After Mauritania and Senegal signed the intergovernmental cooperation agreement in 2018 that allowed partners Kosmos Energy, BP and their partners to move forward with the deepwater Tortue natural field project in the Ahmeyim Basin, Kosmos chairman and CEO Andrew Inglis praised the leaders of both countries. He said it was their ability to cut through the red tape, seek mutually beneficial solutions and think long-term that would allow Mauritania and Senegal to reap the huge benefits of the hydrocarbon province, which is expected to supply around 2.5 million tonnes per year of natural gas in its initial phase.
"Kosmos congratulates Mauritania, Senegal and their respective ministries and national oil companies for working together so effectively to reach an agreement that allows their shared gas resources to be developed quickly and efficiently for the benefit of both countries," said Mr Inglis.
Since then, the project has progressed and Phase 1, a floating liquefied natural gas (FLNG) vessel, is expected to start operating this year. Other natural gas projects are also on the horizon for Senegal and Mauritania. BP and Kosmos are planning to launch another major project in the ultra-deepwater Yakaar-Teranga gas field, offshore Senegal, which has natural gas reserves of 2,739 billion cubic feet. Senegal's Ministry of Petroleum and Energy has said that a final investment decision will be made by the end of the year and that first production will take place in 2024. And in Mauritania, BP has begun studies on its BirAllah offshore gas discovery.
Despite a global pandemic, growing Western hostility to hydrocarbons, and a USD 33 billion drop in capital spending on African projects, Senegal and Mauritania are rapidly rising in the natural gas world - and this trajectory owes much to their mutual cooperation as well as the favourable environment they have created for international oil companies (IOCs). In fact, in 2018, Senegal joined the list of the five most reform-minded countries in sub-Saharan Africa, meaning that they have made considerable progress in improving the business climate and increasing their attractiveness to investors. Not to be outdone, Mauritania comes in at number 10 on the list of the world's most reforming countries.
Smart tax regimes
Among the reforms, Senegal and Mauritania have addressed key threats to foreign investment, including high taxes and cost recovery limitations.
Unlike Nigeria, whose loose fiscal policies often limit the profitability of its huge reserves, the two sub-Saharan countries have fairly reasonable policies in place for projects such as Tortue, Bir Allah, Orca, Cayar and Yakaar-Teranga. As the African Energy Chamber details in its soon-to-be-released Petroleum Laws - Benchmarking Report for Senegal and Mauritania, Senegal offers the largest natural gas reserves for the most reasonable fiscal policies.
Both nations have a unique opportunity to shape policies to continue to host IOC, maintain industrial competitiveness and pursue energy independence
Even at first glance, Senegal and Mauritania have offered favourable incentives to investors for recent projects. Tax rates are low, there are no royalties, and the government share of oil profits - that is, the amount of production, after deducting production allocated to costs and expenses, that will be divided between the participating parties and the host government under the production sharing contract - is capped at 42% for Tortue and 58% for Yakaar-Teranga. Equally important, their cost recovery limits make it clear that Senegal and Mauritania want to have a warm relationship with international oil companies over the long term, not just in the early stages of foreign investment. With a cost recovery limit of up to 75%, they remove much of the worry and uncertainty inherent in foreign investment. Compare this to the cost recovery limit in Egypt's giant offshore gas field, which falls to 20% 11 years after start-up.
In short, Mauritania and Senegal have some of the most operator-friendly fiscal policies on the continent, which is bound to attract further investment. Only Mozambique, South Africa and Ghana currently offer better conditions, but this contrast does not compromise Senegal and Mauritania's path to success. With other advantages such as quieter locations and larger recently discovered reserves, these countries are only beginning to realise their full potential.
Reservations and stability
Political stability is often a watchword for investors - and this is an advantage for Senegal and Mauritania. While international oil companies have often managed to persevere in unstable nations, investments inevitably suffer from political fallout.
In a study of contrasts, Mozambique discovered similar natural gas reserves (100 trillion cubic feet versus 120 trillion for Senegal) in 2010. But despite comparable attention and foreign investment - not to mention a four-year head start - Mozambique's gas industry lags somewhat behind Senegal's, largely due to ongoing regional violence. Although France's Total Energies has announced its intention to return to Mozambique in 2022, it does not plan to start production until a full year after Tortue's target date - and even this ambition is predicated on the hope that Mozambique will improve its security first.
This violence can even harm nations with huge reserves and long-standing relationships with international oil companies. Shell withdrew from Nigeria partly because of oil theft and pipeline sabotage, even though the country has twice the oil reserves of Senegal. After decades of tolerating such violent environments in the name of resource wealth, international oil companies will inevitably turn to Senegal, which effectively combines huge reserves with a peaceful environment. Removed from the additional burden of local instability, foreign investment is bound to reach new heights in this emerging nation.
Despite Western rhetoric on renewables, the world cannot deny a continuing need for oil and gas - a need accentuated by uncertainty in the global market.
A need that the uncertainty of the Ukrainian conflict only underscores. By offering a unique combination of political stability, sensible fiscal policies and significant reserves, Senegal and Mauritania have set the stage for a bright future in this industry.
Better still, both nations recognise that they can still improve and truly develop their potential. The African Energy Chamber hopes that they will take the opportunity to systematically update and clarify their other policies, such as local content laws. While Senegal has recently revised its policies, the implementation mechanisms remain somewhat vague. Mauritania, on the other hand, has not revised its policies for almost a decade. Both nations have a unique opportunity to shape these policies in order to continue to host IOCs, maintain the competitiveness of their industries, and continue on the path to energy independence.