Monrovia – In this last of a three-part series on the survival of the National Oil Company of Liberia (NOCAL) amid financial turmoil and the global oil crisis, we ask whether the Petroleum (Exploration and Production) Law could save Liberia’s oil and gas sector from further decay.
The recent passage of the Petroleum (Exploration and Production) Law may be the most hopeful development in Liberia’s oil industry since NOCAL collapse last year.
Not only does the law seek to address issues that have concerned investors and campaigners but it also seeks to reform the sector in such a way that all parties, including the government, will benefit.
With the global oil crisis still raging, things do not look good for sector.
There are just two active players—Chevron and ExxonMobil— left in the entire basin. If no new players buy exploration licenses the basin will go completely inactive in the second half of 2018, when both companies’ production sharing contracts will have expired.
NOCAL has welcomed the passage of the law. In a statement the Interim Management at NOCAL described it as, “a milestone achievement for the country’s emerging oil & gas sector.
NOCAL IMT is convinced that the laws, which conform to international best standards, also meet the aspiration of the Liberian people relative to natural resource governance issues that include safety, local content, revenue management, state and citizens’ participation,” it said.
“NOCAL’s Interim Management Team has expressed optimism that the new laws will increase investors’ confidence and lead to more investments that will keep the Liberian basin active despite current global downward trend in exploration activities in the oil & gas industry,” it added.
The industry and Liberia’s government will be hoping that NOCAL’s optimism is reflected in increased interest from super major oil companies.
Liberia’s oil sector is also the brunt of low oil prices now down below US$50 per barrel from a high of US$111 per barrel in the first half of 2014.
Because of the low price of oil major oil companies are less interested in making the huge investments it takes to explore for oil. Liberia is not yet an oil-producing country but sales of seismic data and exploration licenses has brought in huge amounts of money in recent years.
NOCAL last contribution to a Liberian national budget was a meager US$3.3 million in the 2014/2015 fiscal year.
That was far fewer than the US$82.07 million generated by the sector in 2012/13, according to the Liberia Extractive Industry Transparency Initiative (LEITI). NOCAL did not contribute to the 2015/2016 budget and is making no contribution to the current budget.
The Petroleum (Exploration and Production) Law of 2014 replaces the National Oil Law of 2000.
The law had languished at the Capitol Building since 2014 until last month when the Senate concurred with the House of Representatives to pass it. It has been signed by the President and printed into handbill.
Prior to the passage of the law, the Legislature embarked upon a nationwide consultation of communities for their input into the law.
But the prices became embroiled in scandal when it was reported that some of the US$1.2 million disbursed by NOCAL for the consultation was allegedly siphoned.
The Liberia Anti-Corruption Commission (LACC) in late 2014 launched a probe into the roles of then Speaker Alex Tyler and Representative Adolph Lawrence of Montserrado County over the payment of US$25,000 to a Liberian lawyer Michael Allison for consultancy in drafting the law.
Allison had alerted the LACC after a check of US$25,000 was issued him by Representative Lawrence, instead of US$12,000.
Allison was found dead on a beach in Monrovia few months later. A government-hired pathologist said he drowned.
International extractives watchdogs had been critical of the previous law. In a 2012 report Global Witness, the UK-based extractives transparency campaigner, criticized Liberia for having outdated laws, a weak governance structure and, among other things, corruption and mismanagement. The report authors urged the government to reform the sector to maximize benefits for Liberians.
“The legal framework falls far short of international best practice, agencies responsible for the oil sector lack capacity and there is evidence of mismanagement by NOCAL,”said the report entitled “Curse or Cure”.
“Outdated laws create a conflict of interest within the agency responsible for managing the sector – NOCAL – and do not contain sufficient fiscal, human rights, labor or environmental safeguards.
“It is important that Liberia starts to reform its oil and gas sector now, before any more blocks are granted, concessions negotiated or any discoveries are made. Change will become harder as more companies start operating and have a vested interest in maintaining the status quo,” the report read.
Global Witness’s advice seems to have fallen on deaf ears as NOCAL galloped into mismanagement and other forms of improprieties. When the company was crippled by financial mismanaged in August 2015 President Ellen Johnson Sirleaf instituted a number of reforms, including retiring its top management team, reconstituting its board and slicing its staff by more than two thirds.
An audit of the company’s finances is still being conducted by the General Auditing Commission (GAC) to ascertain the exact magnitude of mismanagement at NOCAL.
The Petroleum (Exploration and Production) Law addresses many cardinal issues that the current oil and gas law did not address. It would substantially weaken NOCAL’s role in the industry.
The new law creates an oil directorate to conduct bidding rounds, a ministry of petroleum to govern the oil and gas sector, while NOCAL is left to represent the commercial interest of the Government of Liberia in negotiation processes.
For instance, under the new law, the oil directorate, headed by a director general, will put up bids and will control sales of seismic data; the day-to-day running the sector will be done by the petroleum ministry, headed by a minister of petroleum and then NOCAL will only be there to seal the production sharing contracts (PSCs) with the investors.
Royalties, citizens’ participation, local content and other fees have been a big issue in PSCs.
Global Witness and other campaigners have said that Liberia PSC model may not have been the best model for the country.
They have said that production percentage shares at different levels make a tax structure complicated and impose an unnecessary accounting regime.
One example is with block 17 leased by Repsol and Tullow. In that deal, NOCAL had 30 percent profit up to 30,000 barrel per day (bpd), which could move to 55 percent when production exceeded 300,000 bpd.
Another example is with block 13 leased to Peppercoast (which owned the license before ExxonMobil). NOCAL negotiated for 45 percent shares up to production level of 50,000 bpd and 60 percent when production reached over 100,000 bpd.
Even the much talked about ExxonMobil deal that secured a US$50 million signature bonus for Liberia may not have waived royalties or reduced taxes and state equity shares as in other deals fell short of the current law, which calls for royalties of not less than 10 percent and state equity share of 20 percent.
Governance watchdogs such as the U.S.-based Natural Resources Governance Institute have highlighted the problem of poor countries breaking their own laws in oil and mining contracts to attract foreign investors or encourage bribery.
Terms and conditions are standardized in this new oil law to form a hybrid of PSCs in the global oil industry. As well as the formation of a revenue safeguard account, reservation of local content, the new oil law has five percent citizens’ participation and 10 percent country equity share.
Royalties will be paid as per value of total production of petroleum from the contract area, excluding used, re-injected or lost petroleum operation.
The Liberian civil society has expressed satisfaction with some portions of the new law but has meanwhile raised some concerns about the law, including local content that would make it easier for linkages between oil and gas concessioners and Liberian-owned small businesses.
The worry is that without such requirements in the law, international companies will employ foreign nationals and foreign business to do a lot of the work rather than Liberians.
“People need to understand that at the level of exploration and production, you don’t have many jobs created because it has to do with a lot of skills but the whole service sector complements all of the technical skills,” says Jackson Speare of the Civil Society Consortium on Natural Resource Management (NRM).
Speare fears that the lack of the passage of the proposed Local Content Law will undermine the empowerment of Liberian-owned businesses.
The bill, currently still between the National Investment Commission (NIC) and its partners, seeks to compel concessioners to hire the services of Liberian service providers.
“It should be passed because those are the basics.”
“Mind you, if companies come here and you do not have those laws in place and they begin to do investment, you don’t hold them responsible for flooding this place with cooks and all that,” Speare explains.
“Those things were things that should have been the basis for the passage of the laws. And we need to deal of all of those; those are hurdles that disempower Liberian businesses that disempower Liberians from benefiting from natural resources.”
Speare’s NRM raised several other concerns about the Petroleum (Exploration and Production) Law apart from the local content issue, including citizens’ participation and state equity share.
The new oil law puts citizens’ participation at five percent and state equity share at not less than 10 percent.
The current oil law puts citizens’ participation at 10 percent and state equity share at the range of 12 to 15 percent.
“A need, therefore, to provide clarity and justification on why the Liberian government in this bill opted for the 10% State Participation as against a much higher or lower percentage,” NRM suggested in a 2013 position paper prior to the nationwide consultation on the new oil law.
“Additionally, if the rationale for the sudden shift in the percentage to Liberians can be provided, it could serve to clarify why,” NRM added in the paper.
Petroleum experts say that NOCAL is left with no option but to lower royalties and shares in the petroleum law to attract foreign investors.
Urias Taylor, a petroleum engineer who worked at NOCAL between 2011 and 2015, says that Liberia has a complex oil basin and must do all it can to have many players active in its oil and gas basin if it is to find oil.
The more groups looking he says, the more chance of finding it.
Liberia’s prospects of oil discovery is based on the fact that oil has been discovered off the coast of its neighbors—Sierra Leone and Ivory Coast and Ghana – all located on the same Gulf of Guinea with Liberia.
“You have a history of limited people participating in offshore drilling activities but later on when the number started increasing the chances of uncertainty started reducing,” Taylor recalls.
However, these variables are not unknown to NOCAL. When taunted by global campaigners over its unstandardized deals with oil companies back in 2011 and earlier years that violated the laws and generally accepted accounting principles, NOCAL published on its website that it had done so due to the country’s weak negotiation position.
This played a part in the 2014 failure of Nocal to finalize a deal with US-based Kosmos, which was interested in an expiration license.
At the time Cllr. Sherman conceded in an August interview that, “One key lesson is to acknowledge the importance of providing an investor-friendly business environment as we have limited control over the decisions made by potential investors.”
Now, a moratorium imposed in 2012 by President Ellen Johnson Sirleaf preventing Liberia from engaging in deals for blocks 1, 2, 3, 4 and 5 in the deep waters as well as the ultra-deep wells from block 18 to block 30, has been lifted.
In 2014 the Liberian News Agency (LINA) reported calls by citizens in all 15 counties for the extension of that moratorium to the Repsol and Tullow-relinquished blocks 6 and 7—for which KOSMOS made that failed attempt—until a mechanism were be set up to ensure proper management of the oil sector.
The Petroleum (Exploration and Production) Law of 2014 is a step in that direction.
This story was produced in collaboration with the Thomson Reuters Foundation/New Narratives Liberia Oil Reporting Project, which is part of the Foundation’s pan-African program Wealth of Nations (wealth-of-nations.org) www.newnarratives.org