Equatorial Guinea President Clears Higher Oil Royalties

Dow Jones Newswires

HOUSTON, Nov 28, 2006 (Dow Jones Newswires)

Equatorial Guinea's powerful President Teodoro Obiang has ratified a new law that increases the government's take in one of Sub-Saharan Africa's fastest growing oil and gas producing areas.

The legislation raises minimum royalties to 13% from 10%, mandates training for local workers and includes regulations for the petrochemical sector and the country's nascent natural gas industry, according to a document posted on the Oil Ministry's Web site Nov. 24. Ministry officials couldn't be reached for comment Monday.

The changes are modest in comparison to more aggressive legal overhauls undertaken by Bolivia and Venezuela, but just like those countries, the small West African republic seeks a bigger share of the oil rent. The legislation is expected to incrementally diminish profits for Exxon Mobil Corp. (XOM) and other U.S. companies that dominate oilfield development in Equatorial Guinea, all of whom either declined comment or said they weren't familiar enough with the changes to substantively address them.

"They are just harmonizing and modernizing their laws to reflect the fact that their hydrocarbon sector has grown considerably since they first put their laws in place," said Monica Enfield, a Washington-based Africa expert for PFC Energy.

Some new regulations, however, worry observers. The new law opens the door for the possibility of a windfall tax, and also allows for the renegotiation of existing contracts to grant the government a bigger stake in oil and gas projects. It is unclear whether the Equatoguinean government will resort to these measures, though.

Devon Energy Corp. (DVN) spokesman Chip Minty said the company is "in the process of reviewing the new law to determine how it will affect our business."

Marathon Oil Corp.'s (MRO) spokesman Paul Weeditz said his company plans to participate in upcoming meetings with government representatives to review the changes.

"It would be premature for us to comment at this point until we have a chance to thoroughly review this law and to participate in the workshop that's going to take place," Weeditz said.

Hess Corp. (HES) declined comment. A spokeswoman for ExxonMobil, the country's biggest producer, couldn't provide a comment in time for publication.

Following the ratification of the new law, the ministry extended the closing date of its 2006 Licensing Round to March 31, 2007, from Jan. 31 "in order to allow pre-qualified companies to fully evaluate the available acreage," according to a ministry press release.

New Horizons

Equatorial Guinea, an impoverished former colony of Spain, has been historically very favorable to the foreign producers that catapulted the country into Africa's energy jet-set by exploiting its offshore resources. In 2005, the country produced 356,000 barrels of oil a day, up from 5,000 barrels a day 10 years earlier.

With the foundations of a thriving industry in place, "new horizons have emerged," said Obiang in a Nov. 3 document sanctioning the law, which had been approved by the Parliament in late September. Citing the pending nature of presidential action, ministry officials previously declined to comment extensively on the changes.

Besides raising minimum royalties to 13% from 10%, the law says that the state has the right to a 20% share in contracts with foreign operators. In addition, producers will be required to pay "any windfall tax that may be imposed by the state," according to the law's text.

New natural gas regulations prohibit natural gas flaring, although the ministry may authorize some flaring upon request by operators.

Producers are also required to train Equatoguinean nationals to work on "all levels of their organizations," and to help pay for the training of ministry personnel through annual disbursements, the law said.

The new laws bring Equatorial Guinea in line with policies already implemented by other increasingly demanding resource holders in the developing world. The legislation "is pretty consistent with what's going on in the rest of the region," said PFC Energy's Enfield.

Copyright (c) 2006 Dow Jones & Company, Inc.