A thumbnail guide to oil exploration and production in Senegal

Natural resources

Who holds title over oil reservoirs? To what extent are mineral rights on private and public lands involved? Is there a legal distinction between surface rights and subsurface mineral rights? At what stage does title to extracted oil transfer to the licensee, lessee or contractor?

In accordance with the new provisions of the Senegalese constitution, natural resources belong to the Senegalese people.

Unless prior authorisation of the competent authority is granted, no petroleum contract holder can occupy or carry out oil operations on the following grounds:

• any property located less than 200 metres from a cemetery, church, mosque or other building or site used for religious or cultural purposes;
• any land within 100 metres of dwellings, buildings, tanks, streets, roads, railways, water pipes, drains and, generally, around any work of public utility and works of art;
• any property located within 1,000 metres of a border, airport, aerodrome or security establishment; or
• any terrain declared as a military domain, or a classified domain, in particular a nature reserve, a national park and hunting areas.

Surface rights are exercised with prospecting authorisation.

Prospecting is defined as the set of systematic and itinerant surface investigations by geological, geophysical or other methods.

The subsurface mineral rights are exercised with an exploration permit, a temporary operating permit or an exclusive operating permit. These permits require their holders to perform the works in depth.

In accordance with the Petroleum Code, the holder of the exploration permit may dispose of hydrocarbons extracted from the subsoil during research and the production tests relating to such research.

What is the general character of oil exploration and production activity conducted in your country? Are areas off-limits to exploration and production?

In Senegal, the relevant oil and gas operations include the prospection, exploration, development, exploitation, transportation, storage of hydrocarbons and liquefaction of natural gas throughout the national territory. Any of these activities requires an authorisation by the relevant public entity, generally the national regulator.

For reasons of public interest, including public policy, national security and public health, some areas may be closed to oil operations by decree.

Subject to the rights acquired by holders of hydrocarbon mining rights, oil operations in certain areas of Senegal may be prohibited by order of the Minister of Hydrocarbons.

How are rights to explore and produce granted? What is the procedure for applying to the government for such rights? To what extent are the terms of licences or contracts negotiable?

For hydrocarbon exploration and production activities, the granting instruments are as follows:

• a prospecting authorisation;
• an exploration permit;
• a temporary operating permit; and
• an exclusive operating permit.

Under the new Petroleum Law, the application procedure for the granting of the rights is fixed by decree. The new implementing regulations are yet to be provided for by the government. This should be done during the course of the promulgation of the presidential decree implementing the new petroleum legislation.

After examination of the licence applications, the Minister may request complementary information from the applicant or invite her or him to Dakar for negotiations if the application is considered satisfied. Grant terms and conditions are negotiable except those pertaining to environment, health and security. Negotiations with a successful applicant are concluded by signature of a concession contract or a PSC between the Minister in charge of hydrocarbons and the applicant.

Does the government have any right to participate in a licence? If so, is there a maximum participating interest it can obtain and are there any mandatory carry requirements for its interest? What cost-recovery mechanism is in place to recover such carry? Does the government have any right to participate in the operatorship of a licence?

Yes. The state, either directly or through a state company, reserves the right to participate in all or part of the petroleum operations, by entering into partnerships with the holders of hydrocarbon exploitation licences or service contracts. The conditions of participation will then be specified in the PSC attached to the hydrocarbon exploitation licence concerned. The maximum carried participating interest is 10 per cent.

The maximum participating interest of Petrosen can be increased from 10 per cent to 20 per cent during the development and exploitation periods. This maximum participating interest is not mandatory, it is an option.

In the event of hydrocarbons production based on the contract area, the contractor shall have the right to receive free of charge, each year, in view of the recovery of its oil producer costs, a maximum share of the production of the contract area that has not been lost or used for the needs of the oil operations.

If, during a year, the maximum value of the production share determined is greater than the oil producer costs to be recovered during that year, the contractor shall receive only such lesser percentage of the production which is necessary and sufficient to recover the oil producer costs.

However, with the adoption of the new Petroleum Code, the mechanism could be amended.

Provided that the NOC has the required technical capacity for co-operatorship, the government has the right to participate in the operatorship of a licence.

Further, the state reserves the right to undertake oil operations:

• through the national oil company acting alone or in association with third parties under a contract; or
• through one or more legal entities under Senegalese or foreign law, authorised in accordance with the regulations in force.

If royalties are paid, what are the royalty rates? Are they fixed? Do they differ between onshore and offshore production? Aside from tax, are there any other payments due to the government? Are any tax stabilisation measures in place?

The royalty rates applicable to the productions of crude oil or natural gas are determined as follows:

• liquid hydrocarbons exploited onshore – 10 per cent;
• liquid hydrocarbons exploited shallow offshore  – 9 per cent;
• liquid hydrocarbons exploited deep offshore – 8 per cent;
• liquid hydrocarbons exploited ultra-deep offshore – 7 per cent;
• gaseous hydrocarbons exploited onshore, offshore shallow, deep offshore, ultra-deep offshore – 6 per cent.

The royalty is calculated from the total quantities of hydrocarbons produced in the zone of exploitation and not used in oil operations and differ between on- and offshore production.

The holder of an oil contract is subject to the payment of a signing bonus, for the benefit of the state, not recoverable for petroleum costs and corporation tax, the terms and conditions of which are laid down in the contract.

The holder of the exclusive operating licence is subject to the payment of a production bonus, not recoverable for petroleum costs and corporation tax, the terms and conditions of which are set out in the production sharing agreement.

A petroleum contract may include a clause to stabilise the legislative and regulatory context on the date of entry into force, allowing contractors and the state, in the event that legal or regulatory provisions after the date of entry into force of the oil contract would upset its economic equilibrium, requiring either the non-application of financially aggravating provisions, or an adjustment of the contractual provisions likely to restore the initial economic balance.

What is the customary duration of oil leases, concessions or licences?

During the period of validity of an exploration permit, the holder may, upon request, be authorised to temporarily exploit the producing wells for a maximum period of six months, during which the holder continues to delineate and develop the deposit.

The exclusive exploitation licence is granted to the holder for a maximum initial duration of 20 years. At the end of this initial period, it may be renewed once, by decree, at the request of the contractor, for an additional period of not more than 10 years.

For offshore production, how far seaward does the regulatory regime extend?

The territory of Senegal designates the onshore portion of Senegal, as well as its maritime areas that comprise the territorial waters and the continental shelf, as defined by the national law in accordance with the Convention of the United Nations on Maritime Rights, ratified by Senegal.

Is there a difference between the onshore and offshore regimes? Is there a difference between the regimes governing rights to explore for or produce different hydrocarbons?

Yes. The Petroleum Code takes into account the specific characteristics of the exploration and exploitation of hydrocarbons in Senegal's onshore and offshore sedimentary basin.

The Petroleum Code governs both crude oil and gas. Regarding gaseous hydrocarbons, the Code takes into account the fact that their development may require greater investment and longer terms than for the development of liquid hydrocarbons.

Which entities may perform exploration and production activities? Describe any registration requirements. What criteria and procedures apply in selecting such entities?

Limited liability companies (LLC) and public limited companies (PLC) may perform exploration and production activities. But a branch may only perform exploration activities.

In practice, it is necessary to incorporate a subsidiary instead of registering a branch.

The incorporation of a PLC can be done within seven days when all documents are available and sent to the relevant administration.

If the incorporation is done on behalf of the company, the required documents include:

• a notarised memorandum of articles of association of the parent company;
• a translated and notarised memorandum of articles of association of the parent company;
• a notarised certificate of incorporation or commercial register extract of the parent company;
• a translated and notarised certificate of incorporation or commercial register extract of the parent company;
• the minutes that decided the subsidiary’s creation;
• the minutes authorising the chairman of the board of directors to set up the branch power of attorney of the chairman that mandates setting up the Senegalese branch;
• the managers certificate of appointment;
• the original criminal record of the manager (if relevant);
• the manager’s translated and notarised criminal record (if relevant); and
• a notarised copy of the manager’s passport.

All documents should be notarised and translated into French (translated documents must be notarised). The procedure for establishing a subsidiary requires the cost including the basic fees and the disbursements.

There are no criteria and procedures. In practice, the PLC will be more credible than the LLC regarding third parties.

What controls does the regulatory body have over operators? Can operatorship be revoked?

In order to ensure the supervision, direction and control of the common operations provided in the joint operating agreement (JOA), an operations committee shall be established composed of the representatives of the parties, each party appointing a representative and a substitute. The management committee of the JOA and the operator must provide the national regulatory body with all information regarding their operations including any change of control. Failure to comply with such requirements could result in sanctions affecting the JOA.

The resignation of the operator may be requested by either party in the following cases:

• the operator becomes a failing party;
• the operator assigns all of its participating interest to a third party, or has, with its affiliates, a participating interest of less than 20 per cent;
• the operator has not discharged an obligation under this agreement and has not remedied it within 30 days of the default notice by the non-operators; or
• the operator or its parent companies are bankrupt or in judicial settlement.

What is the legal regime for joint ventures?

All the understandings or agreements whereby the holder of a hydrocarbon exploitation licence or a contract agrees to entrust, assign or transfer all or part of the rights and obligations arising from the licence or contract, are subject to prior approval.

The hydrocarbon exploitation licences, or contracts may be assigned or transferred, subject to prior authorisation, to entities that possess the technical and financial capabilities to carry out the petroleum operations.

The requests for assignment and transfer, unless such transactions are made between affiliated companies, must be addressed to the minister in charge of hydrocarbons for approval.

How does reservoir unitisation apply to domestic and cross-border reservoirs?

When the limits of a commercial deposit straddle several exploration permits, the holders concerned, after allotment to each of an exclusive authorisation of exploitation on the part of the deposit located in the contractual zone that was the subject of their exploration licence, sign a unitisation agreement for development and joint operation.

If a hydrocarbon deposit extends over several separate areas of exploitation, the holders of the exclusive operating licences concerned shall endeavour to exploit it jointly under the best conditions of technical and economic efficiency and for the sake of optimal exploitation.

Any joint operating agreement entered into between the holders and the related programmes shall be communicated to the Minister of Hydrocarbons within 15 days of the date of signature.

Licence holders have a year to develop a joint operation programme. In the absence of an amicable agreement at the end of this period, the Minister of Hydrocarbons shall draw up a programme prepared in accordance with international standards and practices of the petroleum industry that safeguards the interests of each holder.

In the event of a disagreement, the dispute is subject, at the expense of the holders, to expert or dispute resolution channels provided for in accordance with the provisions of the applicable petroleum contracts.

Is there any limit on a party’s liability under a licence, contract or concession?

The rights, duties, obligations and liabilities of the parties between them are individual and not joint and several. However, with regard to third parties, the liability can be joint and several.

Are parental guarantees or other forms of economic support common practice or a regulatory requirement? Are security deposits required in respect of any work commitment or otherwise?

The parental guarantees are authorised by law. Senegal undertakes for the duration of the PSC to grant to the contractor and to its subcontractors, the benefit of certain guarantees for the operations carried out as the right to contract loans abroad necessary for the execution of their activities within Senegal.

The production-sharing contract, attached to the exploration licence, sets out the respective rights and obligations of the various parties, during the duration of the exploration phases and, if applicable, those of exploitation related thereto.

The PSC defines, in particular, the work obligations for each exploration period with the corresponding guarantees. In that respect, a security deposit is common in practice.

Law stated date

Give the date on which the information above is accurate.

April 2020