SENEGALA COMPLETE REPORTON INVESTING IN THE ENERGY SECTOR OF THE REPUBLIC OF SENEGAL

2019

Africa Energy Series

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lion people – dwarfs those of most near-by nations. Mauritania, for example, has a population of just under four million people, while neighboring Gambia and Guinea-Bissau each have fewer than two million citizens. In addition, more than three million people live in Dakar and its suburbs, making the capital city a cultur-al and economic hub in West Africa.

Government And Political Environment

Senegal is a model of democracy in West Africa. It has established a stable and democratic political system over the decades, at least relative to the rest of the region. Senegal has been free of coups, military rule and civil war since its independence in 1960, unlike many of its neighbors in West Africa. More-over, the country´s elections have been consistently credible. At the time of Senegal’s independence, it was one of the most developed countries in the region. In the years since independence from France, Senegal has made a name for itself as a secular society known for its tolerance and moderation. President Macky Sall was re-elected for a second term in this year’s elections which took place in February 2019.

Economy and investment climate

The country earns most of its foreign exchange from fish, phosphates, pea-nuts, tourism and hospitality, and ser-vices. Consequently, the Senegalese economy is highly vulnerable to vari-ations in rainfall and changes in world

commodity prices. Trade is particularly important for Senegal´s economy; the combined value of exports and imports equals 74 percent of gross domestic product (GDP).

The fishing sector is Senegal’s export leader. In recent years, fishery products contributed 22 percent of Senegal’s export earnings and employed about 15 percent of the population. Industri-al fishing operations struggle with high costs, more efficient Asian and Euro-pean Union competitors and ineffec-tive patrolling of its territorial waters against poachers. Earnings from tour-ism – the second major foreign exchange earner – contribute anywhere between 4.6 to 6.8 percent of GDP annually. Sen-egal has more than 320 tourist class ho-tels and the sector employs in excess of 100,000 people serving over 700,000 tourists annually. Agriculture employs about 70 percent of the economically active populace, while groundnut culti-vation (which in 1960 had provided 80 percent of Senegal’s export earnings) engages 10 percent of the population and is done on 50 percent of sown land in rotation with millet and sorghum. Mining, especially of phosphates, em-ploys over 33,000 people and provides an estimated 15 percent of export value.Senegal’s Agency for the Promotion of Investment plays an important role in the government’s foreign investment program. Dakar, home to over a fifth of the Senegalese population, attracts sub-stantial amounts of foreign investment intourism, information and communication technology and infrastructure.

Historically, Senegal has been an entry point into West Africa situated at the far west end of the continent on the Atlan-tic coast, the country has drawn foreign powers from Arab traders to European empires. More recently, Senegal has maintained influence in West Africa and the Francophone world, despite its rel-ative lack of hydrocarbons and smaller population size, especially when com-pared to big oil producers such as Nige-ria or Angola.

Analysts at the U.S. geopolitical consul-tancy, Stratfor, note that the secret to its enduring importance lies in its geogra-phy and relative political stability. In addition to its position on the Atlantic Ocean and its penetrating waterways, Senegal´s population size has also con-tributed to its growing influence in West Africa. Though small when compared to other countries in the world, Senegal´s population – estimated at over 14 mil-

SENEGAL:THE NATION OF TOMORROW

Africa Energy Series | Senegal

The former capital of French West Africa, Sene-gal is a semi-arid country located on the western most point of the contien-nt. Predominantly rural, up until quite recently, it was thought to hold limited natural resources in terms of oil and gas, but that is now starting to change.Senegal’s economy is highly

dependent on the mining, construction, tourism, fisheries and agriculture industries, accounting for high employment rates in rural areas. Located at the western most point of the African continent, Senegal is known as the ‘Gateway to Africa’ with its capital city Dakar. Dakar is dubbed as one of Africa’s most important harbours and an economic and cultural centre for West Africa.

STATE OF THE NATION

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national oil company, Petrosen, and inter-national companies have undergone rela-tively unsuccessful exploration activities since the middle of the century. Onshore discoveries include Diamniadio in 1961, Dome Flore and Dome Gea in 1967 and Gadiaga in 1976. Senegal reached peak gas in 1995 with 55 million cubic meters produced that year.

In 2016, Senegal produced less than 20 million cubic meters of hydrocarbon products locally. In this context, demand is largely satisfied by imports leading to a $1.5 billion energy bill in 2017, up from $1.24 billion the previous year. In this context, authorities have stepped up to the challenge of lowering their energy imports by exploiting natural resources and optimizing production strategies.

Discoveries

In late 2014, the joint-venture led by Cairn Energy with its partner FAR Lim-ited and ConocoPhilips announced two major oil discoveries offshore Senegal in the SNE and FAN fields, comprised within the Sangomar Deep portion. The field will be developed in a series of phases with plans for 500 million barrels of oil and gross production of 100,000 barrels of oil per day with first oil targeted in 2022. The SNE discovery was the largest oil discov-ery that year.

Senegal was blessed with major gas dis-coveries in the two following years. Kos-mos Energy – who entered a joint-ven-ture with BP in 2016 – announced successful discoveries in the Greater

Tortue Complex, located on the maritime border between Mauritania and Sene-gal. The gross resource estimate for the Greater Tortue Complex is more than 25 trillion cubic feet of gas.

Government Goals

As a non-hydrocarbon producing coun-try, 90 percent of Senegal’s extractives industries revenues come from mining. The Greater Tortue Complex and SNE Field has forced the government to re-define its strategy in order to exploit the country’s newly discovered resources. Senegal’s President, Macky Sall, is a pe-troleum geologist by training and the for-mer head of Petrosen and knows it takes national commitment to efficiently devel-op these projects. Presdient Sall ordered the creation of the Comité d’Orientation Stratégique du Pétrole et du Gaz (Cos-Petrogaz) with the goal of creating a transparent, fair and profitable oil and gas industry. Its Permanent Secretary, Ousmane N’Diaye, operates directly un-der the President’s office and is respon-sible for overseeing all operations taking place in the local petroleum sector.

Senegal is a leading phosphate produc-er globally and in 2013 joined the Ex-tractive Industries Transparency Initia-tive (EITI) to show its commitment to increased transparency across its min-ing and prospective energy sectors. In April 2018, the EITI Board confirmed Senegal’s transparency validation. Sen-egal showed the most progress out of all African members and was ranked fourth worldwide.

Senegal is often cited as an example in West Africa which has achieved relative social and political stability and trig-gered economic growth while having little indigenous natural resources to rely on. Upon Cairn Energy’s discoveries in 2014, Senegal was put in the spotlight as an under-developed oil and gas rich country and authorities have shown tremendous control and patience in handling this news.

Strong emphasis is put on establishing a sound strategy in order to develop a pe-troleum economy which will be transpar-ent in the long-term and profitable to all–with first productions set to commence in 2021 and 2022.

Pre-2014 sSate of Exploration and Production

Senegal’s economy is historically reli-ant on natural resources. Agriculture, which employs 77 percent of the total available labor, remains the top export-ing sector for the country. The number one sub-sector is the fishing sector as it accounts for over two percent of Gross Domestic Product (GDP). When it comes to the extractives industries, Senegal has been a mineral producing country for de-cades and the mining sector has been a pillar of the economy since the country’s independence from France in the early 1960s. The country offers strong geo-logical potential, ranging from precious minerals (gold and platinoid) to metals (iron and copper) and industrial minerals (phosphate).Regarding energy resources, Senegal’s

CHAMPIONINGHYDROCARBONS

Africa Energy Series | Senegal

Senegal’s desire to become a major hydrocarbons producer has become a reality. The country based its plans for the move to be a gas and oil producer on an annual government revenue flow of $1.04bn from the two potential hydrocarbons ventures—the SNE oilfield and the Greater Tortue/Ahmeyim gas project, which are scheduled to start producing export revenues in 2020.

CHAMPIONINGHYDROCARBONS

STATE OFTHE INDUSTRY

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provements in order to fit international petroleum standards.

Regulatory Framework

In January 2019, Senegal’s parliament ratified the new petroleum code, updat-ing the previous one introduced in 1998. The aim of the new code is to attract in-vestment while strengthening the coun-try’s position with private stakeholders. Primary improvements include a more transparent bidding process in which only corporations can take part, local con-tent rules in which all operators must be compliant, environmental awareness and transparency. Senegal already benefits from an ever-improving business climate thanks to its stable political situation and attractive investment policies. Specific rules for the hydrocarbon sector proved necessary in order to better structure operations as well as reassure the pop-ulation. The new code was designed in collaboration with civil society.

Downstream Progress

The Société Africaine de Raffinage (SAR) refinery – West-Africa’s oldest and Sen-

egal’s only – can process 1.2 million tons per year today, which is double its initial capacity when it was inaugurated in 1963. Covering approximatively three quarters of local demand, the prospect of having indigenous crude oil in the near future has sparked discussions among decision-makers pertaining to the necessity of a second refinery.

Power Challenges

Access to electricity, supply instability and frequent outages have hindered economic growth and constrained elec-tricity access projects. Although almost two thirds of the Senegalese population have access (a much higher figure than the sub-Saharan average which sits at 42.8 percent in 2016), the cost of elec-tricity in the region compared to GDP is among the most expensive in the world. Senegalese citizens pay between $0.16 and $0.19 per kilowatt hour (kWh) whereas the average price of a kWh in France is $0.14.

In the late 1990s, Senegal’s government was one of the first in sub-Saharan Afri-ca to introduce private sector participa-tion in the electricity industry. Although Société Nationale d’Electricité du Séné-gal is the main provider for households and industries, the country relies on pri-vate investment to close the shortfall in supply.

Pre-discoveries, Senegal has expressed its intention to move away from diesel feedstock toward coal-based power gen-eration along with renewables. Although these goals are still pursued, the prospect of having indigenous petroleum produc-tion will be a major source of electricity cost reduction. Regarding renewable resources, biomass and solar present the strongest potential given the strong agriculture sector along with a tropical climate. The biggest challenge to devel-op power generation through renew-able resources is to generate investment through public and/or private investment to build adequate treatment plants.

EITI was created in 2003 with the goal of setting global standards for the good gov-ernance of oil, gas and mineral resources and requires members to produce infor-mation along the extractive industry val-ue chain. The EITI standard is present in 52 countries globally, which are required to publish information including con-tracts and licenses, revenue collection, allocation and other key indicators.

The Institut National du Pétrole et du Gaz (INPG) is Senegal’s national petro-leum institute, comprising the final stra-tegic initiative designed to create a pool of qualified human resources to serve the petroleum industry. Senegal is bless-ed with several high-class engineering schools such as Ecole Supérieure Poly-technique de Dakar, Ecole Polytechnique de Thiès and Institut des Sciences de la Terre. The goal of the institute is to shape and train future leaders in the petroleum industry, while creating a technical work-force that can compete on a global scale.The establishment of Cos-Petrogaz and INPG added to the country’s com-mitment to transparency through EITI organization and Senegal’s institution-al framework has undergone major im-

in Senegal so we are seeking solutions to make it available at a lower cost for all lay-ers of the population.

Heavy industries such as cement pro-duction, mining and the steel industry should widely benefit from hydrocarbon production. Furthermore, lower costs of electricity will allow manufacturing and transformation activities to set up locally. Agriculture will also be impacted, as gas will be used for drying and storage. Final-ly, domestic heating will be limited as the

demand is low locally, but gas can be used for other domestic needs such as air condi-tioning and transport.

Refining capacities are an important chal-lenge which needs to be tackled simulta-neously. In Senegal, the consumption of hydrocarbon products is approximatively three million tons per year. To compete with large-scale refineries in the Mid-dle-East and Nigeria, Senegal would need to produce between five and 10 million tons a year in order to be profitable and export in the region. I believe the Société Africaine de Raffinage – at 55 years old

– is nearing its maximum capacities cur-rently. We need a new refinery and a pet-rochemical production complex in order to go further than merely refined oil so it can fully satisfy the needs of Senegal and the west-African region.

Aside from fossil fuels, Senegal is showing great commitment to renewable energy, namely solar power. Solar power is the most advanced feedstock right now as it shows good profitability. Hydroelectric power is also hopeful due to two large riv-

ers in The Gambia and Guinea-Bis-sau. Wind power presents technical difficulties, but our long Atlantic coastline hinders opportunities. Fi-nally, thanks to our developed agri-cultural sector, biomass will partici-pate in the renewable energy mix. It would be interesting to use biomass in mini-projects in rural or isolated areas.

Finally, local content is a global chal-lenge. It must be present at all points of the value chain. Upstream is the

most challenging aspect as it is a new in-dustry for Senegal. We will need support and skills upgrading for small and medium enterprises as the oil and gas sector re-quires strong technical skills. The National Petroleum Institute (INPG) will a have an important role to play in filling the gap in terms of human resources. Currently, the country lacks engineers, technicians, busi-ness developers and lawmakers. INPG’s target is to shape a workforce which can take challenges related to the industry. Al-though the public sector can meet that goal through the state and INPG, the private sector also has a role to play.

Serigne Momar Dieye, President of the Senegalese Association for Energy Develop-ment in Africa (ASDEA), believes petroleum productions can have a major impact on Senegal’s economy, under the condition that the whole energy value chain is man-aged efficiently.

The ASDEA was created in 2007 as a think tank involving critical analysis and the pro-vision of solutions around energy issues in Senegal and across the continent. ASDEA was created by experienced professionals in the local energy sector including Kamara Touré, former director of the refinery; Alioune Fall, former Di-rector of Energy in Senegal; Idrissa Bodian, former principal technical advisor to the Minister of Energy and Jean-Pierre Noel, former Secre-tary General to the Senegalese asso-ciation of petroleum professionals.

ASDEA works on the full energy val-ue chain ranging from hydrocarbons to electricity and renewable energy. A key objective is to create synergies between local institutions and regional or-ganizations such as the West-African Eco-nomic and Monetary Union, and the Eco-nomic Community of West-African States.

Senegal has been dependent on oil and gas imports for a long time. These discoveries will allow us to optimize its trade balance, increase available funds for Plan Sénégal Émergent and stabilize our economy on a long-term scale. We are expecting a strong positive impact on refining activities and the distribution of hydrocarbons prod-ucts, as well as electricity costs and access., Electricity prices are currently fairly high

ENERGY THINK TANK

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Africa Energy Series | Senegal

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however, is the sole operator in charge of distribution and transport of elec-tricity across the country. The sector is regulated by the Regulation Commis-sion for the Electricity Sector and sev-eral other agencies participate in the development of Senegal’s power cov-erage such as the Rural Electrification Agency and Renewable Energy Agency, among others.

A revamped national power company

In 2011, Senegal’s electric network un-derwent a total of 950 hours of power cuts throughout the year. The same year, the national electricity company

SENELEC and the West-African De-velopment Bank signed four agree-ments totalling almost $100 million of funding to develop Senegal’s power sector. Following restructuring, invest-ment and equipment modernization, SENELEC brought that figure down to 24 hours in total in 2018. Every year, the company produces a surplus of 200 megawatts (MW) – approxima-tively equivalent to the power needs of neighbouring Mali – which is stored for potential future use or exports. Before 2014, the state-owned company was making losses and was subject to loans, leaving no room for reinvestment in in-frastructure. In 2016, it reached a $52 million profit.

Access to power is a key governmental priority. In 2016, the World Bank reported that 57 percent of the population had access to electricity, above the regional average at 52 percent. Senegal aims to increase coverage and decrease disparity in rural areas.Plan Senegal Emergent (PSE) sets ac-cess and cost of power as primary areas of investment in order to make Senegal an emerging economy by 2030. The cost of electricity in Senegal is currently among the highest globally. Such prices are a major constraint for a developing country as it hinders industrial compet-itiveness, discourages international in-vestments and favours fraud and power theft. PSE states three objectives re-garding power access: perfect availabil-ity of energy in sufficient quantity and quality, electricity costs among the low-est in the sub region ($0.09-0.12/kWh) to support economic competitiveness and halving household electricity bills.Electricity production in Senegal has had a free market since 2004 and sev-eral independent power producers – as well as Société nationale d’électricité du Sénégal (SENELEC) – operate in Sen-egal, including GTI-DAKAR and South Africa’s power utility Eskom. SENELEC,

ACCESS TO POWER

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Africa Energy Series | Senegal

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2017 2020 2025 2030

POWERSenegal is set to thrive as a key player in the oil and natural gas industry, and plans to do this by making energy work for its economy. The country has taken great strides in proving that it is one of Africa’s leaders in the exploration industry. In order to meet its national power goals, it is moving forward with developing power infrastrucutre.

FEEDSTOCK/YEAR (%)

Renewable Hydro Fuel Coal Natural Gas

GRAND TORTUEAHMEYIM

PROJECT Years from discovery to production

Mauritanie Senegal Grand Tortue Ahmeyim

Australia – Pluto

Equatorial Guinea – LNG

Mozambique – Zone 1 LNG

Australia – Prelude FLNG

Mozambique – Zone 4 LNG

Australia – Darwin

Equatorial Guinea – Fortuna

Tanzania – LNG Phase 1

Australia – Wheatstone LNG

Australia – Northwest Plateau

Australia – Gorgon

Australia – Ichthys

Average

6

7,5

9

9,8

10,5

10,5

11

11

11

13

17,5

36

37,5

145.200 m Field depth 30 years Acreage 33.000 km2 Production length potential

Type of productLiquified Natural Gas

Phase 1 2.5 MTPA

Phase 2 10 MTPA

MauritaniaSenegal border

First production2022

P-mean Gross Resource Estimate 25 trillion cubic feet of gas

Collaboration between Senegal and MauritaniaInter-Governmental Coop-eration Agreement (ICA)

Initial split of resources and revenues according to the ICA 50-50 (renegociable based on actual production and other future data)

Processing unitFLNG

Estimated total cost5 billion USDJOINT-VENTURE

SMHPM 10%

For Mauritania:

Kosmos Energy 28%

BP 60%

Petrosen 10%

For Senegal:

Kosmos Energy 28%

BP 62%

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ResourceAfrica Energy Series | Senegal

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Kosmos Energy/BP Joint Venture

Kosmos Energy is an American interna-tional oil company which holds explora-tion and production activities across the African continent. In Senegal, Kosmos Energy revealed three major gas discov-eries in 2015, 2016 and 2017 located in the Greater Tortue Complex and the Ca-yar Deep Offshore block. Estimated gas reserves for those three fields total 35 to 50 trillion cubic feet.

In 2016, Kosmos Energy and BP entered a farm-out agreement in which BP ac-quired a 62 percent working interest in Kosmos’ exploration blocks in Maurita-nia and a 32.49 percent working interest in Kosmos’ exploration blocks in Senegal. Mauritania’s NOC Société Mauritani-enne Des Hydrocarbures Et De Patri-moine Minier (SMHPM) and Petrosen both hold a 10 percent interest in each agreement.

In 2017, after BP acquired Timis Corpo-ration’s 25 percent share in the Senegal joint-venture, participating interests became similar to the aligned partner-ship in Mauritania. BP’s share is close to 60 percent, Kosmos’ is close to 30 per-

cent and the remaining 10 percent is the propriety of SMHPM in Mauritania and Petrosen in Senegal.

The joint venture announced its final in-vestment decision at the end of 2018, at the same time as the finalization of the transboundary agreement between Mauritania and Senegal. All the parties have been committed to making Greater Tortue Ahmeyim the fastest liquified nat-ural gas project ever developed, hoping for first gas to flow in 2022, approxima-tively six years after the discovery.

Cairn Energy/Woodside Energy/FAR Joint Venture

Cairn Energy farmed-in as operator to its three blocks offshore Senegal in 2013, acquiring a 65 percent interest in the three blocks with a combined acreage of 7,000km². In 2016, Woodside Ener-gy acquired ConocoPhillips’ 35 percent stake leading to a dispute from FAR, who claimed preemptive rights on the trans-action. The current joint venture’s own-ership structure is as follows: Cairn En-ergy (40 percent), Woodside Energy (35 percent and operator), FAR Limited (15 percent) and Petrosen (10 percent).

Although Senegal has gained significant exposure for its oil and gas reserves since 2014, offshore and onshore activities have been taking place since 1961. A total of 173 wells have been drilled, mainly in the Dakar/Thies area, in the Offshore South region.

In 1998, the government implemented a modernized oil and gas code allowing international companies to enter the market and undertake exploration activities. According to that code, national oil company (NOC) Petrosen is entitled to have interests in all oil and gas related activities.

Outstanding discoveries since 2014 has led to the entrance of major international players forming joint ventures for increased capacity.

Africa Energy Series | Senegal

Senegal is in the process of reaping the fruits of its recent massive oil and gas finds. Kosmos Energy has unveiled a gas field called Grand Tortue Ahmeyim, which contains approximately 15 trillion cubic feet of gas. Another huge oil and gas discovery was said to be offshore Dakar in the SNE Field.

EXPLORERS

MEET THE EXPLORERS

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Alongside its partners FAR, Cono-coPhillips and Petrosen, Cairn Ener-gy drilled the first deep water wells offshore Senegal in 2014 and made two basin opening discoveries, one of which, the highly prospective SNE field, was the largest global oil discov-ery of 2014.

The SNE field is located within the Rufisque, Sangomar and Sangomar Deep offshore field and spans over an area close to 400km². The SNE Field Development-Phase 1 will focus on developing the less complex reservoir units, as well as testing other reser-voirs for future phases. The develop-ment concept includes the installation of a stand-alone floating production

storage and offloading (FPSO) facility and subsea infrastructure that will be designed to allow subsequent devel-opment phases. The FPSO will have a production capacity of approximately 100,000 barrels per day of crude oil, while the estimated total recoverable oil planned for Phase 1 reaches ap-proximatively 240 million barrels.

Africa Fortesa

Africa Fortesa Corporation is a Hous-ton, Texas based company, which was one of the first explorers and opera-tors on Senegalese soil. In 2001, fol-lowing successful promotion initia-tives for the local government, Africa Fortesa was awarded an exploration

license for an area in the center of the country. In 2002, Fortesa was able to revive the inactive Gadiaga field holding substantial gas reserves, sub-sequently obtaining a development li-cense which was renewed in 2009 for a period of 20 years.

Africa Fortesa is focused on onshore development as the Gadiaga field has not yet delivered its full potential. Li-censes have been successively deliv-ered to the company by the govern-ment, giving them authorization to explore the field until mid-2020. Af-rica Fortesa is counting on Senegal’s sudden attractiveness boost to bring in investors and develop explorations even further.

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FAR has been present in Senegal for over 15 years conducting exploration activities. The company played a key role in the SNE field oil discovery and holds a 15 percent stake in the operating joint-venture, alongside the operator Woodside Energy, Cairn Energy and Société Nationale des Opérations Pétrolières du Sénégal (PETROSEN).

When did FAR enter the MSGBC Basin?

Hunt Oil entered Rufisque Offshore, Sango-mar Offshore and Sangomar Offshore Pro-fond blocks in 2004. In 2006, FAR – which was called First Australian Resources back then – farmed-in these blocks. In 2007, Hunt Oil released its ownership of these assets and we became operators with a 90 percent working interest, while Petrosen held the re-maining 10 percent. In 2012, First Australian Resources merged with Flow Energy and to-gether became FAR.

In 2013, we reached a ‘drill or drop’ situa-tion in these blocks meaning we needed to find operational partners to hold on to our strategic assets. Due to intense promotional campaigns, we had over nine applicant com-panies for these blocks. We chose to part-ner with Cairn Energy. Three months later, ConocoPhilips also joined the game. Despite ConocoPhilips’ request to become sole de-velopment operator of the blocks upon dis-coveries, its working interest was eventually sold to Woodside Energy in 2016.

FAR has a 15 percent working interest in the SNE field and a 40 percent working interest in Samo-1 in The Gambia. Our West African

portfolio also includes a highly prospective field in Guinea-Bissau alongside Svenska Petroleum and Petroguin, a joint-venture in which FAR has a 21.42 percent working in-terest. Drilling in Samo-1 started last week and we are hoping to launch drilling opera-tions in Guinea-Bissau in 2019. Finally, FAR signed an Area of Mutual Interest agree-ment with Chinese National Offshore Oil Corporation to develop the MSGBC Basin offshore Senegal and The Gambia. The goal is to further explore the basin together.

FAR continues to show interest in open blocks and send regular requests to national oil companies of the basin to expand its foot-print in the region.

What complementary assets does FAR bring to the joint-venture table in the SNE field?

FAR’s team is fully involved in operations in which the company has working interests. Despite FAR having lower shares than when we first entered the field, our teams remain on the ground defending our 15 percent stake. I am proud to say that Far’s workers were the ones who pushed for the drilling of SNE-1 and FAN-1 (in which both major oil discoveries were made), led operations and were responsible for the favourable out-come.

What key points are in discussion regarding the final investment decision to be made on the SNE field?

Cairn Energy and Woodside Energy are

currently working with the government of Senegal on this particular matter. All par-ties are clear on the roadmap, the key topic remaining is project financing. Under the terms of our joint-venture, 60 percent of the financing must come from a mutual fund and 40 percent from individual equity financing.

What is FAR’s policy regarding local content?

We are expecting the law regarding local content to be released before the end of the year. However, such policies are already included in the production and sharing con-tracts we have with the government. For ex-ample, a specific clause obliges all companies operating in Senegal to have a Senegalese representative at their head. We are looking forward to the full-fledged obligations with the new code.

FAR has already implemented local content policies in anticipation of these obligations and because local content makes economic sense. I personally launched a program called the ‘Training and Skill Transfer Program’ two years ago which aims to shape and train young Senegalese workers in the oil and gas sector. In association with Intercontinental des Ser-vices (a training facility based in Pointe-Noire, Republic of Congo), FAR trained 54 nationals through a curriculum involving six months of theoretical teaching, followed by field training on floating production, storage and offloading units, vessels and other oil and gas facilities. The idea is to not only strengthen national capacities but also send high-skilled Senega-lese professionals around the globe.

Interview

Africa Energy Series | Senegal

FAR EXPANDS ITS FOOTPRINT IN WEST-AFRICA Gogne SeyeCountry ManagerFAR

The Senegalese downstream sector is set to begin its transformation. Downstream players have started talks towards creating a stronger strategy that will increase the local downstream market.

DOWNSTREAM

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Africa Energy Series | Senegal

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Interview

Societe Africaine de Raffinage (SAR) aims to play a key role in Senegal’s history as a soon-to-be hydrocarbon producer.

What is the role of SAR?

SAR was built in 1961 and started opera-tions two years later. At its birth, the refin-ery had a production capacity of 600,000 tons per year (t/py), which progressed to 800,000 t/py in 1983 to 1.2 million tpy to-day. The latest investment that was made to increase capacity is a fully digital central command room, allowing processing to be optimized throughout the lifecycle from crude oil to refined products. The role of SAR is to provide the domestic market with hydrocarbon-related products; the struc-ture and growth of both local and regional markets have allowed us to make strategic investments such as a butane reception unit and a sea-line. SAR’s ownership is di-vided into three: Petrosen (46 percent), Senegalese financial institution Locafrique (34 percent) and Total (20 percent).

What are the expansion plans for SAR in the short- and long-term?

Looking forward, SAR would like to in-crease its capacity to satisfy the needs of the local market and increase its exports towards the sub-region, including Mali, which is already today a major importer of our products. We have put together an investment plan that runs from 2018 to 2020 which comprises three pillars: increasing production capacity to 1.5 mil-

lion tons per year (mt/y), which would sat-isfy 70 to 75 percent of domestic market needs, modernizing equipment to produce crude oil more efficiently and ‘Arret Met-al’ – a temporary shutdown during which an intensive battery of tests is undergone aiming to increase safety and security.Upon reaching those objectives in 2020, our next goal will be to reach a capacity of 2.5 to 3 mt/y. Such figures will allow us to fully satisfy the needs of the domestic market while fuelling national economic growth up to 5 percent, as well as reaf-firm our position as a strategic partner for key stakeholders on the regional ground. These production capacity boosts are planned to go in hand with a strong in-crease of the storage capacities for both crude oil and refined products. Total in-vestment for these goals is around $79 million.

Are you planning to expand within the current area of the refinery?

The ‘circle of danger’ - a determined area around the refinery in which the resident population could be exposed to industrial hazards such as pollution or explosions - which has been stated multiple times in the press, is not an issue as such. No pop-ulation is at risk due to the activities of the refinery within its area of activity. How-ever, we must improve the logistics from the port to the refinery. The route goes through several highly-populated zones which can pose potential risks. In terms of expansion, the size of our land

allows us to build new infrastructure and meet the capacity goals I mentioned ear-lier. Additionally, our long-term plan is to comply with Afri4 and Afri5 norms. A flagship investment in that sense is to ac-quire a hydrocracker which will be able to treat crude with a higher concentration of sulphur, as well as produce more envi-ronmentally friendly petroleum products. This strategy is in line with the global push towards greener energy production which SAR intends to fully comply with. Appro-priate design and construction works will allow SAR to reach all these ambitious goals while staying within this space.

Is the government looking into increasing the refining capacity of the country as a whole?

Senegal has recently undergone several important offshore discoveries which will boost production and export prospects. Furthermore, Senegal and the Mauritania – Senegal – The Gambia – Guinea-Bissau – Guinea-Conakry Basin is relatively under-explored when it comes to deep offshore exploration and ultradeep exploration. Given the experience of other countries around the continent, we are very hopeful as to the potential of more discoveries to come in the near future. The government of Senegal has expressed its wish to make our country the energy hub of West Afri-ca, which therefore justifies the construc-tion of a second, larger refinery that could process between five and 10 mt/y, similar to Dangote’s refineries in Nigeria. This

unit uld be able to export massively to the continent and would also be in reach of further markets - given Senegal’s strategic position in relation to the Mediterranean, Europe and Latin America – entering Sen-egal in competition with Asian refineries in India and China.

What funding model is envisaged for SAR’s expansion projects?

Above all, SAR has a public service mis-sion to provide the Senegalese population with hydrocarbon products. The Fonds de Sécurisation des Importations des Pro-duits Pétroliers was created in 2006 to support that mission and to highlight the country’s natural resources. We are able to reinvest a part of the cashflow from this fund into modernization projects to maximize efficiency of our operations. This fund model has dramatically increased the confidence our shareholders have in our financial solidity.

How important is local content policy to the country’s hydrocarbon economy development?

Local content is a key topic at the core of the government’s oil and gas strategy, giv-en the fact that the real value for the pe-troleum industry resides in services. Reg-ulatory frameworks were built through public consultations in order for the result-ing laws to be as close as possible to the citizen’s wishes. Redistribution of generat-ed revenues came up as a very important subject for them as they want to see the impact of the discoveries on key sectors, such as health and education, across all layers of society.

Moreover, the new oil and gas codes – which should take effect before year end – will unlock Senegal’s potential through updated block licensing mechanisms, as well as increased transparency. Since our country joined the Initiative for Transpar-ency of Extractive Industries, companies must submit balance sheets and financial figures publicly. This type of commitment shows the will of Senegal to compete on an

international level with major petroleum players worldwide.

The final brick of local content strategy is the creation of the Institut National du Pétrole et du Gaz, which aims to shape and train the future leaders and managers of the petroleum industry along with a highly qualified technical workforce with interna-tional standards. It was created in partner-ship with Canadian and American schools and major industry players to ensure the highest possible level of education. Part-nerships with majors and small and me-dium enterprizes (SMEs) are particularly important as it allows students to acquire field experience and learn best practices before the end of their studies, to be ful-ly operational upon graduation. Not only will this institute train oil and gas workers of tomorrow, it will also support skill im-provement of local companies across the petroleum value chain. Indeed, in order to reach the government’s goal of 60% local content across the industry, we need to upskill our SMEs through workshops, training seminars, technical formations etc. SAR modernized its human resources strategy a while ago by implementing in-house training sessions, sending consult-ing groups to service companies and other similar initiatives. Senegal is well-known for the extraordinary quality of its human resources. The remaining challenge is to create more specialization in areas of in-terest, such as the petroleum industry.

We believe local content policy through sharing benefits, inclusion and transparen-cy is the only way Senegal can embark on the fantastic adventure it has been enti-tled to by these discoveries.

What is your view regarding international synergies for Senegal?

Our belated President Leopold Sedar Senghor stated two values of Senegal: rooting and open-mindedness. The poli-cies that are currently being designed are perfectly framed in that direction. We are shouting out to international players to come to Senegal, engineer, create and take

advantage of the immense opportunities we can offer. There is room for everyone here. We are ready to welcome them with win-win partnerships and our local con-tent policy will make sure the country and our citizens will collect dividends they de-serve.

What message do you have for investors who are considering Senegal as a land of investment?

Senegal is a long-time democracy with strong institutions and transparent gover-nance policies. Economic and social stabil-ity has driven growth for decades thanks to a stable monetary model, an attractive framework for investment and an increas-ing amount of Special Economic Zones, such as the new city of Diamniadio. Sene-gal is committed to national development through financial and social inclusion and is ready to welcome all international stake-holders interested in doing business with us. Furthermore, Dakar holds a strategic geographic location as the gateway to Af-rica. Dakar is five hours away from Europe, has daily flights to New York and Washing-ton thanks its brand-new airport and is strongly connected to the rest of the con-tinent including South Africa. Senegal is a regional leader as part of the West-Africa Economic and Monetary Union (WAE-MU) which features a free trade zone for goods and people. WAEMU is itself included in a larger free trade zone, the Economic Community of West African States, which is becoming increasingly at-tractive to North African countries such as Tunisia and Morocco.

Finally, these discoveries will allow Sen-egal to become a major oil and gas player on the global stage. Last but not least, Senegal will be the first African country to host the Summer Youth Olympic Games in 2022, which says a lot about the coun-try’s readiness in terms of infrastructure, security and hospitality. Our hydrocarbon discoveries are setting us on the path of stronger growth, opening up a wider range of markets and ultimately putting Senegal and West Africa in the spotlight.

SAR LOOKING TO EXPAND AND MODERNIZESerigne Mbou\Managing DirectorSociete Africaine de Raffinage

LOCALCONTENT

Local content is at the core of the Senegalese government’s oil and gas strategy, Leaders have proven that putting together a strong institutional and regulatory framework towards a dual objective of attracting international investment, is possible. This framework will help develop the industry while making sure that the sole owners of these natural resources, the citizens, also benefit from this.

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Interview

Africa Energy Series | Senegal

PETRODIVECOMMITS TOLOCAL CONTENTSince Senegal’s National Assembly introduced an updated oil and gas code, including specific policies regarding local content, international oil companies are on the search for local skills. UAE-based Petrodive has developed a full local content strategy to provide operators with skilled divers, while boosting local employment.

Petrodive, a subsea services specialist rebranded from TPSMI Group in January this year, is set to provide the local market with unique expertise while complying with local content rules. Based in Dubai, Petrodive is an independent diving company providing the international oil and gas industry with a complete underwater con-tracting service. With its largest office in Pointe-Noire, The Repub-lic of the Congo - where 170 employees work full time – Petrodive also has offices in Cote d’Ivoire, Gabon, Cameroon and Senegal.

The company has over 15 years of experience in subsea manage-ment and is strongly correlated with the growth of the French hydrocarbon exploration and production company, Perenco, with whom Petrodive has secured a 15-year relationship. In 2009, Petrodive invested substantial amounts to upgrade its equipment and launch training programs for its divers – who are now expe-rienced and certified to work at depths up to 300m. In Senegal, Petrodive was involved in the Grand Tortue Ahmeyim (GTA) proj-ect from its inception, as it was called in during gas discoveries to inspect subsea environments and provide technical expertise. The company is now looking to diversify into other prospective mar-kets such as the promising Mauritania – Senegal – The Gambia – Guinea-Bissau – Guinea-Conakry Basin.

For Biteye, local content is a highly important component of Sene-gal’s hydrocarbon history to come. From a corporate point of view, Petrodive has designed a local content policy that will comply with regulations while providing long-term benefits. Indeed, providing locals with international standard skills has the benefit of empow-ering the local workforce and providing jobs as well as reducing operational expenditure through the reduction of the number of expatriates in projects.

Several local content initiatives are being led in Senegal to meet an increasing demand for qualified professionals. The National Petro-leum Institute is currently training its first contingent of soon-to-be petroleum engineers, and other schools have implemented spe-

Due to the new oil and gas code, all stakeholders of the petroleum value chain in Senegal will have to commit to implementing local content in all their operations. From a business standpoint, local content allows to grow an indigenous workforce by upgrading skillsets as well as providing long-term financial benefits to the company.cific programs for the hydrocarbon sector. However, local content empowerment must be a collective mindset and the private sector has a major role to play in increasing the number of Senegalese available to work on projects.

Currently a non-producer, Senegal already faces a major short-age when it comes to recruiting locals. With first productions to flow from GTA and the SNE project in 2022, the public and private sectors must work hand in hand to implement training initiatives to gradually increase the stake of locals across the petroleum value chain.

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Article

major shift fits the country’s Constitution and translates to an increased citizen power when it comes to key decision regarding oil and gas finds across the region.

The framework stipulates that the Ministry of Hydrocarbons is the government body in charge of implementing hydrocarbon policy and the national oil company (Société des Pétroles du Sénégal, Petrosen) is in charge of promoting the sector and representing the State in oil and gas operations.

Licensing and Permitting Process

The new licensing process ensures explora-tion permits can only be awarded to a legal entity through a tender process. According to the law, the license will be awarded to the organization that submits the most attrac-tive application from a technical, financial and socio-economic point of view. Farm-ins are facilitated and must be officialized through a declaration to the Ministry of Hy-drocarbons.

Local Content

Local content was a major topic during the law drafting process. Several sessions were organized between the civil society and lawmakers to introduce favorable disposi-tions. According to the Bill, operators are obligated to involve the Senegalese private sector in oil and gas operations and include local companies in construction, supply and service providing contracts. It also states a technology transfer obligation to local com-panies and compels producers to supply hy-drocarbon products to the local market, first and foremost.

A separate law has been drafted to specifi-cally address local content challenges and

to bring more precision as to contractual obligations between operators and local companies. The law states that the National Committee of Local Content Monitoring is in charge of coordinating the local content strategy.

Environmental Concerns and Transparency

Environmental issues are included in the new Bill under article 53, which asserts op-erators and investors are responsible for any additional cost regarding protection of the environment, in spite of the Environ-ment Code.

As Senegal is an active member of the Ex-tractive Industries Transparency Initiative, all companies operating in the country’s oil and gas industry must declare all payments made to the state in line with their business operations.

Anteriority

The dispositions presented in the new pe-troleum bill do not apply to running agree-ments and only concerns contract posterior to the application of the new law.

Conclusion

Senegal’s 2019 petroleum Bill translates the government’s commitment to best practices regarding national hydrocarbon resources. Social issues have been taken into account with specific dispositions regarding local content, the creation of an intergeneration-al fund as well as transparency across the sector. However, foreign investment is also encouraged thanks to additional custom tax holidays for operators and simplified proce-dures for equipment imports.

Senegal’s hydrocarbon discoveries have sparked investors’ interest who recognize the country’s offshore waters as highly prospec-tive. In order to attract investment while saving local interests, the government has implemented a modernized and attractive regulatory framework.

Despite very low levels of hydrocarbon pro-duction, Senegal’s petroleum law – intro-duced in 1998 - was unanimously perceived as modern and ambitious at the time, for a country where fishery and agriculture are-main sources of national revenue.

Discoveries of oil and gas between 2014, 2016 and ongoing, translated into the ne-cessity of modernizing a 20-year old reg-ulatory framework for the hydrocarbon sector. The government wishes to build on discoveries and attract more exploration and production companies. Furthermore, Senegal aims to keep control over its natural resources and ensure generated revenues benefit local citizens in the long-term. The new petroleum Bill was approved on Janu-ary 24, 2019 amid several reforms targeting sector regulations.

As the country moves towards first oil and gas productions in 2022, including the Greater Tortue Project, the fastest liquefied natural gas project ever, the new oil and gas code features major breakthroughs in line with national goals and social inclusion chal-lenges.

Resource Ownership

Article 5 states the people of Senegal are the sole owners of the country’s natural re-sources, as opposed to the previous code where the State of Senegal was entitled to ownership of the country’s resources. This

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