Oil & Gas

Oil & Gas

Sector Overview

Sierra Leone has historically gone through 3 phases of oil exploration; the first two stages involved drilling by Mobil in 1982 and by Amoco in 1985, to depths of approximately 3000 meters These exploratory wells, located close to the border with Liberia, are on the continental shelf, considerably shoreward of the deepwater basin complex. Oil shows were encountered in both exploration drillings, but these wells were plugged and abandoned.

Oil and gas exploration activities started again in 2003 in Sierra Leone, when TGS NOPEC was engaged by the Government of Sierra Leone to carry out. TGS-NOPEC Geophysical Company acquired approximately 5,800 sq km of 2-D seismic data in 2000 and 2001 and 3,200 sq.km of 3D data in subsequent years. The data set consists of a total of 170 lines extending from the continental shelf to water depths of 2500 m to 4000 m, recording high quality, 10-second migrated seismic data. The southwest-northeast dip lines have an average spacing of 7 km and lengths of 50 km to 140 km. Five composite, northwest-southeast strike lines are each approximately 850 km long. Approximately 5,800 line-km of the seismic data were acquired in the offshore area of Sierra Leone.

Oil Block Awards and Exploration Activities

The first round of oil block awards was in 2003/2004, when 6 Petroleum Blocks. A number of companies carried out additional exploratory activities. The consortium comprising Anardarko, Repsol and Tullow Oil acquired 3D seismic data and progressed to drill 2 wells up to 18,000ft in 9,500ft of water between 2005 and 2010. One of the wells, the Venus B-1 provided 45 net feet of hydrocarbon pay, therein proving a working petroleum system. The group also encountered 135 net fet of hydrocarbon pay in the Mercury well, which is currently being appraised. Three more groups, Lukoil, Talisman and African Petroleum have acquired 3D seismic data, which are being interpreted and evaluated. Until 2012, the main actors in the petroleum sector were: (i) Anardaro/Repsol/Tullow Oil; (ii) Talisman/Prontina; (iii) Lukoil/Oranto; (iv) Young Energy Prize; and (v) African Petroleum.

 

In August 2012 a new round of Oil Block Tender was completed, which saw the award of 9 more Petroleum Blocks to a range of companies. This process involved a total of 59 applications, and the results of the process are summarised as follows:

However, in 2015 Lukoil, Russian largest privately held oil company, has backed away from its exploration project in Sierra Leone due to disappointing exploration results.

General Fiscal Regime of the Petroleum Industry

The Fiscal Regime of the oil and gas sector comprises three key instruments; (i) Royalty; (ii) Income Tax and (iii) Petroleum Resource Rent Tax (PRRT). These, together with other complementing provisions, form the overall fiscal regime for Sierra Leone’s hydrocarbon industry. The following are specific rules that apply:

Type of Agreement Hybrid Royalty-Tax Agreement
Corporate Income Tax 30%
Exploration Period Seven (7) years consisting an initial exploration period of 3 years with two (2) extension periods contingent on fulfillment of Work and Financial Obligations of each of the two (2) renewal periods
Work Programme Negotiable, based on minimum expenditure
Relinquishment Licensee cannot retain more than 50% of licensed area after the initial exploration period and no more than 25% after the first extension period
Royalties (Oil) Water depths up to 200 metres 10.0%
Water depths over 200 metres 8.0%
Royalties (Gas) Water depths up to 200 metres 5.0%
Water depths over 200 metres 3.0%
Surface Rental Initial Exploration Period US $40 per sq. Km. per Annum
1st Extension Period US $60 per sq. km. per annum
2nd Extension Period US $85 per sq. km. per annum
Development and Production US $110 per sq. km. per annum

The Petroleum  Act 2011

Downstream Investment Opportunities

The country now has proven oil and gas deposits and production activities are imminent. In addition to exploration, development and production of crude oil, Sierra Leone also offers opportunities for downstream investments in the sector. With GDP growth rates averaging between 6% and 7% in recent years (prior to the deadly Ebola Virus Disease), this growth is fuelled by economic activities that depend on petroleum products. Diesel and petrol are the country’s largest imports; and imports of these products have grown at approximately 20% annually over last 5 years. The regional West African demand should be able to support a refinery with capacity of 200,000 barrels per day with additional export opportunities to supply US & European markets.

Oil and Gas Port Infrastructure

The presence of vast undeveloped lands close to sheltered deep-waters and natural harbours in various points along the coast, create opportunities for oil and gas port infrastructure and services for imminent production activities.

Oil Refinery

The Government is seeking strategic private sector partnership for rehabilitation and expansion of the Sierra Leone Petroleum Refining Company (SLPRC) assets. The company, originally created in 1970 as a joint venture between the GoSL and major international oil companies, was forced to close down several years ago. The investments should improve on the operating infrastructure, to include a specialised jetty and the installation of modern and more efficient machinery and equipment. Government’s preference is for a strategic partner with extensive experience in operations and management.

Marketing and Distribution

The expansion in the production capacity of crude and refined oil creates even wider opportunities for marketing and distribution of the products both locally and in international markets.