Mozambique's National Petroleum Institute (Instituto Nacional de Petróleos – INP) launched the 5th Oil and Gas Licensing Round yesterday in London. The new round includes 15 blocks located in offshore Rovuma, Zambezi and Angoche, as well as onshore Pande-Temane and Palmeira.
1. Tentative Round Timetable and Applicable Documents
Further details of the 5th Licensing Round, including the tentative timeline, regulations and model EPCC (Exploration and Production Concession Agreement) are expected to be announced in the following weeks. The Government has signalled that the Licensing Round is scheduled to close on 20 January 2015 at 12pm, bid clarifications are likely to occur in February and results are expected in March.
2. The 2014 Petroleum Law and some issues to have in mind for the 5th Round
The 2014 Petroleum Law was passed last August and is the basis for this new licensing round, but is still pending regulation. The regulations and the model EPCC will hopefully help clarify the issues outlined below. According to the INP, the regulations and model contracts will be released mid-November.
The INP has suggested that the model EPCCs will largely follow the fourth round model and would give the concessionaires exploration rights for an initial period of eight years. If a discovery is made within this period, the concessionaire will have a further two years for commercial feasibility studies and the preparation of a development plan. If the development plan is approved, the concessionaires will have a 30 year development and production period.
I. Local Participation and Representation
Investors will have to partner with the National Hydrocarbons Company, Empresa Nacional de Hidrocarbonetos de Moçambique (ENH). The Government's participation via ENH may occur during any phase of the petroleum operations in accordance with the terms and conditions agreed in the EPCC. The stake ENH will look to acquire is not yet specified.
Foreign legal entities may have concession rights provided they: (i) are registered in Mozambique (either through a branch or a concessionaire); and (ii) demonstrate that they have adequate financial resources and technical expertise to effectively perform petroleum operations.
The 2014 Petroleum Law grants pre-emption rights to foreign legal entities and Mozambican legal entities which “associate” with Mozambican legal entities. Mozambican legal entities must be incorporated and registered in Mozambique and have at least 51% of its share capital held by “national citizens or controlled by Mozambican citizens or Mozambican public or private companies or institutions”. The INP has indicated that foreign bidders forming consortia with Mozambican entities would be preferred in the bid round.
II. Listing Requirements for Oil and Gas Companies
The 2014 Petroleum Law requires oil and gas companies operating in Mozambique to be partially listed on the Mozambican Stock Exchange. The law does not explain when the listing should occur, but the INP has suggested that this would only have to be complied with within five years of the commencement of the development phase and that the percentage of the total share capital to be listed will be between 5% and 15%.
The law does not provide any further clarification on the listing requirement and participating companies will need to fully understand the implications of this requirement in conjunction with its tax and accounting advisors.
III. Local Content
The 2014 Petroleum Law also brought tighter local content requirements, which require foreign companies to associate with Mozambican companies/persons to supply goods or services, provided that the local services or goods are comparable in quality to foreign goods and services and that their cost does not exceed that of foreign services or goods by more than 10%.
It is likely that additional local content requirements be imposed in the regulations, as the INP has stated that one of the main purposes of the new law is to develop mechanisms to allow the participation of Mozambican businesses in the oil and gas sector.
IV. Domestic supply obligations
The new law establishes a 25% domestic supply obligation. This means that 25% of the oil and gas produced in the territory must go to the national market. The regulations are likely to bring more details on how the domestic supply obligation will work in practice, and be priced.
In addition, the regulations are also expected to cover: (i) the value of the performance guarantees that should be delivered by the operator, (ii) Government back-in rights; and (iii) the roles of the INP, the Extractive Industries Authority (Alta Autoridade de Industria Extrativa) and ENH and how their roles will sit together.