Ten things to know
Oil and gas production in Ivory Coast began in the 1980s. Despite political instability over the last decade and the civil war having led to a slow-down in investments, 14 new production sharing agreements were signed by the Government and 19 blocks out of the 33 available were granted to 11 petroleum companies since the end of 2011. The country currently produces, through the exploitation of four blocks, an average of 45,000 barrels per day out of its proven reserves of 100 million barrels. As for oil exports, they represent about 30 per cent of the State’s export revenues and the Government hopes to produce more than 200,000 barrels per day by 2018. While oil exploration and production is picking up, the production of natural gas has also remained important to the country’s economy. Indeed, the majority of Ivory Coast’s electricity is generated through natural gas-powered stations and the country exports electricity to Ghana, Burkina Faso, Benin, Togo and Mali, with plans to further expand its exports to other countries in West Africa.
1 | Legal framework
The Ivorian oil and gas sector is regulated by Law n°96-669 dated 29 August 1996 as amended by Ordinance n°2012-369 dated 18 April 2012 (Petroleum Code) as well as Decree n°96-733 related to the application conditions of the Petroleum Code dated 19 September 1996 (Application Decree). The Petroleum Code has proven to be an efficient tool for investors in the past, providing flexibility, with many provisions being open to negotiation in the applicable petroleum contracts.
2 | Petroleum Companies
The State owns all deposits and all natural hydrocarbon accumulations in the Ivorian soil and subsoil, its territorial sea, exclusive economic zone and territorial shelf. Petroleum operations on the national territory may be either carried out by the State itself (notably through State owned petroleum company PETROCI) or by companies or joint venture entities having entered into a petroleum contract with the State to that effect. The Petroleum Code does not provide for a call for tenders procedure, leaving the Government discretionary power to grant petroleum contracts and authorisations.
Petroleum contracts and authorisations may be granted to companies having a stable establishment in Côte d’Ivoire, i.e. which are incorporated as an Ivorian company or which have registered a branch in the country. It is however to be noted that OHADA corporate law requires branches to be transferred to a local entity within two years of its registration. Eligible companies must also be able to evidence sufficient technical, financial and legal capacity to carry out petroleum operations. Joint venture and joint operating agreements relating to petroleum operations, as well as operatorship arrangements, must be notified to and approved by the Government. In addition, the entity appointed as operator must be able to show satisfactory past experience as operator in similar zones and conditions.
3 | Petroleum Contracts
The Petroleum Code provides for several types of petroleum contracts (Petroleum Contracts), namely concession agreements attached to exploration permits or exploitation concessions (Concessions), production sharing agreements (PSAs), or other agreements such as risk services contracts (Services Contracts). The nature of the applicable Petroleum Contract is decided by ministerial order, and the relevant contracts are signed by the President or representatives who have been duly authorised for the purposes thereof by decree. Note that the Petroleum Code does not provide for legislative ratification or publication of Petroleum Contracts.
- Concessions are entered into prior to the grant of an exploration permit and cover the State’s and the holder’s obligations during exploration and, if a commercially exploitable deposit is discovered, exploitation. Beneficiaries of Concessions assume the risks of funding petroleum operations and may dispose of the production in accordance with the relevant Concession.
- PSAs, which are generally the more common tool for investors in Côte d’Ivoire, are defined as contracts pursuant to which a petroleum company provides exploration and, if a commercially exploitable deposit is discovered, exploitation operations within a given perimeter on the State’s behalf. It also assumes the risk of funding of such operations. The production is split between the State and the holder of the PSA to remunerate the latter for its services and the costs incurred. PSAs set the amount of Cost Oil, i.e. the portion of total production which may be allocated to the reimbursement of incurred costs, as well as the portion of Profit Oil, i.e. the balance of total production after deduction of the Cost Oil, which is attributed to the State and the holder respectively. Such split may vary depending on whether it relates to crude oil or natural gas production, as well as the depth of the deposit in case of offshore deepwater deposits (including an additional credit for deepwater investments as specified in the Application Decree). PSAs also determine whether the corporate income tax (BIC) is deduced prior to or after the Profit Oil allocation. It is noteworthy that contrary to other petroleum legislations, no maximum percentages are set as far as Cost Oil or the attribution of Profit Oil to the PSA holder are concerned.
- Services Contracts are contracts where the reimbursement of petroleum costs and the remuneration of the holder are effected in “cash”, as opposed to the benefit of retaining the entire or a portion of the total production as per Concessions and PSAs.
Petroleum Contracts must among other things address the following issues: the exploration perimeter, the duration of the contract and the relevant Petroleum Titles as well as the terms and conditions of their renewal (see section 4 below), State participation (see section 5 below), stability, force majeure and dispute resolution, obligations with respect to the environment, health and safety and rehabilitation of sites, transfer modalities (see section 6 below), local employment (see section 8 below), the minimum work and investment commitments as well as the tax and custom regime (see section 9 below). They also set out the terms and conditions relating to the portion of the production which must be sold on the domestic market (see section 8 below), it being specified that Petroleum Contracts do not grant as such the right to refine or transform hydrocarbons and/or the sale of products resulting therefrom.
4 | Petroleum Titles and Prospecting authorisations
The Petroleum Code provides for petroleum titles and authorisations deriving from Petroleum Contracts and distinguishes between exploration and exploitation titles (Petroleum Titles) which carry different denominations depending on whether they are granted pursuant to a Concession or a PSA, and prospecting authorisations.
- Exploration titles are either exploration permits under Concessions and exclusive exploration authorisations under PSAs, which are granted by “Government deeds” or as of right by attribution of the relevant Petroleum Contract in the case of PSAs and Services Contracts. They are granted for three years maximum renewable twice in accordance with the relevant Petroleum Contract, however their total duration may not exceed seven years or nine years in deepwater zones. Upon each renewal, a portion of the exploration perimeter must be relinquished pursuant to the terms of the relevant Petroleum Contract. As opposed to other petroleum legislations, the Petroleum Code does not impose a minimum portion to be relinquished. An extension of the validity period beyond the maximum renewals may be requested as per the provisions of the relevant Petroleum Contract.
- Exploitation titles are either exploitation concessions under Concessions or exclusive exploitation authorisations under PSAs. Both are granted by decree for a maximum period of 25 years, renewable once for a period of ten years maximum. Extension beyond renewals must be requested 12 months before expiration of the validity period. It is noteworthy that exploitation titles may not be mortgaged.
- Prospecting authorisations are granted by ministerial order for a duration of one year, renewable once for a maximum of one year. They do not enable their holders to apply for the conclusion of a Petroleum Contract.
Note that authorisations to transport petroleum production within Côte d’Ivoire to collection, treatment, storage, loading or consumption facilities by pipeline must be applied for separately by Petroleum Contract holders and are subject to the grant of a Decree.
5 | State Participation
The Petroleum Code reserves the possibility for the State to participate, directly or through State owned entities, in petroleum operations carried out by virtue of a Petroleum Contract, subject to the terms and conditions of the relevant Petroleum Contract. No further details or thresholds are provided for in the Petroleum Code, but the State’s participation, through State owned PETROCI, is in practice generally set at around 15 per cent.
6 | Transfer of Petroleum Contracts and Titles
Any contemplated transfer of Petroleum Contracts and Petroleum Titles deriving therefrom, whether to third parties or to affiliates, are subject to prior notification to the Government which has to expressly approve the contemplated transfer by ministerial order. Note that the Petroleum Code and Application Decree do not provide for a delay within which the Minister in charge of Hydrocarbons must respond. Moreover, change of control of the companies holding Petroleum Contracts is also subject to prior approval by the Government in accordance with the Petroleum Code. No definition of change of control is provided.
Transfers among parties to a Petroleum Contract are not subject to prior approval but merely notification to the Government, this exception does not however apply to the operator.
Petroleum Contracts may nonetheless set specific conditions applicable to transfers to affiliates or co-holders.
7 | Withdrawal
The Petroleum Code broadly provides that any material breach of its provisions, the provisions of application texts or the relevant Petroleum Contract, provided a prior notice has been given to the holder in accordance with the provisions of the applicable Petroleum Contract but has not been complied with, may lead to termination, by way of decree, of the relevant Petroleum Contracts and, as the case may be, the withdrawal of the relevant Petroleum Titles and authorisations. The Petroleum Code expressly states that exploitation authorisations may be withdrawn by decree in case the relevant deposit has not been exploited for more than six months at a time, following a formal notice to resume operations within six months which has remained without effect.
8 | Local Preference
Petroleum Contract holders and their subcontractors are required to give preference to local Ivorian companies for construction, supply and services contracts, provided they offer equivalent conditions of quality, price, quantities and delay. Similarly, Petroleum Contract holders and their subcontractors must in priority hire skilled local employees for their operations. Upon the start of the petroleum activities, they must draw-up and finance a training program for local employees, as well as a training program for public officials employed by the petroleum administration.
In addition, Petroleum Contract holders are required to sell their production with priority to the local markets, the terms and conditions, including sales prices, being provided for in the relevant Petroleum Contract.
9 | Tax regime
The holders of Petroleum Contracts must pay, in addition to the BIC tax and general taxes and royalties set out in the General Tax Code, an annual surface area fee the amount and payment modalities of which are determined in the relevant Petroleum Contract. Holders of Concessions must pay a monthly production royalty to be paid in cash or in kind, the amount of which is also determined in the relevant Concession, it being specified that, to promote petroleum operations in Côte d’Ivoire, exemptions from payment of the production royalty may be granted in exceptional cases. This is highly unusual compared to other petroleum legislations which set the amount of royalties based on the size of the relevant perimeter.
The Petroleum Code further stipulates that Petroleum Contracts may provide for signature and production bonuses. Similarly, holders of Concessions may be subject in the relevant Concession to an additional levy on the profits generated in the course of their petroleum operations.
Petroleum Contract holders are exempted from the payment of (i) any other taxes on profits or dividends paid to shareholders, (ii) any other taxes or contributions based on Petroleum Contract holders’ operations, activities, assets and profits deriving therefrom, and (iii) VAT, tax on services and provisions introduced by Law n°90-434 of 29 May 1990, in respect of the acquisition of goods and services directly and exclusively affected to their petroleum activities, the latter exemption also applying to subcontractors.
As regards exchange control, the Petroleum Code provides that holders of Petroleum Contracts are subject to the provisions of the general exchange control regime. Please note that Côte d’Ivoire is a member of the West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africaine - UEMOA). However, the provisions of the Petroleum Code on exchange control provide for greater flexibility than the UEMOA regime, and exchange control issues should thus be assessed on a case by case basis.
10 | Stability and Force Majeure
According to the Petroleum Code, Petroleum Contracts may provide specific provisions on force majeure. As an example, following political unrest in Côte d’Ivoire in 2011, many petroleum operators in the country invoked force majeure to suspend their exploration operations under Petroleum Contracts for several months.
Petroleum Contracts may also provide specific provisions on stability of the conditions for their execution, notably in case of legislation or regulations adopted after the effective date of a Petroleum Contract and affecting the holder’s situation. This is particularly unusual as far as the stability of the tax and customs regime is concerned, the duration of which is limited to a certain number of years by most petroleum legislations.