AFRICA ENERGY FRONTIERS SÃO TOMÉ AND PRÍNCIPE

Transcription

1 AFRICA ENERGY FRONTIERS SÃO TOMÉ AND PRÍNCIPE

2 Centurion Law Group is a pan-african corporate law conglomerate. Operating at the cutting edge of business practices today, Centurion stands ready to provide outsourced legal representation and a full suite of legal services to new, expanding and established corporations. From our headquarters in Johannesburg, South Africa and offices in Equatorial Guinea, Cameroon, Mauritius and Ghana, we specialise in assisting clients that are starting or growing a business in Africa. We navigate the regulatory environments of the region s different legal jurisdictions to make sure that you can do business efficiently and successfully. São Tomé and Príncipe in Profile One of the last underexplored frontiers in the Gulf of Guinea, the small island country of São Tomé and Príncipe (STP) has yet to find oil or gas in its territory. Since 2005, a Joint Development Zone between the country and Nigeria has pushed STP into the era of modern oil exploration. In 2011, the country stepped up activities further when it staged its first open bid round in its Exclusive Economic Zone. PETROLEUM LEGISLATION Lei n.º16/2009, Lei-Quadro das Operações Petrolíferas (Law of Petroleum Operations) NJ AYUK Chief Executive Officer nj.ayuk@centurionlawfirm.com MINISTRY OF PUBLIC WORKS AND INFRASTRUCTURE, NAT. RESOURCES AND THE ENVIRONMENT Minister Fernando Maquengo Freitas CENTURION OFFICES Suite 24 Katherine & West, 114 West Street Sandton, Johannesburg South Africa Malabo II Carretera entre Arab Contractors y SOGECO Casa Centurion, Malabo Equatorial Guinea Centurion House 61 Rue de la Messe/Ave de Gaulle Bonapriso, Douala Cameroon 7A Church Crescent Labone, Accra Ghana Abax Corporate Services Ltd. 6th Floor, Tower A, 1 CyberCity Ebene Mauritius info@centurionlawfirm.com AGÊNCIA NACIONAL DO PETRÓLEO SÃO TOMÉ E PRÍNCIPE (ANP-STP) The National Petroleum Agency of São Tomé and Príncipe ENERGY FRONTIERS A massive marine territory, but only eight wells drilled so far. Potential for discoveries in territory adjacent to Nigeria and Equatorial Guinea. 1 2

3 OVERVIEW AND BACKGROUND Interest in searching for oil and gas in São Tomé and Príncipe goes back over a century. In 1876, then first governor of the National Ultramarine Bank of Portugal requested from the Portuguese government, the colonial power occupying the archipelago at the time, an authorization to drill for oil on the island of São Tomé. The colonial government decided against it. It wouldn t be until almost the very end of the colonial era that another attempt would be made at prospecting in the region, with the signing of a 25-year long production sharing agreement with exploration company Ball & Collins in The republican revolution in Portugal in 1974 and subsequent independence of its colonial territories in 1975 put an early end to this development. With the exception of a few inconclusive attempts, it wouldn t be until 1997 that further consistent efforts would be made to search for hydrocarbons. With the signing of a memorandum of understanding between the state, American company Environmental Remediation Holding Corporation (ERHC) and South-African company Procura Financial Consultant, a consortium named STPetro was formed to work on evaluating the country s oil potential. In 1998, a technical agreement between ExxonMobil and the consortium saw Schlumberger produce the first seismic studies in São Tomé s history. After years of negotiations with the Nigerian government, in 2001 the two nations reached an agreement to jointly explore a disputed deepwater territory located between the two country s borders. The Joint Development Zone (JDZ) has an autonomous authority, dubbed the Joint Development Authority (JDV), overseeing the development of the different blocks in the area. The JDZ has nine blocks, of which six were awarded between 2003 and So far no discoveries have been made in the area. The share of the development is divided 40 percent for STP and 60 percent for the government of Nigeria. It took a while longer for the government of STP to move forward with the licensing of oil blocks in its Exclusive Economic Zone (EEZ). In 2001, the government celebrated an agreement for 2D seismic acquisition in the EEZ with Norwegian company Petroleum Geo Services (PGS). In the same year, amidst growing interest in the country s oil and gas potential, the government passed legislation for the creation of a national oil company, named Empresa Nacional do Petróleo e Gás (Petrogás - STP), with exclusively commercial objectives, but it was never structurally implemented. In 2004, going through a period of institutional and legal restructuring covering the energy sector, the government created the Agência Nacional do Petróleo de São Tomé e Príncipe (ANP-STP) to manage its oil prospects in the EEZ. It wasn t until 2010 that this new agency would move forward with a bid round in the area. Between 2011 and 2015, seven blocks were awarded, with six PSAs signed as well as a permit for prospection. 3 4

4 LEGAL FRAMEWORK São Tomé and Príncipe has, over the years, designed comprehensive legislation to manage its oil and gas industry, despite the lack of proven hydrocarbon reserves in the islands' territory. THE GOVERNMENT HAS BEEN FORWARD-LOOKING IN IMPOSING EXTENSIVE REGULATION ON TRANSPARENCY AS WELL AS FISCAL RULINGS TO ASSURE APPROPRIATE REVENUE MANAGEMENT FROM THE NATURAL RESOURCES SECTOR. The 2009 Law of Petroleum Operations is the main legislative document governing the oil and gas sector. It establishes all hydrocarbons resources in the country as property of the central government and gives the executive the right to sign exploratory licenses and petroleum contracts in the form of PSAs with interested companies, as long as it follows best international practices. In 2004 a number of legislative initiatives created the overseeing institutions that today govern the sector in STP. Decree No 3/2004 established the authority of the National Petroleum Council (NPC), which includes the president, the Prime Minister, other ministers and members of the civil society, and is responsible for designing policy for the energy sector. The National Petroleum Agency (ANP-STP) was instituted by Law No 5/2004, which decrees that the ANP-STP has the authority to implement the policies dictated by the NPC. According to the law, the ANP-STP is the entity responsible for negotiating PSA agreements as well as the approval of budgets and work plans. Decisions over the state s non-mandatory participation in oil and gas projects are, however, under the control of the NPC and discussed on a case-by-case basis. Companies applying for PSA agreements must, under the law, prove both financial and technical capability to undertake the agreed works in the prospect areas, as well as prove a good track record of principles of good corporate governance. The Joint Development Zone was established and is governed by the Treaty on the Joint Exploration of Oil and Other Resources existing on the Existing Exclusive Economic Zone of the two States of 2001, signed by the government of STP and Nigeria. The treaty created the Joint Development Agency (JDA), which oversees oil activities in the area and implements regulation, and the Joint Ministerial Committee (JMC), which gathers authorities from both Nigeria and STP and is in charge of developing new policy. The Abuja Joint Declaration of 2004 establishes transparency procedures for the JDZ and defines the adherence to the principles of the Extractive Industry Transparency Initiative. The Petroleum Taxation law of 2009 establishes the fiscal regime to which oil and gas companies are subjected in STP. The Oil Revenue Management Law, passed in 2004, establishes the use of best practices for the management of oil and gas revenue coming both from the EEZ and the JDZ. It establishes regulations for the use of fiscal proceedings from the oil industry in the national budget, regulating payments, management and oversight of the financial flows. 5 6

5 ENERGY SECTOR ORGANIZATION State regulation and actors With no national oil company to speak of, the energy sector in STP is overseen by the Agência Nacional do Petróleo de São Tomé e Príncipe (ANP-STP) in the EEZ, and by the Joint Development Authority (JDA) in the JDZ between STP and Nigeria. The ANP-STP operates under the authority of the 2009 Law of Petroleum Operations. The JDA was founded with the Treaty on the Joint Exploration of Oil and Other Resources existing on the Existing Exclusive Economic Zone of the two States on February 21, 2001, which also established the structure of regulation to be upheld by the JDA. Upstream activity in STP is very nascent. Activities are divided between the JDZ and the EEZ. While some seismic has taken place and sedimentary basins and oil and gas systems have been identified, the few exploratory wells drilled so far have produced discouraging results, except maybe for one exploratory well in Block 1 of the JDZ, on which the JDA deposits its hopes for the future. Joint Development Zone The Joint Development Zone was the end result of intense and lengthy negotiations between the Nigeria and STP between 1998 and Negotiations concluded with the signing of the Treaty on the Joint Exploration of Oil and Other Resources existing on the Existing Exclusive Economic Zone of the two States in 2001, commonly referred to as the treaty. The two countries settled on joint exploration of the potential resources found in the area. The JDZ is located approximately 180 kilometres south of the Nigerian border where the two countries maritime borders overlap, covering around 34,450 square kilometres. With the signing of the treaty a new agency was created for the management of the resources, hydrocarbons or others, in the area. The Joint Development Authority has autonomous authority to negotiate contracts and release tenders in the area, and according to the Abuja declaration signed by the two governments in 2004, follows strict transparency principles supported by the Extractive Industries Transparency Initiative. In this way, all payments are made by the operating companies directly to the JDA, which in turn is responsible for distributing the earnings between Nigeria and STP. Nigeria receives 60 percent of the earnings in the JDZ while STP receives 40 percent. While interest in the JDZ since 2004 has attracted some powerful partners to come and explore in the area, including Chevron, Total, Sinopec, Sasol and Addax, disappointing results and low oil prices have seen this interest dwindle in recent years. In Block 1, where the two-countries hopes were highest due to its proximity to Total s prolific OML 130 Block in Nigeria, all but one of the involved partners has now relinquished their equity. The same is true for Sinopec and Addax in Blocks 2, 3 and 4. While the JDA still hopes to attract smaller companies to explore in Block 1, its ability to attract investors might have been hampered by the latest results. Authorities in the two partnering countries have, in late 2015, announced interest in reviewing their partnership with the intention of optimizing operations and focusing on non-hydrocarbon sectors, as the hopes for oil and gas dim. This could have an impact on STP s ability to attract investment for oil and gas exploration to its adjoining EEZ. Exclusive Economic Zone STP s Exclusive Economic Zone has seen considerably less development than the JDZ. Exploration has been was largely based on the results of the 2D seismic studies undertaken by PGS and ExxonMobil between 1999 and 2005, which allowed for the acquisition of 16,752 km of seismic data. Following the analysis of the studies, the state of STP defined 125,891 square kilometres for the creation of the EEZ exploration area. The area was divided in 19 blocks distributed between 3 different areas. The closest area to the continental shelf was denominated Zone A (Blocks 1 to 6), the one covering the central area of the EEZ and closest to the island of São Tomé and the island of Príncipe was denominated Zone B (Blocks 7 to 13), and the one furthest into the Atlantic Ocean was named Zone C (Blocks 13 to 19). By law, no company can have more than one block per zone. In 2007, a study undertaken by the British Geological Survey identified several working petroleum systems, which allowed the assessment of hydrocarbons potential and raised the interest of international investors. This interest materialized in the country s first open bidding round for acreage in its EEZ in Today, there are seven awarded blocks in STP s EEZ, of which five have signed PSAs and two others are under current negotiation. All of STPs PSAs for offshore areas in the EEZ attribute eight years for exploratory work and 20 for production. The earliest date for the end of an exploratory period is for Oranto Petroleum s Block 3 in May No exploratory wells have been drilled in the area so far, but 2,900 kilometers of 3D seismic and 12,827 kilometers of 2D seismic have been acquired. 7 8

6 TAX AND FISCAL REGIME Oil activities are subject to taxation within the parameters established in the Petroleum Taxation Law of The taxation system is simplified and refers mainly to income tax, which is charged at 30 percent. The law also extensively spells the costs and expenses that can be deducted for income tax calculations including almost all oil and gas activity-related expenses. Other specifics are normally spelled out in the PSA negotiated with the government. PSAs in STP stipulate eight years for the exploration period, divided into a first four-year period and two subsequent two-year periods. Detailed work plans are mandatory for each separate period. The company must relinquish 25 percent of the original acreage at the end of each period. The PSA also demands that the operator specifies an amount of capital to be invested in the area during each phase, which is subject to negotiation. As a point of reference, Sinoangol s Block 2 PSA specified a $154 million investment over the eight-year period for seismic surveys and environmental impact studies, test drilling and assessment. Across the board, these commitments are established during negotiations between the parties, and will include signature bonuses and production bonuses as well as Corporate Social Responsibility CSR programs and local capacity building projects, sometimes depending on levels of oil production. In the case of Sinoangol, for instance, the signature bonus was settled at $5 million, while another $5 million was committed to CSR projects and $250,000 per year was to be used for training of STP nationals. According to the standard PSA, cost oil, while 100 percent recoverable, is capped at 80 percent per year. State carried participation also depends on PSA negotiations. Royalties are set at 2 percent and production sharing is dependent on profit margins for the operator. The scale starts at margins lower than 16 percent, in which case the government doesn t take any cut of the production, and increases incrementally up to margins above 26 percent, when the government takes a 50 percent cut of the production. The frontier profile of STP has induced the government to offer perhaps the most attractive contract terms on Africa s west coast. Contracts in the JDZ set royalties based on production. A project producing less than 20,000 barrels of oil per day is exempt of royalties, the 20,000 70,000 bopd range is calculated depending on production at levels between 0 percent and 5 percent, and a 5 percent royalty payment is due if production rises above 70,000 bopd. No royalties are due for natural gas production. A flat rate of 50 percent is applied to profit oil and production sharing is calculated based on a sliding scale factoring in cost oil, contractor profit oil and operating costs varying between 25 percent and 80 percent of production share for the contractor. The power sector in STP is the responsibility of the Ministry of Public Works and Infrastructure, Natural Resources and the Environment and is overseen by the state-owned national electricity company Empresa de Água e Eletricidade de São Tomé e Príncipe (EMAE). EMAE is the only distributor of electricity and water in the country. São Tomé has four power stations in total. Three thermal facilities include the São Tomé Power Station with 5 MW capacity; the Santo Amaro Station with 8 MW; and the Bobo Forro Plant, with 2 MW. A hydropower plant named Contador has 2 MW capacity. An isolated thermal power plant on the island of Príncipe has an installed capacity of 3.8 MVA following an overhaul in According to the World Bank s latest estimates, in 2012, 60 percent of the population had access to the power grid, a significant improvement compared to the 52 percent access registered in This however, might not mirror the efforts made recently by the government to extend the grid to more isolated communities, like connecting four communities in Lembá, in the north of São Tomé to the grid in March In 2014 the government announced the construction of a new power plant in São Tomé by an Angolan consortium. The project included a 30 MW gas power station and a solar powered 5 MW facility. The plant should be capable of completely overcoming the island's power shortages, which are still prevalent today. The process seems, however, to have stalled. Through international partners and donors, STP has been able to improve its power generation and distribution capacity. A program called solar schools saw the installation of solar panels in over 30 schools in remote regions. In September 2016 the World Bank and the European Investment Bank announced a $26-million-dollar loan for investments in renewable energy projects in STP. POWER SECTOR 11 12

7 JDZ activity The JDZ is divided in 9 blocks. A first bid round in April 2003 and a second in November 2004 saw six blocks awarded for which four PSAs were signed. These contracts included Chevron Texaco in Block 1, Sinopec in Block 2, Anadarko in Block 3 and Addax in Block 4. Block 1 has shown the highest potential so far, with Chevron drilling of an appraisal well in The Obo 1 well, which cost $37 million during a 63-day operation, logged 45 meters of net hydrocarbon pay in sev- eral reservoirs. Chevron did not proceed with further appraisal work and eventually relinquished the area to Total in In 2013 Total drilled two wells with discouraging results. Despite some hydrocarbon finds, the company decided the resources were not worthy of further investment. In Blocks 3 and 4, Addax s and Anadarko s operatorships were acquired by Sinopec and in The following year the Chinese company drilled Blocks 2, 3 and 4. According to ERHC, a partner of Sinopec in the three blocks, the ventures discovered gas in every area, but again,the operator did not pursue further exploration. Total, Sinopec and Addax have since relinquished their assets. The JDA is confident that the Chevron find in Block 1 will be sufficient to attract smaller companies and has hinted that several candidates have stepped forward to take over the block, but negotiations are still underway. KEY PROJECTS EEZ activity The 2010 bidding round for the EEZ acreage resulted in the signing of one PSA in 2011 with Oranto Petroleum for Block 3. Following its initial participation in STP s industry in 1997, before the establishment of the EEZ, EHRC had gained preferential rights to two blocks in the newly defined area. The same was true in 2001 for PGS, which relinquished to Equator Exploration. ERHC used its preferential rights to acquire Block 4 and 11, while Equator opted for Blocks 5 and 12. Blocks 5, 12 and 11 now operate under PSAs. Block 4 remains under negotiation. In 2015, ERHC relinquished 100 percent of its operator rights in Block 11 to Kosmos Energy. In 2016, Equator Exploration farmed out Block 12 to Kosmos. Block 2 was awarded to Sinoangol, a joint-venture between Angolan national oil company (NOC) Sonangol and Chinese stateowned company Sinopec, in October 2013, following direct negotiations with the government, outside of a bid round process. In 2014, two international companies including Portuguese company Petrogal and New World Oil and Gas showed interest in Blocks 1 and 6 while London Global Energy Ltd also showed interest in Block 6 and Blue Skies World Group in Block 1. This interest materialized in a closed bid round for these four companies. Petrogal emerged as the winner for Block 6. Block 1 was not awarded. There is also a three-year prospecting contract since 2014 with São Tomé America Petroleum Corporation (STAPET), which operates four small blocks, two on each of the islands

8 CONCLUSION As a frontier oil and gas region, STP has seen more exciting times for investors. Despite the attractive contractual conditions, the failure to discover commercial reserves in the JDZ and the delays in developing the EEZ, paired with the fall in international oil prices has chilled activity to an almost standstill. And yet, the projected 10 billion barrels of oil that are estimated to potentially lay beneath the waters of this small nation might be an El Dorado for the adventurer investor. JOINT DEVELOPMENT ZONE - BLOCK 1 DISCOVERY FIRST WELL The Obo-1 well was drilled by Chevron in 2006 at a cost of $37 million WATER DEPTH Block 1 JOINT DEVELOPMENT ZONE Obo 1 logged 150 feet (45 meters) of net hydrocarbon pay The well was drilled at a water depth of 1,720 meters over a period of 63 days Uganda EARLY EXPLORATION The first well resulting in a discovery was drilled in 2006 ESTIMATED RESERVES Estimated, but as yet unproven reserves, of 10 billion barrels EEZ ACTIVITY Eight contracts have been signed for acreages in the Exclusive Economic Zone JDZ ACTIVITY Eight wells have been drilled in four blocks in the Joint Development Zone FARM OUT Obo was considered uncommercial and Block 1 was relinquished to Total in 2010 São Tomé and Príncipe São Tomé EEZ BLOCK 6 Block operated by Portuguese company Petrogal. The PSA for Block 6 was signed in October The operator paid a signature bonus to the government of STP of $2 million. Minimum work commitment in phase 3 includes drilling one exploratory well to a depth of at least 4,600 meters. ONSHORE EEZ Block operated by São Tomé America Petroleum Corporation (STAPET), signed in May STAPET's two onshore blocks on the island of São Tomé are Morro Peixe and Uba Budo. The company also has two blocks on the island of Príncipe: Ribeira Iza and East. The four blocks cover an area of 125 square kilometers under a three-year exploration-only contract. NEW FINDS Drilling in 2013 revealed further finds, also deemed uncommercial 15 16

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