Senegal sets up commission to review all oil & gas contracts

Aug 22, 2024 News

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– says move is to ensure deals align with nation’s interests

Kaieteur News – While ExxonMobil Guyana Limited (EMGL) and its Stabroek Block partners, Hess and CNOOC, continue to enjoy tax exemptions and other benefits from a lopsided deal in Guyana, foreign oil companies operating in Senegal now face the possibility of contract revisions by the new administration to ensure a fairer distribution of benefits for its citizens.

On Monday, Senegalese Prime Minister Ousmane Sonko announced that the government has officially set up a commission that is tasked with reviewing oil and gas contracts that were signed with multinational corporations. African News reported that the PM made the announcement on national television insisting that the team of legal, tax, and energy sector experts will work meticulously to make sure all legal aspects are carefully examined and are aligned with the country’s national interest.

Sonko reiterated his government’s ambition to rebalance the energy contracts in the national interest. Back in April, Senegal’s newly elected President, Bassirou Diomaye Faye had revealed plans for a comprehensive audit of the nation’s oil, gas, and mining sectors, and their terms and conditions under which they were handed out by his predecessor. Reuters reported that the announcement followed a campaign promise to renegotiate the terms of oil, gas and mineral contracts with foreign operators in the country.

On June 11, 2024 Senegal officially became an oil and gas producer for the first time after Australian group Woodside Energy announced first oil at its Sangomar project off the African country – S& P Global reported. Phase one of Sangomar, which alongside BP’s massive Greater Tortue Ahmeyim (GTA) gas project could overhaul the Senegalese economy, will produce 100,000 barrel of crude, according to the Australian oil and gas company.

President Faye has vowed to ensure the nation benefits from its resources that are being extracted by foreign companies. Faye’s announcement looking for a change in a country of approximately 18 million people, strongly contrasts with that of Guyana’s Vice President (VP), Bharrat Jagdeo who while in opposition promised to renegotiate the lopsided ExxonMobil Guyana Limited (EMGL) a subsidiary of American oil giant Exxon, but has since changed his tune- even denying that he had ever made such a promise.

Guyana refusing to review deals

In Guyana’s case, there is the 2016 Production Sharing Agreement (PSA) that was signed by the former APNU+AFC Government with Exxon. While Guyanese have long accepted that the deal is lopsided–one that benefits the oil companies more than it does the country,  the PPP/C Government has refused to bring Exxon back to the negotiation table, all while allowing the oil company to ramp up production offshore Guyana.

The first oil discovery was made in 2015 and by December 2019, the block-partners moved to oil production. Since 2015, ExxonMobil and its partners have made more than 30 additional offshore oil and natural gas discoveries within the Stabroek Block. The government recently disclosed that the block holds some 11.6 billion barrels of oil.  With three projects producing oil in the Stabroek Block some US$1.5 billion monthly is being generated. The three projects – Liza One, Liza Two and Payara – producing over 600,000 barrels of oil daily. Guyana’s oil production comes from three floating production, storage, and offloading (FPSO) vessels: Liza Destiny, Liza Unity, and Prosperity. Exxon already has another three projects in the pipeline – Uaru, Yellowtail and Whiptail.

Exxon targets a daily output of 1.2 million barrels of oil by 2027 from Guyana’s Stabroek Block.  The Exxon deal gives Guyana a 2% royalty on its rich resources, and agrees to the oil companies recovering 75% of investments before the remaining 25% is shared, with Guyana receiving 12.5%. The arrangement, with the lack of ring-fencing, sees Guyana paying for projects that are yet to commence production activities.

Notably, the oil deal provides for taxes owed by the company to be paid by Guyana. The PSA states at Article 15.1 that the Contractor (ExxonMobil Guyana Limited) as well as its affiliates shall not be subjected to tax, value-added tax, excise tax, duty, fee, charge or impost in respect of income derived from petroleum operations, property held or transactions except as specified under the agreement. It goes on to state at Article 15.4 that the sum equivalent to the taxes owed by the company will be paid by the Minister responsible for Petroleum to the Commissioner General of the Guyana Revenue Authority (GRA). Notably, the GoG also agreed to issue a receipt to ExxonMobil, indicating that it has met the local tax requirements to avoid the burden of double taxation.

Jagdeo change of tune

A passionate and almost angry Jagdeo while functioning as Leader of the Opposition, just over three years ago, said in an interview that the then APNU+AFC Government “sold” the country to “foreigners” because that administration failed to include ring-fencing to shore up profits from the 2016 Production Sharing Agreement (PSA) with American oil giant, ExxonMobil.

At that time, Jagdeo assured that when the People’s Progressive Party Civic (PPP/C) returned to office, this would be a priority when the contract is renegotiated. “They sold us out to the foreigners. The oil companies, every time there is a find out there, our people should be sad because nothing comes our way. We are gonna renegotiate those contracts because that’s not what we had in mind,” Jagdeo said then. He added, “When we were in the early days, we were coaxing the people (ExxonMobil) to go along. They (Coalition) came into office – three billion barrels of proven reserves and they gave up zero royalties, no taxes, no ring-fencing.”

Soon after taking office in 2020, the now Vice President (VP) has not only changed his tune but also his tone when it comes to the renegotiation of the Exxon contract and securing greater benefits for Guyanese. The People’s Progressive Party (PPP/C) has consistently dispelled claims that they promised to renegotiate the Stabroek Block PSA, while in opposition.

Jagdeo, a key figure in Guyana’s energy policy, reiterated during press conferences and interviews that the current contract’s terms must be respected to maintain investor confidence. He underscored the economic benefits Guyana derives from the agreement, including substantial revenue and job creation in the oil sector. Jagdeo had defended the government’s decision by stating, “We have a PSA that determines our shares of the proceeds, so we are limited by that.”

As it relates to President Irfaan Ali, Guyana’s 9th Executive President–he has maintained a firm stance against renegotiating the existing PSA. In an interview with the BBC last year, Ali acknowledged criticisms that the deal skewed benefits in favour of ExxonMobil, stating, “We did not have the best of deals.” Despite recognizing the deal’s shortcomings, Ali underscored the importance of upholding the sanctity of contracts, asserting, “We cannot go back and renegotiate.”

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• Bassirou Diomaye Faye, EMGL, Guyana’s President Irfaan Ali, Guyana’s Vice President (VP) Bharrat Jagdeo, Senegal President

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