Energy & Infrastructure Alert | 03.13.17
Senegal has interested oil and gas companies for over 60 years, but it is only in the last three years that the country has come to the fore as a potential world-class hydrocarbon basin. In 2014, Cairn Energy plc and its partners drilled a number of wells in the SNE field in the south, which they estimated to contain 2C oil resources of 641 million barrels. In the north, Kosmos has discovered huge gas reserves that straddle the northern Senegal-Mauritania border and which are estimated to hold more than 50 tcf of resource potential.
If the oil and gas potential of these reservoirs is confirmed, Senegal's oil and gas industry has the potential to radically transform the country. These exploration successes in Senegal have put a spotlight on the legal regime for oil and gas and the suitability of the regulatory framework to support the major scale investment that such discoveries will require.
Senegal's Existing Legal and Regulatory Framework
The 8 January 1998 Petroleum Code and its implementing decree govern exploration, exploitation and transportation of hydrocarbons and the fiscal regime for these activities in Senegal. The Code provides for petroleum operations to be performed directly by the state or in conjunction with third‑party investors either under a risk service contract or a production sharing contract ("PSC"). The Ministry of Energy and Renewable Energy Development ("MoERED") is the government department responsible for implementing the upstream regime, but it is the state oil company, Société des Pétroles du Sénégal ("Petrosen"), that enters into PSCs with the IOCs based on a model form PSC.
The regulatory framework for oil and gas in Senegal is in need of reform. The 19-year-old Code anticipates that applications for acreage will be awarded primarily on a direct application and award basis rather than through a competitive tender process. This is at odds with international best practice. Furthermore, there is a lack of clarity in the award procedures. Article 8 of the Code does not set out detailed or objective technical and financial criteria for assessing a party's application. In addition, the process for approving PSC awards could be improved. Once a PSC has been signed by both Petrosen and the IOC, it must be authorised by the Ministry of Finance and then countersigned by the Minister for Energy. An approved PSC must then be further approved by the President of the Republic and a decree issued confirming its authorisation. The decree and the PSC must then be published in the Official Gazette. The involvement of multiple ministries and state entities in the decision-making process has historically created delays and confusion in the PSC award process.
The Path Ahead
There are signs that the Government of Senegal is open to reforming the legal and regulatory framework.
Since announcing its intention to become a member of the Extractive Industries Transparency Initiative ("EITI") in early 2012, Senegal has taken a number of important steps to gain membership of the EITI. In early 2013, it established a multi-stakeholder group to implement the principles and criteria necessary to comply with the requirements of the EITI. It has established a Parliamentary Network on Transparency to use EITI information and to provide input to Senegal's multi-stakeholder group deliberations. In September 2016, Prime Minister Mahammad Boun Abdallah Dionne announced the publication of 10 PSCs as part of the country's application for EITI candidature. In October 2016, the 2014 Senegal EITI Report was issued.
In late 2016, President Macky Sall announced a series of structural and institutional reforms for the oil and gas industry. Key among these was the establishment by Presidential decree of the Comité d'Orientation Stratégique du Pétrole et du Gaz ("Cos-Pétrogaz"). Cos-Pétrogaz is a policy steering committee formed with a cross government representation including the prime minister, energy, industry and mines ministers and representatives of other state institutions and energy sector organisations. Its purpose is to oversee the sector and ensure transparency in the management of the oil and gas sector, including the allocation and transfer of PSCs.
A further structural change is the announcement of plans for an enhanced role for Petrosen in the oil and gas licensing process. IOCs will be required to negotiate the award of new PSCs exclusively with Petrosen. This signals a new level of authority for the state oil company to act as a decision-making body when it comes to the award of PSCs to IOCs. According to Thierno Alassane Sall, the Minister of Energy, it is the first stage in a wider process to prepare Petrosen for a stronger role, similar to that performed by Sonangol in Angola.
Finally, there have been widespread reports in 2016 that MoERED is rewriting the 1998 Petroleum Code to update tax provisions, strengthen the environmental provisions and add legislation about hiring local workers. This is consistent with the approach Senegal has taken in rewriting its Mining Code, which was enacted in November 2016. There are also rumours that the Government is preparing bidding procedures for the award of future blocks.
These positive signs that the Government of Senegal is committed to developing the legal and regulatory framework governing the oil and gas sector may help Senegal to make the most of the recent highly promising geological finds made in the region.
 Petroleum Code of Senegal, Law No. 98-05 of January 8, 1998 and the implementing decree No 98-810 of October 6, 1998.
 Article 9 of the Petroleum Code of Senegal, Law No. 98-05 of January 8, 1998