AFRICA
ENERGY
FRONTIERS
LIBERIA
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Liberia
in Profile
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Liberia’s oil and gas industry is undeveloped
and its offshore waters underexplored. Still,
new regulatory frameworks and contract regimes have prepared the market for a surge
in activity. The presence of international
companies like ExxonMobil and a significant
offshore oil discovery by African Petroleum
give Liberia added credibility as it develops
its energy industry.
PETROLEUM LEGISLATION
New Petroleum Law of 2002, the National Petroleum Policy of
2012 and the Liberian Petroleum Exploration & Production
Act of 2013
NJ AYUK
Chief Executive Officer
NATIONAL OIL COMPANY OF LIBERIA
(NOCAL)
+1 647 308 6325
[email protected]
Acting President and CEO Althea E. Sherman
JOHN BAKER
MINISTRY OF LANDS, MINES AND
ENERGY
Africa Energy Frontiers, Liberia Report Contributing Author
Minister Patrick Sendolo
ENERGY FRONTIERS
A true frontier in African energy: offshore blocks are by and
large undeveloped, with much acreage still to be explored. The
economy is in recovery, with high growth prospects.
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AFRICA ENERGY FRONTIERS
OVERVIEW
AND
BACKGROUND
The first oil exploration project in Liberia took place in the 1940s. Subsequent decades saw further attempts, but
no commercial discoveries were made and US oil company Amoco suspended its Liberian operations in 1989.
In recent years, discoveries in Ghana and Sierra Leone have prompted a resurgence in oil and gas exploration in
Liberia. Although production is years away, the nation has taken great strides in setting out a framework for future
petroleum sharing contracts and revising outdated petroleum laws and model contracts. These changes rework
the royalty structure, provide for greater transparency, create more stringent environmental and safety procedures,
and offer a stronger local content work program.
The most recent upstream contract was signed in 2013 between ExxonMobil, COPL and the national oil company NOCAL. Then-president
and CEO of NOCAL Randolph McClain said: “This event is a massive
leap forward for our oil sector and for our country, and it is the Liberian people who will benefit. All the terms of this deal have been negotiated with the maximum benefit of the public in mind, and we are
proud of what we have secured on their behalf. The fact that we will
be working with the world’s number one supermajor in oil and gas,
ExxonMobil, also speaks volumes about Liberia’s progress.”
A reworked production sharing contract is an important part of Liberia's attractiveness for global oil and gas firms. This new PSC, updated in 2013, has some significant changes from the previous version
and will likely serve as the model going forward. The New Petroleum
Law of 2002 gave greater royalties to the government while the new
PSC uses a formula to scale payments to encourage drilling at greater depths. It also contains a standard arbitration clause and puts a
strong focus on local content. These provisions reflect a governmental change in policy and bargaining tactics designed to attract investors and enhance local content.
Some uncertainty exists around maritime boundaries. The authorities acknowledge that there is no clear line of delineation between
Liberia and Côte d’Ivoire, and Liberia and Sierra Leone. The National
Petroleum Policy says that any maritime boundary question will be
resolved according to international law and treaties.
African Petroleum, operator of blocks LB-08 and LB-09, has successfully drilled a series of exploration wells revealing the Narina-1 discovery and another oil show. In 2013, ExxonMobil arrived in Liberia,
but the ebola outbreak put a temporary halt on exploration activity.
Drilling on Exxon's LB-13 is set to resume in late 2016 or early 2017.
Liberia has denominated 30 offshore blocks, of which 17 are in water
depths up to 2,500-4,000 meters. Thirteen of them are ultra-deep,
with water depths up to 4,500 meters. The most recent bidding round,
for four offshore blocks, closed in November 2014.
The global commodities slump and the ebola outbreak have slowed
Liberia's growth, and NOCAL suffered a financial and management
crisis in 2015. However, Liberia has avoided recession, and with a
clear and modern legal framework for the oil and gas industry, the
outlook is positive.
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AFRICA ENERGY FRONTIERS
LEGAL
FRAMEWORK
LIBERIA USES PRODUCTION
SHARING CONTRACTS TO
GOVERN UPSTREAM OIL AND
GAS ACTIVITY. LEGISLATION
HAS BEEN RECENTLY
UPDATED, AND SHOWS A
STRONG COMMITMENT
TO ACCOUNTABILITY AND
CLARITY IN UPSTREAM OIL
AND GAS ACTIVITIES.
The New Petroleum Law of 2002, the National Petroleum
Policy of 2012, the Liberian Petroleum Exploration & Production Act of 2013, and the Restated PSC of 2013 are the
main pieces of legislation governing hydrocarbons.
Production sharing contracts (PSCs), now modeled on the 2013 Restated PSC, are the basis of
upstream activity in Liberia. The National Petroleum Policy of 2012 explains that some of the
provisions of the 2002 New Petroleum Law are
outdated and in need of revision, particularly in
light of the new model PSC.
Once a contract is signed, a joint operating
committee (JOC) is formed. NOCAL and the operator can appoint up to three members each.
The JOC holds biannual meetings.
The exploration stage is divided into three periods: first exploration period for three years,
second exploration period for two years, and
a third exploration period for two years. The
PSC sets out a minimum work program cost
and other obligations for each exploration period. Seismic data must be obtained during
the first exploration period. The most recent
PSC with ExxonMobil provides a model for the
second and third exploration periods. For the
second period, the PSC requires minimum expenditure on work of $10 million, including 3D
seismic analysis and a commitment to drill one
exploration well. In the third exploration period,
the PSC requires a minimum $10 million work
program, including analysis of all work done
during the second period and a commitment
to drill one exploration well.
The contractor must promptly notify NOCAL of
a discovery and provide an appraisal work program. Once approved, NOCAL will give a twoyear license to the contractor for the program. If
the discovery is deemed to be commercial, the
contractor must evaluate the reservoir and submit a development and production plan. Once
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approved, the contractor will be given an exclusive exploitation authorization for 25 years with
a possible 10-year extension. During this period,
the contractor has the right to build pipelines.
The 2002 New Petroleum Law states that at the
end of the third and fifth years after the effective
date of a contract, not less than 30 percent of a
'shelf area', minus areas covered by a production licence, must be relinquished. In deep water, this regulation is valid for 30 percent of the
'water area' at the end of the fourth and seventh
years. The Restated PSC differs somewhat from
these terms and requires a 33 percent reduction
at the end of the third year (not including any
area subsequently licensed for production).
Transfers of assets cost $525,000 ($25,000 for
approval request, $500,000 for transfer) and
NOCAL must give prior written consent. Consent cannot be unreasonably withheld if it is a
partial transfer and the transferor is not in default
of more than $100,000 or in respect of performance of material obligations. The transferee
must also have the adequate technical and financial capacity to fulfil its obligations.
The National Petroleum Policy places a strong
emphasis on developing heightened environmental and safety standards. The policy requires
that environmental safety plans be submitted as
part of the oil contract bidding process. At the
end of each term of the PSC, mandatory audits
take place to check for compliance with these
standards.
Companies must set aside funds for decommissioning after 50 percent of recoverable petroleum has been produced in a block.
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AFRICA ENERGY FRONTIERS
ENERGY
SECTOR
ORGANIZATION
State regulation and
actors
The Hydrocarbons Technical Committee (HTC) regulates the enforcement of petroleum laws and is made
up of various interrelated ministries and agencies.
The chairman is the president and CEO of the National Oil Company of Liberia (NOCAL). The rest of
the committee is made up of the Ministers of Justice;
Finance; Lands, Mines and Energy (MLME); Labor,
the Legal Advisor to the President, the Chairman of
the National Investment Commission; and the Executive Director of the Environmental Protection Agency (EPA). Currently, the roles of each agency are not
clearly defined. Of these administrative bodies, NOCAL is the most prominent, as it enforces the New
Petroleum Law and promulgates administrative regulations on hydrocarbons.
The National Petroleum Policy explains that future
legislation will more specifically define the roles of
the agencies within the HTC. This should provide for
greater oversight and enhance transparency. In pursuit of this goal, the government of Liberia will use the
principles and procedures of the Liberia Extractive Industry Transparency Initiative in accordance with the
Freedom of Information Act of 2010. This will require
the agencies to publish annual reports and provide
public access to information, in order to encourage
citizen participation from civil society organizations.
The policy also seeks to address particular oversight
issues. The MLME has oversight of policy implementation, but needs more technical and human resources to do so effectively. The government has committed to strengthening the MLME so that it can do its
job effectively. Furthermore, NOCAL is essentially a
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player and a referee. This dual role provides a
potential breeding ground for corruption. Future
legislation must limit NOCAL’s double role as
both participant and regulator. In recognition of
this problem, the policy explains that the government must establish an independent regulatory
body to oversee the state’s commercial interests.
The government aims to establish this body no
later than the start of commercial production.
Local content
The contractor must fill all unskilled labor positions with Liberian citizens. They are also obligated to provide training and employment for
semi-skilled and skilled labor positions. The contractor must give preference for qualified Liberian
citizens as managers, engineers, accountants.
If no suitably qualified citizens are available,
non-Liberians may be hired. The contractor must
devote $100,000 for every year of the exploration and appraisal period for training programs
and $750,000 for every year of the exploitation
period. In addition, the contractor must give
$150,000 annually to the University of Liberia.
The contractor must allocate $150,000 annually
for social and welfare programs during the exploration and appraisal periods and $500,000 annually during the exploitation period.
Contracts
The newest PSC regime has radically different
royalty terms than those under the 2002 law.
The new law differentiates between offshore exploration depths. For water depths of 0 to 1,500
meters, the government receives a 10 percent royalty
of the value of the total production of petroleum. At
depths greater than 1,500 meters, the government
receives a 5 percent royalty of the value of total production. The Restated PSC of 2013 gives NOCAL the
option to obtain, free of charge, a 10 percent participating interest upon the start of commercial production.
The contract also includes a provision that gives a 5
percent citizen participation share to be distributed directly to Liberian citizens.
The PSC regime has bonuses set for four time periods:
the 'trigger event date,' and when total production of
crude oil reaches an average rate of 30,000, 50,000,
and 100,000 barrels per day for 30-day periods. The
contractor must also pay the following escalating rental fees: second exploration period - $50 per square
kilometer; third exploration period - $75 per square kilometer; and development and exploitation - $100 per
square kilometer. The contractor is exempt from paying import, export, or re-export fees; however, it must
pay $300,000 in lieu of customs user fees under the
Revenue Code. The contractor is exempt from taxes on
earnings paid to shareholders and value-added taxes.
NOCAL explained why royalties are now lower than
those in the previous contracts in a 2012 report: “The
simple reason is that given the extreme financial risk of
drilling offshore Liberia, some provisions of the [2002
New Petroleum] Law (especially 3.3, 3.4 and 3.7 regarding equity and royalties) were not realistic to expect from the companies given the risk at the time.
Liberia was classified a ‘frontier’ region, which means
maximum risk, which means to get the companies to
come at all you have to offer them more. Liberia got the
best deal it could under the circumstances. As Liberia
develops, that risk reduces and Liberia can demand
more from new contracts it signs.”
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AFRICA ENERGY FRONTIERS
TAX AND
FISCAL
REGIME
The principal legislation for Liberia's fiscal regime
for petroleum operations is the PSC signed by
the contractor, and the Liberian Revenue Code of
2000. The Liberia Revenue Authority is in charge of
tax collection and compliance.
Taxes and other fees applicable to petroleum contractors generally consist of corporate income
tax, a quarterly advance of 2 percent 'turnover tax'
and royalties related to production. Contribution
to various social funds are also payable. The tax
code applies a corporate tax rate of 30 percent, although the individual PSC may apply a lower rate.
Corporate income tax is applicable to cost oil and
the profit oil share, plus any other income, minus
expenses allowed by the PSC or other legislation.
Each PSC is accounted for separately, so in cases
where an operator has two or more contract areas,
they cannot be combined for tax purposes.
Advance turnover tax returns are due quarterly,
within 15 days of the end of each quarter. Annual
corporate income tax returns are due within three
months of the end of the tax year.
Royalties are 10 percent of the value of total production for contract areas in water depths up to
1,500 meters. For areas in deeper water, a 5 percent royalty is in place. These royalties are defined
by the Restated PSC. Different rates can be applied.
Annual surface rental fees are levied, as well as bonus payments in phases, according to the production phase. These may or may not be recoverable
according to PSC terms.
No customs duties are to be paid for import and
re-export of goods for petroleum operations, and
a list of equipment permissable under this regime
can be included in the PSC. No foreign exchange
controls are in place.
There are concessionary withholding tax rates for
payments by petroleum operators to residents and
non residents of 5 percent on dividends, 5 percent
on interest and 6 percent on services. Different
rates can be defined by the PSC.
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Legislative reforms in 1973 led to the creation of
the Liberia Electricity Corporation (LEC), wholly
owned by the Government of Liberia and responsible for the generation and transmission of electricity. Historically the company’s staff and resources
have been committed to supplying electricity to the
capital of Monrovia, which consumed 98 percent of
available power.
POWER
SECTOR
Before the escalation to civil war in 1989, Liberia
had an installed capacity of 190 MW and served
35,000 customers. The civil war devastated all
parts of the electricity systems. Since 2006, ambitious efforts have been underway to restore the
Monrovia grid and expand rural connectivity. The
government has an ambitious plan to connect 70
percent of Monrovia and 35 percent of the country
by 2030. That would result in 1 million new connections and peak load power supply of 300 MW.
Today, Liberia has an installed capacity of 32.6 MW.
The Mount Coffee Hydropower Plant is being rebuilt with a capacity of 88 MW, and could be completed by the end of 2016. The World Bank financed
a heavy fuel oil plant that is generating 10 MW. An
18 MW fuel oil plant financed by the Government
of Liberia and a 10 MW plant financed by the Government of Japan are both under construction. In
March 2016, the Government of Liberia struck two
financing agreements with the European Union
worth 59 million euros for electricity supply.
Despite improvements in power generation, customers of LEC have complained about the slow
progress and lack of reliable service. Last year,
President Ellen Johnson Sirleaf issued ultimatums
to the LEC and demanded it speed up connectivity.
Liberia is one of six African countries that are the
focus of the US Power Africa Initiative. The United
States is working with host governments, the private sector and partners which include the African
Development Bank and the World Bank to speed
up investments in power generation, distribution
and transmission and expand mini-grid and off-grid
solutions. The initial goal is to install 10,000 MW of
generating capacity in the six countries.
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AFRICA ENERGY FRONTIERS
Block LB-13
After a hiatus in oil and gas activity in Liberia, work
is again underway, with a drilling campaign scheduled for block LB-13. ExxonMobil, the operator,
holds an 83 percent share in the acreage, with the
remaining 17 percent held by Canadian Overseas
Petroleum Limited (COPL). In March 2016, ExxonMobil opened a regional office in Abidjan, Cote
d'Ivoire, to oversee operations in that country and
in Liberia.
Drilling on LB-13 was delayed by the ebola outbreak.
However, the partners stated in September 2015 that they
planned to spud the Mesurado-1 exploration well in late
2016 or early 2017, indicating a return to business as usual in Liberia's effort to explore its offshore acreages. The
well is expected to cost $120 milion. The campaign will be
in its second exploration phase when the well is drilled.
With Mesurado-1, ExxonMobil and COPL aim to prove
commercial reserves of hydrocarbons in Cretaceous Santonian-age reservoirs and lay the groundwork to pursue
further leads on the block.
LB-08 & LB-09
Mount Coffee Hydro
African Petroleum holds 100 percent ownership of
blocks LB-08 and LB-09, covering an area of 5,350
square kilometers. The Narina-1 well on block LB09, one of three successful exploration wells drilled
in the area, was the first to prove a working petroleum system in the Liberian basin. Narina-1 was
drilled in January 2012 and encountered 31 meters
net oil pay in the Turonian and Albian reservoirs.
This was African Petroleum's second well. The first,
Apalis-1, drilled in September 2011, encountered
oil shows. The third, Bee Eater-1, assisted the operator in forming a revised subsurface interpretation.
The Mount Coffee Hydropower Rehabilitation Project has
the potential to quadruple Liberia's power generation capacity. Civil war stopped generation at Mount Coffee, which
as the nation's sole hydro plant once provided over a third
of Liberia's power. The facility fell into disrepair and the
dam was breached. Now the government is implementing
a major rehabilitation project, including the replacement
of generating units and turbines, to enable production of
88 MW of electricity. The project is due for completion by
October 2016 and will cost $230 million.
© Paenal
KEY
PROJECTS
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AFRICA ENERGY FRONTIERS
CONCLUSION
BLOCKS
Undoubtedly, Liberia has suffered a double setback in the
form of the ebola outbreak and the subsequent collapse in
commodities prices. However, as Gulf of Guinea explorers
look west to new acreages, Liberia has positioned itself well
to attract investment. The contract model is appealing to international players, emphasising Liberia's serious interest in
bringing in petroleum sector investors. African Petroleum's oil
discovery and ExxonMobil's upcoming drilling should encourage the participation of new companies in Liberia's offshore
upstream sector.
FIRST
DISCOVERY
African Petroleum,
through subsidiary
European Hydrocarbons, operates LB-08
and LB-09 with 100%
interests
DISCOVERY
The Narina-1 well,
drilled on LB-09, is
Liberia's first commercial oil strike
OPERATORS
BIDDING
BIDDING
ROUND
ROUNDS
LICENCES
EXPLORATION
5,100 square km of
3D seismic has been
acquired and processed.
WELLS
Two other exploration wells
have been drilled,
Apalis-1 and Bee
Eater-1, starting in
2011
POWER
RESERVES
Eight blocks are operated by four firms:
ExxonMobil, Chevron,
African Petroleum
and Anadarko
Liberia's last bidding
round was held for
four offshore blocks in
2014
30 offshore blocks
have been allocated,
of which 13 are in ultra-deep water up to
4,500 m depth
The Mount Coffee
hydro rehabilitation
project will add 88
MW power capacity
in 2016
The operator has
identified prospects with mean
prospective oil resources of 4.2 billion barrels
Monrovia
MOUNT COFFEE HYDRO
The Liberian, Norwegian, German and
US governments and the European
Investment Bank are co-financers.
Six contractors are building the Mount
Coffee plant. Liberia Electricity Corp.
expects the facility to lower tariffs.
Construction began in 2014 and is due
to be completed in 2016.
Capacity will be 88 MW, up from a previous operational capacity of 64 MW.
BLOCK LB-13
Operated by ExxonMobil (83%) with
partner COPL (17%)
The Mesurado-1 exploration well is due
to be spudded in late 2016 or early
2017 at a cost of $120 million.
The partners aim to prove commercial
reserves of hydrocarbons in Cretaceous Santonian-age reservoirs
The block PSC was signed in 2013,
and forms the basis of future petroleum
contracts.
LB-09
LB-08
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