An article on economics from Senegal's perspective (just ignore reference to Woodside for time being)...
This is massive for Senegal... If someone is gonna muck around with tax evasions or side dealings will surely
not go well with Macky Sall...
As OOO eloquently said this morning, this is all good for FAR... Cheers...
CONTRIBUTION / Oil discovered in Senegal: things are clear
Oil discovered in Senegal: things are clear.The Scottish operator, Cairn, who discovered oil, in association with Petrosen, Far and Conocco Phillips (whose shares were recently bought by the Australian Woodside), off Sangomar at the end of 2014, Yesterday Tuesday, August 16, his report of the first half.Cairn had discovered two deposits, SNE and FAN.
It is stated in this report that as a result of the evaluation drilling (which is used to determine the size of the oil field) carried out during 2015 and early 2016, recoverable reserves (known as "2C reserves" The SNE deposit amounts to 473 million barrels of oil. This corresponds, according to a basic calculation, over a period of 20 years, to about 65000 barrels of oil / day, about the equivalent of the current daily production of a country like Cameroon, 12th African oil producer . These recoverable reserves are actually only a part (about 40%) of the oil that is underground, because Mother Nature is like that: despite all the technology of the world, it does not give you everything and it becomes, at a Time of the life of the deposit, too expensive to get the oil out of the deposit. Hence the notion of "recoverable reserves".
A new phase of evaluation drilling to determine the size of the recoverable reserves is planned by Cairn and will begin at the end of 2016 / early 2017 and is expected to result in an increase in the volume of recoverable reserves. Perhaps we will reach a total of 500-550 million barrels for SNE. I will not deal here with the FAN deposit that has not yet been accurately assessed, even though its 2C reserves would revolve around 900 million barrels, twice the size of NIS.
The key question: what will Senegal gain? This is an evaluation I am attempting. And it contains many conditions and will probably be false because I do not know the future, notably the price of a barrel that keeps changing, nor the tax changes, nor the detailed content of the contract between Cairn, its partners and the state etc. . But this evaluation can give an idea and an order of magnitude more or less reliable because I rely on existing oil contracts, specialized readings, an observation of what is generally done in the oil world, provisions of the petroleum code Senegalese and the readings of all the reports published by Cairn since the end of 2014. Here are the conditions in question: * If we start from recoverable reserves of 550 million barrels, with a production that will start in 2022.
Cairn, in an official document, expects to start production between 2021 and 2023. * If production is spread over 20 years, or 75,000 barrels days. (Cairn currently expects, in an official document) between 50,000 and 100,000 barrels / day) * If the average price of a barrel oscillates around 70 dollars (USD) from 2022 and throughout the production period. * If Petrosen (the national oil company of Senegal) increases its share of the capital in its association with the other companies from 10% at present to 20% as permitted by the petroleum code. On the one hand, it will oblige it to participate in 20% of the investments for petroleum operations (exploration + production) and on the other hand will allow it to receive 20% of the net profits, just like any shareholder of one Society where there are partners.
* If the association of companies that will operate the deposit reimburses the exploration expenses that were invested from 2014 to 2022 (start of production) + production costs after 2022, taking about 55% of the production As could be foreseen in the oil contract between the State and the association of companies.This money is called "Cost Oil" to repay petroleum operations. This figure of 55% is an estimate of my part based on the cost oil rates fixed by the petroleum code. * If the share of oil other than the "Cost Oil", called the "profit oil" and which corresponds to the remaining 40% excluding reimbursement, is shared 50/50 between the State and the association of companies .
Generally when production is around 75,000 barrels / day, it is this 50/50 ratio that is applied to the profit oil for the "production sharing" between the state and the association of companies. * If the State of Senegal receives, at best under the Petroleum Code, about 8% royalties (royalties), ie 8% of the total amount of oil production. * If the State receives 30% of the profits made by the association of companies.
This 30% corresponds to the corporate tax (IS) that any company has to pay to the State. I voluntarily neglect other revenue items such as the training subsidy (about $ 200,000 per year paid to Petrosen), the CSR component (about $ 150,000 per year) for the population, or the leasing of the oil perimeter (15 dollars / km◊ / year on the oil license).
These receipts are important in the role they play (training, CSR) but remain negligible in the long term given the volumes in question. This gives, in a very simplified way: Turnover / day = 75,000 barrels x 70 dollars = 5.25 Million USD Turnover / year = 5.25 million x 365 = 1916 million dollars Cost Oil / day = 5.25 million x 55% = 2.88 million USD Profit Oil total / day = 5.25 million - 2.88 million = 2.37 million USD Oil Company Profile / day = 2.37 million x 50% = 1.185 million USD Association / Profit Oil of the State / day = 1,185 million USD Profit Oil of the State / Year = 1,185 million x 365 = 432,5 million USD Royalties (royalties) of the State / Day = 5.25 million x 8% = 0.42 million USD State royalties / year = 0.42 million x 365 = 153.3 million USD Corporate tax (IS) earned by the State on the annual profit of the association of companies = 432.5 million x 30% = 129.75 million USD Annual net profit of the association of companies = Annual profit - IS = 432.5 - 129.75 = 302.75 million USD Annual share of Petrosen (thus indirectly from the State) in the Cost Oil = 2.88 million x 20% x 365 = 210.24 million USD Annual dividends from Petrosen (thus indirectly from the State) in net profit = 302.75 million x 20% = 60.55 million USD Annual dividends of other companies (Cairn, Woodside, FAR) Net profit = 302.75 - 60.55 = 242.2 million USD Total annual government share = Royalties annually + Annual profit + Corporate tax + Petrosen share in cost oil + Petrosen dividends = 153.3 + 432.5 + 129.75 + 210.24 + 60.55 = $ 986.34 million per year.
This $ 986.34 million is equivalent to 51% of the total amount of Petroleum that will be produced. That is to say, according to my estimates, that about 51% of the underground oil discovered by Cairn will go in the form of money in the state coffers and 49% in the coffers of foreign companies. In a country like Indonesia, the final share of the state is about 75%, 25% for foreign companies.
This difference is due to the Indonesian expertise, the quality of their human resources and their financial and technical know-how, which gradually enabled them to increase the total share returned to the State over the years. Senegal must therefore, in my opinion, anticipate, strengthen Petrosen, which will be our technical and financial armed arm in the association of companies, train engineers, energy economists, repatriate Senegalese human resources of quality in this field, They are in the world and above all to have a vigilant civil society that will watch over the use of the money that will be brought back by Oil. Because $ 986.34 million is about 573 billion FCFA.
If one adds to the deposit of SNE, that of FAN, also discovered by Cairn and which seems to be twice as big in size, and that one starts again on the same hypothesis of simplified calculation, one can think that FAN will return around Of 1150 billion FCFA or a total FAN + SNE of 1723 billion. That is more than half of Senegal's current budget.
With all this money, we could reinvest in renewable energies, which are the only long-term ecological and economic salvation, improve access to health (the budget of the Ministry of Health is currently 150 billion), create New universities, less import and support agriculture and small-scale local industry / crafts, create a blocked fund for future generations, improve our cities, promote and finance culture etc. Oil will only be a curse if we do so. It can be a tremendous opportunity for Senegalese today and tomorrow. The present and future Senegalese leaders, as well as the people, have a duty not to squander this geological treasure that nature has taken millions of years to create. Fary Ndao Geological Engineer
(20min delay)