Bénin recently adopted a new petroleum code, making the country one of the latest frontier countries in the West Africa oil and gas industry to update its petroleum law. The code provides for a production sharing contract regime, and applies to upstream operations only.
Located in the Gulf of Guinea, Bénin is still relatively unknown in the oil and gas industry. Historically its production has been limited; the last discovery of note occurred in 2013 when Nigerian exploration company South Atlantic Petroleum (SAPETRO) discovered an 87-million-barrel field in the republic.
Bénin’s new petroleum code, Law No. 2019-06, adopted on January 21, provides for a production sharing contract (PSC) regime based on a model form that will be issued by a separate decree. As of the date of this LawFlash, we have not seen the model form PSC but expect that the decree and model form will be issued in the coming months and that new bid rounds will subsequently be organized.
Salient points to note about the new code include the following:
- The new petroleum code applies to upstream operations only. It does not apply to storage and transportation operations.
- Research authorizations are for an initial period of 4 years onshore and 6 years offshore and may be renewed twice: initially for 3 years and then for 2 years, maximum. Therefore, the maximum research duration is 9 years onshore and 11 years offshore.
- Profit sharing between petroleum companies and the Republic of Bénin will be set out, not unexpectedly, in the model form agreement. Costs will be recovered through a cost oil mechanism (i.e., from production) with cost stop levels (i.e., maximum levels of recovery) set between 70% and 80% depending on the nature of the fields (onshore, offshore, or deep offshore).
- The Republic of Bénin will be entitled to “ad valorem royalty” and to a share of “profit oil” (also known as “tax oil,” amounting to a share of production after deduction of ad valorem royalty and cost oil, as forth set in the PSC). Various other limited taxes and duties will apply (although tax oil will be paid in lieu of income tax, with 40–45% minimum rates depending on the offshore or onshore nature of the field).
- A signing bonus will be due at signing of the PSC and an exploitation bonus will be due upon the issuance of production authorizations. Amounts will be set in the PSC.
- A local content plan must be submitted with the application for production authorizations. Upon issuance of the same, the Republic of Bénin will be entitled to request a participating interest of 20%, with up to 10% of this interest to be carried by the petroleum company(ies) being granted a production authorization.
Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Olivier Chambord
Allison Soilihi