Oil and gas contracts:
Is a bad compromise better than a good trial?

Sangomar

The Sangomar field, which began production in June 2024, supplies around 100,000 barrels per day of crude oil. The technical performance is commendable, as production is fully in line with expectations, and the operators Woodside and Petrosen, who own 82% and 18% of the field respectively, are to be congratulated.

Almost a year ago, the State of Senegal imposed a tax reassessment of 41.5 billion CFA francs (around 62 million Euros) on Woodside. According to the Direction Générale des Impôts et des Domaines, the former home of President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko, Woodside had failed to comply with a tax obligation relating to a financial obligation. Woodside disputes this. 

It will be recalled that the President and Prime Minister have long announced their intention to renegotiate the contracts binding the oil companies to the Senegalese state. But the problem is complex. For example, when the Sangomar contract was signed in 2004, it was based on the 1998 oil code, which was in force at the time, but has since been amended in 2019.

As Mamadou Gacko, a lawyer specializing in international arbitration, points out, the case is technical and fairly classic. But as Pape Mamadou Touré, a specialist in international oil regulation, also points out, the State of Senegal is caught between the legitimate desire to renegotiate contracts that appear unfavourable to the authorities and the desire to attract oil groups. Between 2014 (the Sangomar discovery) and 2015-2017 (gas discoveries by Kosmos in Senegal and Mauritania), numerous hydrocarbon deposits were found, but there are still twelve offshore oil blocks which have not attracted companies for exploration.

To resolve the dispute, Woodside has filed a request for arbitration with the International Centre for Settlement of Investment Disputes (ICSID).

According to specialists, this dispute illustrates a classic point of tension in resource-rich countries: how to increase local economic benefits without discouraging foreign investment? Senegal is walking a fine line: it is seeking to assert its economic sovereignty, while maintaining a credible and attractive framework for private partners.

 Senegal's Gas to power strategy - GTA - Yakaar Teranga

From oil to gas. The Grand Tortue Ahmeyim natural gas field off Saint Louis on the Senegal-Mauritania border delivered its first cargo of LNG in March this year. Production is expected to reach 2.5 million tonnes per annum (mtpa) initially. Phases 2 and 3 of the project are expected to increase production (to 7 or 10 Mtpa), but the schedule for the construction of new facilities remains uncertain.

In addition to LNG production, GTA, managed by a consortium comprising BP, Kosmos and Petrosen on the Senegalese side and BP, Kosmos and SMH on the Mauritanian side, is expected to deliver 300 million cubic meters of gas per year to Senegal and an equivalent quantity to Mauritania. In Senegal, this gas will supply a major 255 MW power plant near Saint Louis (Ndar Energies).

Senegal's gas-to-power strategy, one of the country's key development priorities, is based on the construction of new gas-fired power plants and the conversion of several existing plants from heavy fuel oil to gas. But this strategy presupposes the development and production of Senegal's other major gas field: Yakaar Teranga. This Kosmos-discovered field was to be developed by the same consortium that developed GTA. But BP withdrew from the project, leaving Kosmos and Petrosen as sole partners. A new oil company capable of ensuring the development of the project was expected, but Kosmos and Petrosen have just announced a postponement of the project due to a lack of agreement on the technical scheme, and no doubt because of the size of the investment required, which is difficult to finance, particularly in view of Senegal's financial situation.

Back to SIEPA

SIEPA, held in Dakar on May 6 and 7, was a resounding success.

Minister Birame Souleye DIOP warmly thanked the organizers and conveyed the greetings of the President of the Republic and the Prime Minister. He emphasized the progress made recently in Senegal, particularly in terms of access to electricity. Universal access will be achieved in the next few years. 

Mr Alioune GUEYE, Managing Director of Petrosen Holding, emphasized the problems of financing hydrocarbon projects. For the Yakaar Teranga field, whose production start-up is necessary to fully implement the Gas to Power strategy, he appealed to local and sub-regional savings.

Mr. Mamadou Abib DIOP, Managing Director of SAR, outlined SAR's objectives: the SAR 2.0 project, which aims to increase processing capacity to meet rapidly growing demand (SAR currently covers only half the domestic market), bitumen production, plastics production, sulfur production and lubricant production. Ambitious projects that are in line with the perspectives of the new authorities.

Several sessions were devoted to training, local content, electricity and renewable energies. They gave rise to lively debate.

Jean-Pierre Favennec
Président
Association pour
le Développement
de l'Énergie en Afrique