Liberia Model Production Sharing Contract

From Oil4All
Jump to: navigation, search

The model production sharing contract (PSC) serves as the basis for Liberia's offshore oil and gas concession negotiations.[1] As of October 2013 the government was in the process of revising its model PSC, which Global Witness has written is necessary to ensure that Liberia maximizes the potential benefits from its oil and gas revenue, and that the environment and people of Liberia are sufficiently protected.[2]

Beginning with its first licensing round in 2004, Liberia’s government has awarded ten offshore oil and gas production sharing contracts based on the model PSC, and one onshore reconnaissance permit as of September 2011.[3] Global Witness analysis suggests that in light of NOCAL’s low capacity, it is unclear whether a PSC is the best contracting mechanism for Liberia’s oil sector and alternative arrangements, such as a concession or licence agreement, should be considered when the government revises Liberia’s model contract.[4]

Key terms

The National Oil Company of Liberia (NOCAL) owns an equity share in each concession and will receive revenue in the form of oil production sales once production starts. Liberia’s agreements also contain flat land rental and royalty fees. Though Libera's signed PSCs are based on the model PSC, the tax obligations in the signed contracts vary considerably.[5]

The percentage of oil and gas that a company must provide to the government – the production it must share – varies according to the level of oil production. Among Liberia's signed PSC this sliding scale of percentages is not standardised. The companies have negotiated different percentage shares at different production levels, making for a complicated tax structure. For example, the Repsol/Tullow/Anadarko consortium's contract for concession 17 designates 30 percent of profit oil for the government up to 30,000 barrels per day (bpd) of production, which moves to 55 percent when production exceeds 300,000 bpd, with additional levels in between. The oil company Peppercoast's contract for concession 13, meanwhile, designates a 45 percent share for government up to production levels of 50,000 bpd, and a 60 percent share for production over 100,000 bpd. Global Witness writes that the variation between Liberia's contracts means the government faces an unnecessarily complex set of accounting procedures, and that the government should consider ensuring that terms of future contracts do not vary unnecessarily.[6]

The model PSC which has served as the basis of these signed contracts does not have a confidentiality clause, which potentially benefits transparency, but it lacks provisions for regulating onshore oil and gas activities. It also does not contain safeguards sufficient to protect Liberia’s environment or the rights of the people who will be affected by concessions.[7]

Criticism

Some media outlets have criticized the PSCs the government has signed for perceived low royalty rates and citizen equity shares of 5 percent.[8][9] NOCAL has posted a Q&A document on its website explaining why Liberia did not win more advantageous terms in the PSC negotiations, namely the financial risk of drilling offshore Liberia, where no commercial oil has yet been found. The document dismissed the idea of renegotiating the PSCs because the lack of proven commercial reserves lends it a relatively weak bargaining position.[10]

External links

Liberia Model Production Sharing Contract

References

  1. Doing business in Liberia Ernst & Young, 22 February 2013.
  2. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  3. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  4. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  5. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  6. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  7. How oil can boost or break Liberia's post-war recovery Global Witness, September 2011.
  8. Oil In Liberia: How Could Liberians Settle for Only 5%? NSNBC International, 12 April 2013.
  9. Why Liberia Must Renegotiate, Revoke, or Cancel Disadvantageous - The Case of LB Oil BLOCK 13 Front Page Africa, 15 April 2013.
  10. Background Briefing on Liberia’s Oil Sector NOCAL website, July 2012.