Negotiations, political issues could delay offshore northwest Africa gas project

Offshore staff

LONDON – Consultant PGI says a cross-border development is some way off for Kosmos Energy’s giant deepwater gas field discovery offshore Senegal and Mauritania.

Recently the company proved a probable extension of its Ahmeyim field off Mauritania into Senegalese waters, via the Guembeul-1 exploration well in the northern part of the Saint Louis Offshore Profond concession.

Kosmos has designated the accumulations as the Greater Tortue Complex, and estimates gas potential at 17 tcf.

The company has also entered into a memorandum of understanding with Senegalese state oil company Petrosen and Société Mauritanienne des Hydrocarbures et de Patrimonie Minier on developing the field.

However, PGI points out that a revenue-sharing formula with the two countries remains to be agreed. Currently Kosmos has a 60% interest in the latest, in partnership with Timis Corp. and Petrosen, but it is unclear how Mauritania will benefit unless this arrangement is renegotiated, the analyst claims.

The complexity of gas-sharing negotiations, with no specific precedent between the two countries, means discussions could be drawn out. No timeline has been set for when these issues will be resolved, with the potential for complex and politically charged bilateral negotiations.

In addition, an unclear legislative framework governing the oil and gas industries in both countries could present further obstacles, as neither nation is an established producer of oil or gas.

Woodside Petroleum’s experience offshore Mauritania highlights the challenges foreign companies can face, PGI says. The Australian independent was involved in production at the offshore Chinguetti oil field in the early 2000s but sold its assets in 2006, claiming they were no longer profitable, after being forced to pay $100 million as a “project bonus” to the Mauritanian authorities.

A separate corruption case by the Australian Federal Police into Woodside’s operations in Mauritania also cast doubt on the feasibility of the project.

Senegal’s regulatory environment presents further uncertainties. The government is looking to revise its outdated 1998 Petroleum Code. Petrosen is seeking a consultancy to help revise oil regulations this December, with the winner expected to complete its study within six months.

Among the topics of debate in-country are demands from some local regions for greater involvement in decision-making in the oil and gas industry and for the greater allocation of oil revenues.

These issues could prolong the review of the resultant new Petroleum Code, impacting project timelines. Presidential elections scheduled for 2017 could further complicate the process, leading to changes of personnel responsible for negotiating contracts with companies, as well as those responsible for the revenue-sharing negotiations with Mauritania.

However, once gas production begins it should provide a major boost to both countries which are currently suffering from depressed global commodity prices and weak foreign investment.

Senegal estimates that the additional energy that it receives from the development of the Guembeul-1 well will make it completely energy-sufficient and allow it to become a regional exporter of electricity. The World Bank has estimated that persistent electricity outages between 2006 and 2011 cut Senegal’s annual growth by around two percentage points.

As for Mauritania, the gas development will allow the government in Nouakchott to diversify the country’s economy away from its dependence on the mining sector, which accounts for 70% of its exports and 30% of the state budget.

The boost to the country’s finances could also trigger more infrastructure development, particularly in transport and electricity standards, both of which have been cited by foreign businesses as an obstacle to investment, PGI says.


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