75%.
Such a share of annuity, it must be remembered, corresponded to a time when our bargaining power (bargaining power) was low, because of high oil risk of our sedimentary basin. At that time, assiduous court was made to the oil companies, to get them to invest in Senegal.
With the new results, we expect that in the very near future, there will be a rush of these which will result in increased research and knowledge of the oil potential; which will contribute to new oil and gas discoveries that will give the state and PETROSEN a stronger bargaining power.
In the next revision of the Petroleum Code, fiscal and contractual terms should be revised upwards, to enable our country to obtain an oil pension between 70 and 80%.
It should be recalled that most of the research contracts and ongoing production sharing, including those which were the subject of the recent oil and gas discoveries in Senegal, were negotiated in our time, in the meantime 90s to the early 2000s.
Payment of Bonus input is not required, the contractor had to bear the costs of training and promotion in favor of PETROSEN staff and the Ministry in charge of Energy. These costs hardly exceeded 200,000 US Dollars / year. These costs may rise to millions of dollars in the event of discovery and exploitation.
Other costs borne by the Contractor are superficiary taxes ranging from 5 to 15 US Dollars / km2 / year. This provision aimed to discourage companies who sleep on permit research without their commitments for studies and work.
Disposal of interests (shares)
The assignment of interests between partners or with a third party entity is a common practice in the upstream oil sector. If one of the partners constituting the contractor wants to make a partial or total transfer of its shares (assigning Party) to a corporation (Transferee) not its affiliate, the Association Agreement provides that it is required to inform the Minister and his partners. These have 30 days to exercise their preemption (First Refusal right)
If the other partners are interested in buying the shares to be sold, they will notify the supplier Party. And the purchase will, each in proportion to its interest.
If the partners are not interested in the redemption of units to sell and does not pronounce within 30 days of the announcement of the intention to sell, the supplier Party shall have the right to sell to a third party who will be place in association with the contractual rights and obligations that result.
This is common practice and regular in the oil industry, which is most often foreign partners and their ownership interests in the oil plates, does not mean sharing our wealth in our back, as stated in a recent publication.
Now that the oil Senegal destination is confirmed, we expect that our country will be the scene of harsh quarrels not only between small and big companies but also between large western calibers, with the approval of their governments.
Small companies have weakness of not having a strong back. Their debt capacity is limited, they have difficulties, after a discovery of hydrocarbon commercial deposit, to continue investing in development and operations which require billions of dollars.
This explains, moreover, the lust of the Majors. It is hardly surprising that some of our compatriots themselves up, consciously or unconsciously, by advocates of such companies. We must remain vigilant.
Production sharing
Regarding the sharing and removal of oil or gas produced, the provisions of the Production Sharing Agreement and the Association Agreement are clear. Outside the state share in the profit oil after recovery of oil costs, each party shall remove its quota in proportion to its interest. This applies to PETROSEN that the state will sell the units in production.
However, the State has a right of first refusal on the production for the needs of local consumption of oil at market prices.
Each member of the group constituting the Contractor, except PETROSEN will attend the satisfaction of local consumption requirements, in proportion to its interest.
oil governance
I would advise first, to the new class of preachers who would be indignant of alleged corruption, malfeasance, bad governance in the management of oil contracts by the country's authorities to fully absorb legislative and regulatory instruments, governing research and exploitation of hydrocarbons.
This is the place to congratulate President Macky Sall who, upon his accession to the presidency in 2012, has made our country adhere to the "Extractive Industries Transparency Initiative" (EITI)
This instrument was launched in 2002 by the British Prime Minister, Tony Blair, at the World Conference on Sustainable Development in Johannesburg.
However, until 2012, our leaders had not thought it necessary to present the candidature of Senegal to the EITI. So give to Caesar what belongs to Caesar.
Right now, our country is in the phase of "candidate country to the EITI," which, after fulfilling a number of criteria, pass the status of "Country compliant" which should further strengthen our attractiveness for oil and mining investments .
Henceforth, our country is obliged to transparency in its extractive industries. Indeed, all payments made by mining and oil companies operating in our country are collected and published by the EITI National Committee comprising representatives of civil society and NGOs.
By making public every year, a report accessible to everyone, the EITI National Committee contributes to the strengthening of good governance in the oil and mining operations in Senegal.
The response of Mr. Prime Minister, Muhammad Abdallah Boun DIONE, its predecessor, responds to this concern lighting of public opinion.
I would here take the opportunity to bear testimony that Mr. Macky Sall, Geological Engineer, Head of Databank of oil PETROSEN from 1994 to 2000, has not participated in the negotiations of contracts for St blocks Louis, Kayar, Rufisque and Sangomar shallow and deep that are the subject of new oil and gas discoveries.
Between the late 90s and early 2000s, these blocks belonged to Hunt Oil companies, Roc Oil, Woodside Petroleum, Tullow Oil and Vanco Energy which transferred them to the mid 2000s, after completing some seismic surveys, without positive results for them.
These companies have therefore left Senegal after 2005 without doing any drilling. The passage of Macky Sall to PETROSEN General Directorate lasted barely a year, from 2000 to 2001. He was then appointed as Minister of Water and Sanitation.
Between 2005 and 2013, with some gas drilling FORTESA the company on its terrestrial license Sébikhotane, dry well was drilled at sea on the Dome Flore in the scope of the Agency Management and Senegal-Guinea Bissau Cooperation (AGC)
Before 2014, nobody, I repeat nobody, would have bet a single kopeck on the existence of commercially exploitable hydrocarbon reserves in our sedimentary basin. It took the obstinacy and ingenuity of Independent as Cairn Energy and Kosmos Energy and their partners to achieve such a miracle.
How then could one accuse President Macky Sall of "insider trading" in favor of a family member, who left PETROSEN since 2001?
Birame DIOUF
Geophysicist engineer
Graduate in Business Management
Former Head of the Negotiations Department
oil and Associations PETROSEN
Dakar
17