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Delays a concern
It may take some time for the development of the Saint-Louis Profond to be realised however. Kosmos announced after the discovery that it had entered into a memorandum of understanding with Petrosen and Societe Mauritanienne des Hydrocarbures et de Patrimonie Minier (SMHPM), the national oil companies of Senegal and Mauritania, in order to develop the field. However, a revenue-sharing formula between the two countries and Kosmos has not yet been finalised. Kosmos currently holds a 60 percent interest in the well, along with Timis Corporation Ltd at 30 percent and Petrosen at 10 percent, but it is unclear how Mauritania will benefit from the initiative unless this arrangement is renegotiated. The complexity of the negotiations of gas sharing, of which there is no specific precedent between the two countries, means negotiations could be drawn out and delays are possible. No timeline has yet been set for when these issues will be resolved, leaving the project timeframes vulnerable to complex and politically charged bilateral negotiations.
Regulatory uncertainty
An unclear legislative framework governing the oil and gas sectors in both Senegal and Mauritania presents further obstacles. Neither country is an established producer of oil or gas and there is little precedent for large scale production. The only case of an oil and gas company reaching production stages in either country involved Australia’s Woodside Petroleum, whose experience highlights the challenges foreign companies can face, in this case in in Mauritania. Woodside was involved in production at Mauritania’s offshore Chinguetti oil field in the early 2000s but eventually sold its assets in 2006, saying they were no longer profitable. The sale came after the company was forced to pay USD 100 mn as a “project bonus” to the new Mauritanian authorities, while a separate corruption case launched by the Australian Federal Police into Woodside’s operations in Mauritania also cast doubt on the feasibility of the project.
The regulatory environment in Senegal presents further uncertainties, at a time when the Senegalese government is seeking to revise its outdated 1998 Petroleum Code. Petrosen has put out a tender for a consultancy to help revise oil regulations in December 2016, with the winning company expected to complete its study within six months. No news has been made public on how the consultancy process is progressing or when a new petroleum code will be delivered, however. Among the key topics of debate are demands from some local regions for greater involvement in decision-making in the oil and gas sector and for the greater allocation of oil revenues.
These complex political debates will mean the Petroleum Code could be subject to long periods of review that could affect project timelines. Presidential elections scheduled for 2017 will further complicate this process and could lead to changes of key personnel responsible for negotiating contracts with companies, as well as those responsible for the revenue-sharing negotiations with Mauritania, if those talks continue that long. Leading the talks on the Senegalese side will be the head of Petrosen Mamadou Faye and the Senegal’s Minister of Industry and Mines Aly Ngouille Ndiaye. They will be met by their Mauritanian counterparts, SMHPM director Mohamed Vall Telmidy and Minister of Petroleum, Energy and Mines Mohamed Salem Ould Bechir.
Gas brings huge opportunities to local markets
Once production at the field begins it will provide a huge boost to growth plans in Mauritania and Senegal, which are both suffering in the wake of depressed global commodity prices and weak foreign investment. The Plan Emergent Senegal (PSE), which includes eight key policy initiatives intended to revitalise the economy, has attracted less investment than expected. No major investments have been made to support the project and the government will be keen to resolve bilateral negotiations over revenue sharing to get production underway as quickly as possible. Efforts to increase electricity supplies nationwide, in particular, have been slow to take off. Senegal estimates that the additional energy that it receives from the development of the Guembeul-1 well will enable it to be completely energy sufficient and become a regional exporter of electricity once gas production has begun. This will also be crucial to economic growth; the World Bank has estimated that persistent electricity outages between 2006 and 2011 reduced annual growth in Senegal by around two percentage points.
The Guembeul-1 project will also bring long-term benefits to Mauritania. The gas development will allow Nouakchott to diversify its economy away from its dependence on the mining sector, which accounts for 70 percent of its exports and 30 percent of its state budget, and has been hit hard by the fall in global commodity prices. According to the Extractive Industries Transparency Initiative (EITI), state revenue from the extractive industries fell by 24 percent to USD 408 mn in 2013. The boost to public finances could also enable more infrastructure development, particularly in transport and electricity sectors, where shortcomings have long been cited by foreign businesses as an obstacle to investment.
- Kosmos Energy has announced the discovery of 450 bn cubic metres of gas at its Guembeul-1 exploration well in the northern part of the Saint Louis Offshore Profond, straddling the border between Senegal and Mauritania.
- The announcement marks the biggest gas discovery in West Africa and will offer a new source of revenue to both countries, which have struggled amid declining commodity prices and weak foreign investment.
- Despite much anticipation, the potential for delay to production is significant since Mauritania and Senegal will still need to negotiate ownership of the resource.
- Uncertainties surrounding oil and gas regulations in both countries may act as further impediments to development.
Delays a concern
It may take some time for the development of the Saint-Louis Profond to be realised however. Kosmos announced after the discovery that it had entered into a memorandum of understanding with Petrosen and Societe Mauritanienne des Hydrocarbures et de Patrimonie Minier (SMHPM), the national oil companies of Senegal and Mauritania, in order to develop the field. However, a revenue-sharing formula between the two countries and Kosmos has not yet been finalised. Kosmos currently holds a 60 percent interest in the well, along with Timis Corporation Ltd at 30 percent and Petrosen at 10 percent, but it is unclear how Mauritania will benefit from the initiative unless this arrangement is renegotiated. The complexity of the negotiations of gas sharing, of which there is no specific precedent between the two countries, means negotiations could be drawn out and delays are possible. No timeline has yet been set for when these issues will be resolved, leaving the project timeframes vulnerable to complex and politically charged bilateral negotiations.
Regulatory uncertainty
An unclear legislative framework governing the oil and gas sectors in both Senegal and Mauritania presents further obstacles. Neither country is an established producer of oil or gas and there is little precedent for large scale production. The only case of an oil and gas company reaching production stages in either country involved Australia’s Woodside Petroleum, whose experience highlights the challenges foreign companies can face, in this case in in Mauritania. Woodside was involved in production at Mauritania’s offshore Chinguetti oil field in the early 2000s but eventually sold its assets in 2006, saying they were no longer profitable. The sale came after the company was forced to pay USD 100 mn as a “project bonus” to the new Mauritanian authorities, while a separate corruption case launched by the Australian Federal Police into Woodside’s operations in Mauritania also cast doubt on the feasibility of the project.
The regulatory environment in Senegal presents further uncertainties, at a time when the Senegalese government is seeking to revise its outdated 1998 Petroleum Code. Petrosen has put out a tender for a consultancy to help revise oil regulations in December 2016, with the winning company expected to complete its study within six months. No news has been made public on how the consultancy process is progressing or when a new petroleum code will be delivered, however. Among the key topics of debate are demands from some local regions for greater involvement in decision-making in the oil and gas sector and for the greater allocation of oil revenues.
These complex political debates will mean the Petroleum Code could be subject to long periods of review that could affect project timelines. Presidential elections scheduled for 2017 will further complicate this process and could lead to changes of key personnel responsible for negotiating contracts with companies, as well as those responsible for the revenue-sharing negotiations with Mauritania, if those talks continue that long. Leading the talks on the Senegalese side will be the head of Petrosen Mamadou Faye and the Senegal’s Minister of Industry and Mines Aly Ngouille Ndiaye. They will be met by their Mauritanian counterparts, SMHPM director Mohamed Vall Telmidy and Minister of Petroleum, Energy and Mines Mohamed Salem Ould Bechir.
Gas brings huge opportunities to local markets
Once production at the field begins it will provide a huge boost to growth plans in Mauritania and Senegal, which are both suffering in the wake of depressed global commodity prices and weak foreign investment. The Plan Emergent Senegal (PSE), which includes eight key policy initiatives intended to revitalise the economy, has attracted less investment than expected. No major investments have been made to support the project and the government will be keen to resolve bilateral negotiations over revenue sharing to get production underway as quickly as possible. Efforts to increase electricity supplies nationwide, in particular, have been slow to take off. Senegal estimates that the additional energy that it receives from the development of the Guembeul-1 well will enable it to be completely energy sufficient and become a regional exporter of electricity once gas production has begun. This will also be crucial to economic growth; the World Bank has estimated that persistent electricity outages between 2006 and 2011 reduced annual growth in Senegal by around two percentage points.
The Guembeul-1 project will also bring long-term benefits to Mauritania. The gas development will allow Nouakchott to diversify its economy away from its dependence on the mining sector, which accounts for 70 percent of its exports and 30 percent of its state budget, and has been hit hard by the fall in global commodity prices. According to the Extractive Industries Transparency Initiative (EITI), state revenue from the extractive industries fell by 24 percent to USD 408 mn in 2013. The boost to public finances could also enable more infrastructure development, particularly in transport and electricity sectors, where shortcomings have long been cited by foreign businesses as an obstacle to investment.
