On 24 January 2019, Senegal adopted the bill repealing the 1998 Petroleum Code and replacing Law No. 98-05 of 8 January 1998. On the same date, it also adopted a new law on local content in the hydrocarbons sector. This new code is part of a group of reforms of the legal framework of petroleum activities in Senegal, with regulations especially focused on the management of revenue from petroleum.
These reforms come after major oil and gas discoveries between 2014 and 2016. They arrive as the country moves toward the production phase for both oil and gas.
This article briefly describes the main developments of the new petroleum code and provides a synoptic table highlighting the evolution of the oil legislation from 1998 until 2019.
Comprehensive Definition of Key Terms: The code provides an exhaustive list of terms that are legally defined. This evolution enables a better legibility – and consequently a harmonised application – of the law. Hydrocarbon mining titles, various oil operations and unitiasation are newly defined.
Ownership of resources and management of petroleum revenues: From now on, ownership of petroleum resources belongs to the people. This provision is in line with the provisions of Article 25(1) of the Constitution, which recognises the people, and not the State, as the owners of these resources.
In addition, the code lays down the principle of managing oil revenues, which must take into account the interests of future generations and current socio-economic needs. A specific law for the management of petroleum revenues is provided for this purpose.
Institutional Framework: The code expressly provides for the Ministry of Hydrocarbons and the National Petroleum Company as the governmental bodies responsible for implementation of the hydrocarbons policy and as the institution promoting the national sedimentary basin and otherwise representing the interests of the State in the hydrocarbon sector, respectively.
Hydrocarbon mining titles and authorisations
New allocation procedure: The code states that from now on the allocation of hydrocarbon mining titles is done through a tender procedure open exclusively to legal persons. The priority, says the text, is given to the best-selling offer on the basis of technical, financial and socio-economic criteria. Only an unsuccessful tender procedure leaves the possibility of an award on the basis of direct consultation between the Ministry in charge of hydrocarbons and the company concerned.
New procedure for the transfer of a participatory interest: When the proposed transfer is envisaged within a contracting group, it is now subject to a simple prior declaration to the Minister of Hydrocarbons.
Consecration of unitisation: When the boundaries of a commercial field overlap with several exploration permits, the holders of these authorisations must endeavor to implement a joint exploitation project approved by the State.
Prospecting Authorisation: From now on, the prospecting authorisation includes drilling operations not exceeding 200 metres deep. Also, the holder of the authorisation is obliged to provide information on the data and results of its activities every 6 months to the State which acquires the property.
Formerly known as a research permit, the exploration license is subject to a new regime. The holder of the authorisation is now required to subscribe to a bank guarantee in favor of the State to cover the permit holder’s minimum work commitments. In the event of total or partial non-fulfillment of these commitments, the State may call on the guarantee and proceed with the withdrawal of the mining title. The new bank guarantee mechanism allows for more efficient petroleum exploration activities that are sometimes subject to speculation and delays in execution.
It should be noted that the retention time in case of discovery of hydrocarbons not commercially exploitable immediately is now 2 years for oil and 5 years for gas.
The operating activity remains subject to the temporary operation regime or the exclusive operating license that replaces the former concession regime.
For the provisional operating license: In case of discovery of hydrocarbons during the exploration period, it becomes possible to operate temporarily for a maximum period of 6 months during which the holder will be required to continue the evaluation and development activities in accordance with the law. It is important to point out the shortening of the time taken by the legislator because the initial period was set at 2 years.
For the exclusive authorisation of exploitation: This authorisation is now valid for a maximum duration of 20 years, renewable once for a period of 10 years. It should be recalled that the former regime provided for a 25-year term that could be extended for 10 years and renewable once.
New transport, storage and liquefaction procedures
The midstream transport, storage and liquefaction operations are now subject to specific authorisations issued by the Minister of Hydrocarbons and, where appropriate, by joint order with the Minister of Maritime Affairs.
Being able to be attributed to any legal entity of Senegalese law having technical and financial capacities, the transport authorisation confers the exclusive right to transport the production resulting from the activities of production for a duration fixed by ministerial decree. It should be noted that the construction of a transport pipeline is subject to prior authorisation from the Minister of Hydrocarbons. The transport authorisation scheme applies mutatis mutandis to storage and liquefaction operations.
State Participation - Production Sharing
If the old code refers to the evaluation of the State's participation in the production sharing contract, the new scheme establishes a legal regime for this participation, structured as follows:
- At least 10% in the exploration and development phase carried by the other co-holders of the hydrocarbon mining title.
- -n option to increase the shares by up to 20% in the development and production phase; the 10% are not worn by the other co-holders of the mining title of hydrocarbons.
In addition to the participation described above, the State and the contractor share oil production as follows:
- Cost Oil: The contractor recovers the oil costs invested from the total hydrocarbon production net of the ad valorem royalty. These costs are thus capped:
- 55% for onshore oil operations.
- 60% for shallow offshore oil operations.
- 65% for deep offshore oil operations.
- 70% for ultra-deep oil operations.
- Profit Oil: After deducting the ad valorem fee and recovering cost oil, the sharing arrangements of the remaining production are defined in the production sharing contract between the State and the contractor using the R-factor method (accumulated income / cumulative investments). According to this modality, the State's share can not be less than 40%; the shares of the State and the Contractor shall be as follows:
'' R '' factor
R ≥ 1 <2
R ≥ 2 <3
R ≥ 3
Tax and customs provisions
Establishment of a signing bonus and an export tax
The holder of an oil contract is now subject to the payment of a non-recoverable signature bonus, the terms of which are set out in the oil contract. It is also subject to a 1% export tax on production for export.
Increase in ad valorem royalty rates
Rates are now set as follows:
- Liquid hydrocarbons operated onshore: 10%.
- Liquid hydrocarbons operated shallow offshore: 9%.
- Deep offshore exploited liquid hydrocarbons: 8%.
- Ultra-deep offshore hydrocarbon liquids: 7%.
- Gaseous hydrocarbons operated onshore, shallow offshore, deep offshore, ultra deep offshore: 6%.
New fees applied for claims for mining titles, renewal and extension of mining titles
Any request, initial, renewal or extension of mining titles is subject to the payment of instruction fees of $50,000 non-refundable, non-recoverable for petroleum costs and payable in one lump sum.
New legal regime for superficial rents
If the old petroleum code refers to the terms of implementation of superficial rents in oil contracts, the new scheme has established a legal regime set as follows:
Initial period of exploration
US $30 per km2 per year
First exploration period
US $50 per km2 per year
Second exploration period
US $75 per km2 per year
Other applicable taxes
Holders of petroleum rights remain subject to other applicable taxes including corporation tax and capital gains taxes on the sale of hydrocarbon mining rights in accordance with the General Tax Code. This development is in line with the law, which aims to define a common tax system housed in the General Tax Code.
Institution of social expenditures for the benefit of the population
Owners of hydrocarbon mining titles are now subject to social spending for the benefit of the populations, with terms are set in the oil contract.
Redevelopment of the tax exemption regime
Customs duties and the levy of the Senegalese Shippers Council: Initially applicable inter alia to materials, supplies, machinery, equipment, spare parts, consumable products and materials neither produced nor manufactured in Senegal, the exemption granted to the incumbent of an oil contract applied to exploration operations and the importation of items which are essential for the completion of the exploration program. It now extends to fuel supplying installations and equipment related to oil operations. However, this exemption does not apply to statistical fees and community levies.
Redevelopment of the external financial relations regime
The code now subjects oil operations to the regulations in force regarding external financial relations, without taking up the former possibility of obtaining derogations from the Minister of Finance. Under this new regime, petroleum contract holders and their subcontractors benefit from guarantees relating, inter alia, to the right to borrow funds necessary for their petroleum activities and to the free movement of funds relating to payments relating to current operations.
The new code goes beyond the legislator's concerns about local content included in the old code, by devoting new provisions making local content mandatory and subject to specific conditions, and for the participation of the national private sector in oil operations as well as all contracts for the construction, supply and supply of services relating to petroleum operations. The new text also includes an obligation for technology transfer to Senegalese companies and imposes an obligation on holders of exclusive exploitation licenses to allocate, as a matter of priority, their exploitation products to cover the needs of the country's domestic consumption.
In addition to the above provisions, a law dealing exclusively with local content in the oil and gas sector regulates in detail the obligations incumbent on oil contract holders as well as companies working on their behalf. This new law establishes the National Committee for Local Content Monitoring to coordinate the elaboration of the local content strategy document, which defines the implementation modalities of the State guidelines in this area.
Human rights, transparency and environmental protection
Environmental protection: Now, the obligations of the hydrocarbons mining title holder are reinforced with express reference to the Environment Code and the allocation of costs to the investor relating to environmental protection. The investor remains specifically bound to provide a bond in a financial institution for the rehabilitation and restoration of the sites under the conditions set in the oil contract.
Human Rights: Holders of hydrocarbon mining titles are now required to respect human rights in areas affected by oil operations.
Henceforth, the stabilisation clause cannot be invoked if it has been affected by a change in the regulations concerning the safety of persons, the protection of the environment, the control of oil operations or labor law, unless the modification does not conform to international practices or is applied to a contractor in a discriminatory manner.
Transparency: With the accession of Senegal to the Extractive Industries Transparency Initiative and new constitutional provisions on the transparent management of oil exploitation, holders of hydrocarbon mining titles must participate in reporting mechanisms regarding the payments they make to the State, including on social achievements.
The code now extends dispute settlement for oil contracts to new mechanisms such as mediation, conciliation, amicable settlement and arbitration, as may be agreed by the parties to the contract.
Mining titles and contracts in progress: Existing mining and titles in progress are not subject to the new legislation, especially when they contain stability clauses. These titles and contracts now exclude any further aggravation or relaxation of the applicable tax regime. However, holders of oil titles and contracts may choose to submit to the new legislation within 24 months of the date of entry into force of the new law.
Synoptic table of the legislative evolution of the Senegalese Petroleum Codes of 1998 and 2019
1998 Petroleum Code
2019 Petroleum Code
Resources belong to the State.
Resources belong to the people.
Strengthening people's rights and new rights of recourse.
Award procedure:direct negotiation.
Holder: natural person or legal person.
Deadlines for oil exploitation:
-Temporary operation: 2 years
- Operating concession: 25 years extensible to 10 years renewable once.
Principle: call for tenders
Exception: direct negotiation
Holder: legal person exclusively
New procedures for transport, storage and liquefaction activities.
-Temporary operation: 6 months
-Exploitation exclusive: 20 years extensible to 10 additional years
Transfer of participatory interest subject to prior declaration.
Better control of midstream activities.
State Participation-Production Sharing
Reference to petroleum contracts.
Legal margins of state participation
-At least 10% in the exploration and development phase carried by the other co-holders of the hydrocarbon mining title
-Option to increase the shares up to 20% in additional phase of development and production; the 10% are not worn by the other co-holders of the mining title of hydrocarbons.
- Production sharing according to the R-factor with a minimum part of the state of 40%.
Optimisation of state revenues.
External financial relations
Applicable law: Regulations in force in Senegal and ministerial derogation
Governing Law: Regulations in force in Senegal
Redevelopment of the guarantee scheme:
-Possibility of borrowing abroad
-Free movement of funds related to payments related to current transactions
-Right of transfer of sums necessary for the contractual amortisation of debts
-right of transfer of products subject to the new legal conditions.
Tax and customs provisions
Contract management of superficiary rents
-New Taxes (Signing Bonus and Export Tax)
-Refer to the general tax code for other applicable taxes
-Implementation of a legal regime of surface rents and an export tax
-Variation of the rates of the ad valorem royalty
- Redevelopment of the exemptions regime.
Rationalisation of the tax and customs system
-the involvement of local investors in oil activities
-Transfer of technologies
-provisional supply of the local market.
Strengthening the national economic impact of hydrocarbon exploitation
Human rights, environment and transparency
-Human Rights and Environment (obligation of protection borne by the holders of titles)
-stabilisation clause can be modified inter alia for requirements relating to human rights and the environment.
Strengthening respect for human rights and standard standards for sustainable development.
-Arbitration for contractual disputes
Possible new mechanisms including mediation, conciliation, amicable settlement.