Forms of oil contracts in Senegal (by Mouhamadou Sarr)

To speak of the form of an oil contract means primarily to emphasize the document, which is a written instrument containing the provisions governing the relations between the various parties to the contract. This document consists of approximately one hundred pages containing various provisions that can be grouped into four groups: first, technical, operational and administrative clauses covering the practical aspects of conducting operations at various stages.

Second, the economic, financial, tax and commercial provisions covering the allocation of rents between the parties, the accounting of oil costs, the estimation and extraction of production. Third, legal clauses covering the application and modification of contractual relations.

Finally, various clauses supplementing other clauses. The form of the contract prescribed by the Senegalese legislature also refers to the type of contract. First of all, it should be noted that in the international oil legal environment, there are several types of contracts that determine the relationship between the owners of reserves and investors.

These contracts vary according to the policy direction of the sector, and several types of contracts have emerged since the beginning of oil exploitation around the world. The first of these is undoubtedly the concession agreement between landowners and oil companies in the United States. However, with the emergence of the nationalization of oil resources, the problems of reconciling the interests of oil-producing states and oil companies will be at the origin of the new contractual approach.

For most countries, it is now important to control oil reserves. Iconic in terms of the oil deal, Iran is currently in another deal model called “Buy Back”. Other contract forms are also used around the world.

Realizing the need and opportunity to control oil resources, the Senegalese State preferred two types of contracts that did not give the contractor full ownership of the resources. However, it should be noted that the provisions of Article 25 of the constitution justify the cancellation of concession contracts and two types of contract options in the Senegalese petroleum law.

Indeed, in these new provisions, the Petroleum Code establishes two types of contracts, provided that the oil contract is in the form of a production sharing contract or a service contract. The comprehensiveness of this list further inspires the desire to secure oil operations while protecting economic and financial interests as well as sovereignty over resources. In reality, the common feature of service contracts and production sharing contracts is that they allow the state to maintain control over oil reserves and operations, but above all to obtain more profit from them than under a concession-type oil contract.

It is clear that the concession contracts are not profitable enough for the state. Indeed, in this type of contract, the contracting party becomes the full owner of the exploited oil, and the state receives only tax, customs and lease concessions from the exploitation69. Article 30 of the Petroleum Code of 1998 states that “the owner of the exploitation concession acquires the ownership right to the hydrocarbons produced at the wellhead”. The State of Senegal has effectively opted for a service contract and production sharing contract in its reforms to the legislative framework of the sector, clearly affirming its desire to benefit from the exploitation of hydrocarbons.

However, these two types of contracts were indeed provided for in the old legislation. However, it should be noted that under the influence of the 1998 petroleum code, the production sharing contract was adopted as a variant of the service contract in Senegalese law. It was then defined as follows: “A risk services contract under the terms of which a state or a state-owned company assigns to one or more qualified individuals or legal entities the exercise of exclusive rights to explore and exploit hydrocarbons within a defined perimeter.”

It should be noted that the same agreement defines the terms of distribution of produced hydrocarbons. This confusion may be due to the similarity of these two contract types. On the other hand, historically we owe Indonesia to a model called production sharing contracts. After the nationalization of its natural resources in 1966. But other recent sources confirm that these treaties existed earlier in Venezuela and Iran in 1948 and 1951 respectively. To date, CPP exists in several forms in national oil policy functions.

In Senegal, it now consists of: “A contract of will concluded between the state and the contractor, on the basis of which the contractor undertakes to carry out activities in a certain area in the name and on behalf of the state, at its exclusive financial and technical risks. and expenses. With mining titles necessary for oil operations It receives for a fee a portion of the production from any commercial hydrocarbon field located in each exploitation zone for which it is licensed,” he adds, “The production sharing agreement may take the form of exploration depending on the situation. and the production sharing agreement or exploitation and production sharing agreement”.

First of all, it should be noted that it is characterized by risks for the investor, whose reward after investments is mainly based on the possible detection of a commercial deposit. Payment under production sharing agreement is actually paid in kind for oil production after deducting production costs. There are two types of production sharing agreements, namely exploration and production sharing agreement and exploitation and production sharing agreement.

Another form of contract recognized in Senegalese law is a service contract, defined by the code as a contract of will between the state through the national oil company, where the hydrocarbon production rights necessary for oil operations are granted. and a contractor for whom the contractor undertakes to carry out exploration and/or exploitation activities in the exploration zone and/or one or more mining zones for and on behalf of the state. receives as remuneration a fixed or determinable amount payable in cash or in kind upon discovery of technical expenses and commercial deposit. Unlike a production sharing contract, the premium in a service contract does not necessarily refer to the oil. But it retains the nature of a contract at risk because the reward depends on one condition: the discovery of a commercial deposit.

Mouhamadou SARR
business lawyer
Alioune graduated from the Faculty of Legal Engineering at Diop University.