The trend towards a definitive O&G playing field coupled with significant gas discoveries in Mozambique and Tanzania and oil finds in each of Kenya and Uganda is resulting in global interest refocusing on the East Africa region as an attractive, if speculative, O&G emerging market. The flurry of unending announcements has turned the spotlight squarely onto the region and created a boom atmosphere. Interest in East Africa is expected to intensify over the course of 2013, and investing in the East Africa O&G sector is now most definitely in vogue.
The calm election of the new Kenyan Government has reduced the perceived political risk of doing business in Kenya and demonstrated a strong rule of law with the President being elected on a pro-business and pro-progress ticket.
With its favourable regional geology, Kenya is becoming a highly desirable address for E&P companies. Competition for petroleum blocks has intensified, with a multitude of O&G companies (ranging in size from oil majors to start ups with excellent prior track records) submitting expressions of interest for new blocks. The Ministry of Energy and Petroleum (the Kenya Ministry) has diligently managed the vehement interest by effecting the release of a steady stream of blocks for E&P activities and is looking to make a move to licencing rounds designed to underpin investor confidence through a more formulaic and transparent system of block allocation.
Kenya is very early in the development spectrum, with Tullow drilling wells onshore in Turkana (having obtained a good result and declared commerciality with a circa 5200 bpd flow rate) and Apache and Anadarko drilling wells offshore (with mixed results to date). However, the increased popularity of Kenya as an investment destination combined with the requirement of investors under various production sharing contracts (PSCs) to drill at least 15 wells in the next 12~18 months enables the Kenya Ministry to be more aggressive than it has in the past with respect to compliance with existing PSC terms. Until recently, the Kenya Ministry has adopted a somewhat lackadaisical approach in ensuring compliance with PSC terms, and extensions to work programs were relatively easy to obtain. In a tightening move, during the past year the Kenya Ministry has only allowed relatively short extensions in combination with very heavy penalties to the tune of millions of dollars a clear and significant departure from its historic approach. PSC interest holders now approach the importance of compliance with their obligations with increasing caution, and repossessions on the grounds of failure to comply with work and expenditure commitments are expected imminently.
With 46 of the 48 existing blocks in Kenya already licensed, limited opportunities exist for new entrants by the acquisition of new licences. The Kenya Ministry has indicated that no fresh blocks will be created over new acreage, and any new blocks gazetted will be as a result of relinquishments or repossessions over already existing blocks.
The two remaining offshore Blocks (L25/L26) are considered ultra deepwater with water depths ranging from 2.5 to 4.5 km, requiring particular expertise bordering on the edge of technology. Consequently, the market is quite excited about the possibility of the Kenya Ministry repossessing blocks from PSC holders who have not complied with the minimum work obligations. It is envisaged that this shift towards stricter enforcement of the terms of PSCs will continue given the current demand for exploration blocks and inability of a majority of the current PSC holders to procure financing to comply with their obligations under their respective PSCs.
After many years of civil war and political instability, Mozambique is returning to a state of normality and consequently its upstream O&G industry is of growing importance in the region. Mozambique's upstream potential appears to lie in natural gas rather than oil.
The Mozambique coastline has emerged as the new energy hub following large gas discoveries on off-shore Mozambique. Rapidly becoming a key O&G destination, Mozambique's debut into the market includes such highlights as the discovery of more than 100 Tcf (mainly in the offshore Rovuma Basin) and the Cove Energy takeover by PTTEP (who spectacularly outbid Shell) which has demonstrated the growing attention O&G companies are giving to Mozambique. Anadarko, ENI, Petronas, Statoil, Total and Maurel & Prom already hold significant interests in the country's exploration permits, firmly putting Mozambique on the O&G map.
The Government of Mozambique has made a concerted effort to attract investment, and its globally significant gas discoveries in the Rovuma Basin have made the country something of a poster child for East African oil and gas exploration. It is ideally positioned to export gas to the enormous South African market which urgently needs supplies to address its domestic power deficiencies. The critical factor in the future exploitation of the country's gas, however, is the emergence of sound commercial criteria for the establishment of a south-east African gas-gathering network capable of serving developing markets in the region.
Additionally, South East Asian countries, particularly Japan, are increasingly likely to look to Mozambique's offshore gas reserves as a viable option to diversify their energy sources. In this regard, Japan signed a memorandum of understanding with Mozambique which it is envisaged will allow Japan, still scarred by the melt-down at the Fukushima nuclear plant, to tap Mozambique's natural resources. It is envisaged that Mozambique's vast coal and natural gas reserves can become a source of cheaper fuel for Japan, allowing it to break its reliance on suppliers in Australia and Qatar.
最近，肯尼亚政府采取了一项力度较小的措施保证产品分成协议的条款得到遵守，并且工作计划的延期较容易获批。对比更严苛的时期，比如 2012年，肯尼亚政府仅允许相对较短的延期，同时课以数百万美元的重罚 —这一举动明显与其一向的做法大相径庭，传达给投资者更好的信号。
Although Mozambique is touted as a rival to Australia as a liquefied natural-gas exporter, it is likely to be a number of years before the country can challenge or overtake existing exporters. Endemic corruption and limited O&G infrastructure will pose the most significant challenges to operators in the short-to-medium term. International donors have repeatedly called on the Government to tackle corruption or risk a freeze on budgetary support and donor aid. Notwithstanding such calls, the governing Frelimo Government is likely to view tax revenue derived from companies operating in the O&G sector as a means of reducing donor dependency and ignore pressure to implement anti-corruption measures. To this end, foreign operators in Mozambique will have a new tax applied to their operations. The Government is enacting a 32% tax on the future sale of local assets. The new tax comes as the country emerges as a significant holder of coal and natural gas reserves and Mozambique seeks to take reap greater rewards from those resources.
Challenges still remain for operators looking to engage in O&G activities in the country. Mozambique's infrastructure is wholly inadequate for the recent spike in investment in the extractives sector. The potential of recent discoveries and regional and international demand for gas have prompted foreign companies to take the lead on infrastructure development. The Government's support for these initiatives highlights its acknowledgment that the future lies in the export market and that it has limited capacity to develop the infrastructure required to achieve this goal.
PSCs (known locally as exploration and production concession contracts) have been signed with a number of foreign oil and gas companies and a model PSC is used by the Government. On August 10, 2012, the new Law on Public-Private Partnerships, Large Scale Projects and Company Concessions was published in Mozambique (the PPP Law). Aiming at attracting investment and economic and social development to the country, the PPP Law establishes the guidelines of the awarding process, the implementation and the monitoring of these three modalities of involvement of the private sector in the promotion of development. Pertinent conditions under the PPP Law which must be reflected in PSCs granted after the PPP Law came in to force include local participation requirements (either of Mozambican individuals or companies) of 5% to 20% of the shares via a listing on the local stock market. Although PSCs executed before the entry in force of the PPP Law are not obliged to comply with the divestiture requirement, the Government reserves the right not to renew a PSC in the event the partners in the project have not included Mozambican participation. Further an operator is required to provide benefits (training, resettlement, environmental, social responsibility) and a minimum financial return / benefit not lower than 35% of the annual profit for the Government (this includes the corporate income tax due at 32% of the profits). The PPP Law also provides that "extraordinary benefits" arising from a sale of a PSC should be shared with the State. It remains to be seen whether this will be via a form of taxation or some other mechanism designed to capture value.
Tanzania has no commercial oil discoveries but there are 2 small producing gas fields (Songo Songo and Mnazi Bay) and a number of promising gas discoveries in the deep offshore blocks. The producing fields are small and took decades to bring to commercial production due to the lack of a local market and the impracticability of export (in view of the limited reserves). The Songo Songo field has been in production since 2004 and provides gas to generate a significant proportion of Tanzania's electricity. Gas is also used by a number of industrial and commercial customers in the Dar es Salaam area.
The Ministry of Energy in June 2013 announced that a run of new discoveries took the total recoverable reserves of gas to 28 trillion cubic feet (tcf), of which 3.5 tcf have already been commercialised at the Songo Songo and Mnazi Bay gas fields.
Tanzania has currently licensed 16 international energy companies to search for O&G. British gas firm BG Group, Norway's Statoil, Brazil's Petrobras, Royal Dutch Shell and Exxon Mobil Corp are among companies already operating in Tanzania. The country plans to offer seven deep offshore blocks and one onshore block in October for oil and gas exploration, with the potential of making more high-impact gas finds.
The potential rewards for investors are not in doubt but, despite enjoying enviable political stability, Tanzania remains some way behind Kenya as an overall investment environment due to heavy levels of corruption, a challenging tax authority and because its infrastructure is often ill-equipped to handle the demands of the extractive industries. The provision of basic
services such as electricity is temperamental at best, while facilities at the port of Dar es Salaam are struggling to keep up with those elsewhere on the continent. Despite signs of gradual progress, the Government is realising only too late the impact of decades of under-investment in education, which has resulted in few technocrats with the skills and training to work in specialist positions either at the Ministry of Energy or for foreign O&G companies.
The foundation legislation for the upstream industry is the Petroleum (Exploration and Production) Act which was passed in 1980. This applies to Mainland Tanzania and Zanzibar (including the continental shelf) and vests ownership of any petroleum resources in the United Republic. The 1980 act lays down the machinery for the granting licenses for exploration and development. It also empowers the Minister of Energy and Minerals to enter into PSCs on behalf of the United Republic.
The two key Government entities involved in the upstream industry are the Ministry of Energy and Minerals (Tanzania Ministry) and the Tanzania Petroleum Development Corporation (TPDC). In addition to upstream activities, the Ministry is also responsible for downstream, the electricity sector and mining.
In a political move likely to significantly shake investor confidence, TPDC has recently been requested by the Tanzania Ministry to review all existing O&G contracts. To date, of the 26 PSCs that have been entered into by the Government, only four have been reviewed of which one (PanAfrica Energy) was found to have inflated costs to the tune of $26 million. It is not clear what legal devices the Government will employ to enforce any changes to existing PSCs given that a standard provision in each PSC provides for any variation to be agreed in writing by both parties. The overall uncertainty and difficult investor climate leaves Tanzania in a more challenging position than its East African neighbours, which has been reflected in more limited progress.
O&G exploration activities in Uganda have had an unprecedented 90% drilling success rate, with 58 of the 64 exploration and appraisal wells drilled in the country to date encountering oil and/or gas. Wells drilled on a number of structures during 2002~2013 confirmed the presence of multiple exploitable accumulations of hydrocarbons proving up over 3.5 billion barrels of oil equivalent in place.
The moratorium that was placed on licensing oil and gas activities in Uganda will soon be lifted with the enactment of new laws to govern the sector and the establishment of the relevant institutions. International oil companies are already setting up in Uganda in anticipation of the new licensing rounds. It is however not yet certain when the licensing rounds will be open.
Parliament has recently promulgated further legislation to enable the effective and efficient management of the nascent O&G sector, one of which is the Petroleum (Exploration, Development and Production) Act, 2013 (the Upstream Act), brought into force in April 2013.
The Upstream Act provides for competitive bidding for subsequent licensing of petroleum blocks in the country and puts in place new institutional frameworks including the Petroleum Authority of Uganda as the new regulator and the National Oil Company as the manager of Uganda's commercial aspects of petroleum activities. There is also a particular focus on local content in the Upstream Act with a requirement for Ugandan companies to own at least 48% of a joint venture supplying goods and services to licensees or contractors.
The new laws provide for an effective legal framework to ensure that petroleum activities in Uganda are carried out in an open, transparent and sustainable manner. This will help boost investor confidence in the sector. Investors should however expect to see tougher contractual terms than those that were negotiated under the old legal regime. The long-standing debate between the Government and the international O&G companies on the commercialization plan for Uganda's O&G resources was settled earlier this year. After a two year impasse between the Government and the O&G companies, the Government has decided to build a refinery (to cater for the needs of Ugandans) alongside a crude export pipeline (to cater for the interest of the O&G companies). This will hopefully stimulate progress in the development of the O&G sector.
The Government's decision to build a refinery is based on a feasibility study concluded in 2010 which confirmed that the development of a refinery was economically feasible and beneficial for commercializing the crude oil discovered in Uganda.
The Government intends to build a 60.000 barrels of oil per day refinery, which will be built in two phases with hopes to expand the refinery when more reserves are discovered (and if the internal market so dictates). The refinery will be financed through a public private partnership arrangement.
Currently, implementation of the development of the refinery has commenced with the undertaking of a Resettlement Action Plan for the land where the refinery is due to be located. According to the Ministry of Energy and Mineral Development, the Government plans to invite prospective investors in Uganda's oil refinery project to submit their expression of interest by the end of September 2013. It is hoped that this approach to greater participation will lead to a well-developed and competitive market for investors.
市场趋势 Trends in the market
With a changing landscape, the various Ministries across East Africa have become more robust with the terms required under new PSCs, with large increases in signing bonuses, minimum work obligations, minimum work programs and bank guarantees. The trend is shifting to a more aggressive sharing of the profit oil with the relevant Government, who are now looking to see a significant balance sheet for E&P companies who wish to secure a PSC.
Whilst initially this would instinctually raise a hooray for East Africa, the region is very early on in the development of the O&G industry. The Ministries are cognisant of the need to balance the people of East Africa fully benefit from their own O&G resources with the level of risk which O&G companies are willing to accept before they move on to other, more favourable, jurisdictions. The development of a successful O&G sector is reliant on a country making itself an attractive destination – O&G is by its nature a risky business. There is significant competition for capital worldwide. The success of the development of any O&G sector is dependent on the capacity of the country in question to rise to the challenge of attracting E&P activities through sensible PSC terms, a strong legal, fiscal and regulatory framework which supports transparency and certainty.
Ministries appear to be migrating to a competitive bidding process for future PSC awards. This is indeed a definitive nod to the importance of transparency and another pillar upon which international E&P players can rest in a greater degree of certainty in the market.
With a nascent O&G industry, care must be taken to encourage investment keeping in mind that the chase for capital is intense, particularly following the global recession. Fortuitously, the general trend within East Africa has been to relatively rapidly review and revise the approach as necessary and correct to the market as necessary, though with varying degrees of success depending on the East African country in question.
市场准入 Market entry
Given funding for O&G exploration companies (particularly the smaller players) is challenging to obtain and that a preponderance of PSC's are held by smaller players, noncompliance with work obligations is becoming increasingly likely. It should be noted that most of the older PSCs were issued on inferior terms to what is being required for granting of a new PSC, and Ministries are therefore incentivised to remove acreage from underperformers and enjoy improved terms with better funded players.
A potentially preferable route to gaining access to the East Africa market is by way of a farm-in to an existing PSC. With an intensifying difficulty on the part of smaller E&P companies to secure funding coupled with looming work obligations, those holding blocks and requiring financing are becoming less demanding of their potential farm in partners. Quite often these companies are too small to access bank funding or do not have the proven resources to access reserve based funding, and given the current state of the global capital markets the cost of equity is extremely expensive. Although Kenya (with the most developed capital market in East Africa)
has developed a new stock exchange market (GEMS) targeted to provide funding for such companies which could become a major source of funding in the future, it is currently in its infancy. Consequently there are increased opportunities and availability at a lesser cost for well funded players wanting to invest in the East African O&G sector via the farm in route.
Although the initial costs of a farm-in can be higher than being awarded a new block owing to potential repayment of expenditures incurred to date by the current PSC holder together with the potential for a tax on a farm-in, this is quite often offset by the increased level of available information with regards the block and the benefits gained from the grandfathering in of the lower work obligations than under the current terms. Older PSCs tend to have much lower minimum work obligations (such as a requirement to drill only a single well over the term of the PSC) resulting in a reduction in costs and in the levels of bank guarantees required to be placed with various ministries. Furthermore there is the likelihood of reduced training and community development fees.
This signals new opportunities for those who have the technical, operational and financial capacity wishing to enter the East African O&G market.
With the various Governments in Eastern Africa seeking to proactively and rapidly develop their respective O&G industries, there has been a migration to a very sensible "use it or lose it" policy. This coupled with increasing regulation and monitoring, a more aggressive stance towards compliance and terms of new PSCs, will stimulate investor interest and opportunity through the award of new blocks and through farm-in activity as current participants look to secure the financial, operational and technical capabilities to allow them to hold on to their assets.
With the gazetting of further relinquished and (soon to be) repossessed blocks, there will undoubtedly be a scramble amongst players who have not been able to find suitable farm-in opportunities, at which point in time the new PSC terms being sought by the various Ministries will be put to the litmus test of market acceptability. The new uncertainties created by the move from a collaborative approach to the issuing of PSC's (with the attend risk of bribery and corruption) to the more transparent competitive bidding approach should hopefully bring the intended result of securing the best market terms for the people of East Africa and allowing E&P companies an unhindered pathway towards development of their assets.
东非石油天然气行业前景 The future of the oil & gas industry
Africa Legal Network (ALN)
非洲Anjarwalla & Khanna律师事务所高级法律顾问。擅长矿产、发电、上游石油天然气等法律服务，在非洲撒哈拉以南地区享有良好声誉。为多家私企、国有上市公司和跨国公司提供法律服务。英格兰和威尔士最高法院出庭律师。
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