Senegal - Mauritania: Hassana Mbeirick talks about the stakes of the Grand Tortue field.

"For phase 1 of the GTA project alone, BP is already at almost $10 billion in investments."

A specialist in international trade negotiations and former Director of SNC-Lavalin Mauritania, Hassana Mbeirick has more than 25 years of experience in the development of the Mauritanian private sector, including 17 years in the mining and petroleum sector. He is currently the Founder-Director of Meen & Meen, an Engineering-Consulting firm in the Oil&Gas sector. Multilingual, Hassana Mbeirick is a fine connoisseur of the Mauritanian economy, its economic potential and its business environment. His ability to analyze the future and his independent spirit make him one of the few specialists in the sector whose objectivity is recognized. As an independent consultant, his many national and international mandates have taken him to the four corners of the world, where his expertise is refined day after day. In this interview conducted at his office in Nouakchott, the expert takes us to discover the Grand Tortue/Ahmeyim project.

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How is the Grand Tortue Ahmeyim gas project between Mauritania and Senegal structured?

At the genesis, it is a classic pattern observed all over the world in the hydrocarbon exploration/exploitation sector. Very often, it is the juniors who invest in what is known in the jargon as Upstream (in other words, exploration, geophysical studies, in short, research as a whole).  When these juniors discover a deposit, they have to move on to exploitation, which of course requires more substantial resources. More often than not, these juniors do not have access to sufficient financial resources and are obliged or find it more interesting to call on the majors.  There is no single deposit that is 100% owned by a single group. Except for the very large deposits which are only owned by the majors.  In Russia, this type of deposit is held by Total and Gazprom or Rosneft.  It is the same pattern in the mining sector where the Big Four of the sector such as BHP Billiton, Rio Tinto or Vale hold the largest deposits. 

What are the quantities of gas discovered on the Grand Tortue/Ahmeyim field and in general between Mauritania and Senegal?

There are several potential deposits between the two countries, including Marsouins, Teranga, etc. on the Senegalese side. On the GTA gas field itself, the deposit is estimated at 15 billion cubic meters over 33,000 km2.  It is a 30-year project led by BP. I salute here the inter-state agreement concluded between the two countries and which testifies to a great maturity on both sides as well as to a clear vision for our two peoples.  

How is the ATM project structured?

The GTA project is structured in 03 phases. And all the fuss we have been witnessing for the past two years only concerns phase 1, which provides for the production of 2,500,000 cubic meters, the marketing of which will begin in 2022. At the end of phases 2 and 3 the production will have to increase to 10 million cubic meters. I would like to remind you that the pre-feasibility studies (FEED) are already underway and have been entrusted to KBR, which has already carried out the studies for Phase I. The impact in terms of investment is enormous between the first and second and third phases; knowing that BP is now at almost 10 billion of investment (phase 1). It should be noted that the GTA gas field consists of 12 wells and the current phase of investment concerns the exploitation of only four (04) wells.

Precisely, what are the shares of the two States (Senegal and Mauritania) in these projects?

In both cases, the participation of the two States is 10% managed on the Senegalese side by Petrosen and on the Mauritanian side by SMH-PM. The small difference is the profit share between BP and Kosmos. In Senegal, it is 60% BP, 30% Kosmos and 10% State of Senegal. In Mauritania, it is 62% BP, 28% Kosmos and 10% State of Mauritania. The pattern is more or less the same. BP's entry ticket was $1 billion for Kosmos Energy. In this partnership, it is stipulated that Kosmos will continue to deal with all the exploration part (Upstream) and BP will be responsible for the Intermediate (Midstream) and Downstream.

Did Mauritania and Senegal receive a share of the amount of the transaction between BP and Kosmos, namely the billion dollars that the latter pocketed?

As far as I know, no. By the way, I remember that in 2010, when Kinross bought the Tasiast gold mine from Redback Mining for 7 billion dollars on the Toronto Stock Exchange, I asked this question in the first edition of "Mauritanides". I found and I still find it illogical that governments do not find their share in any way in such transactions of Sale-Merger-Acquisition. To come back to the case of Redback Mining, it has invested in Mauritania and has made a substantial capital gain. But it is also logical that the State, which has granted them many advantages, should gain something.  Mining and oil legislation must take into account this problem in the exploration phase.  As for the exploitation phase, there are no problems since the States have a 10% stake.  

In the oil and gas codes of the two countries, are the transactions related to these blocks in exploration or exploitation taxed or not?

Interesting question. There is indeed a whole mechanism of tax privileges inherent to this type of investment; and this is normal. In this case, the Inter-State Cooperation Agreement (ICA) between Senegal and Mauritania relating to the development and joint exploitation of the GTA field was signed in February 2018 and later an additional act was grafted onto it relating to the tax and customs regime applicable to subcontractors. In other words, the subcontractors will have to benefit from the tax advantages enjoyed by their sponsors (BP).

Were there any signing bonuses when BP entered the project?

In principle, no, for the simple reason that BP bought shares in a company that was already operating.   Bonuses are most often related to new license agreements.

How should the Mauritanian government use the revenue from these resources?

This question refers to the notion of Good Governance. And there are more qualified people than me to talk about it. I will only say that the "oil curse" or theoil curse is essentially based on the statistical apparatus of economists. It is often quite theoretical, comparative and internationalist, reducing the question of the political effects of oil to corruption and authoritarianism.

That said, we need to deconstruct certain preconceived notions and challenge the commonly held view of oil and gas production as a factor of corruption and authoritarianism. Certainly, we are not yet spared such a stereotype, which impoverishes the analysis by obscuring other mechanisms of political production and appropriation of extractive resources.

The political economy of hydrocarbons is far too complex to be limited to exploitation relationships between "modern" multinationals and more or less "traditionalist" indigenous communities. It is up to our leaders to take their responsibilities towards posterity.

How to involve the private sector?

This is the most interesting question, because it touches on a more fundamental and relevant dimension than that of good governance. This is as true for Mauritania as it is for Senegal, which - by the way - is already well ahead of us in the development of what is commonly called Local Content. I warn you that on this subject, I could linger a little longer. It is, so to speak, my passion.

You know, this type of project arouses fantasies that give rise to all sorts of more or less fanciful theories. But everything lies in the relationship between the State and the citizens.

This notion encompasses aspects such as employment and training of local workers, procurement and business opportunities for local companies. This concept, which is a real way for local populations and national economic operators to be directly involved in the activities

Local content is defined as the sum of domestically produced goods and services, wages and dividends received by domestic employees and entrepreneurs respectively.
 
In other words, local content is the private component of the economic benefits of oil and gas projects. This private component is added to government revenues to keep the country's "economic machine" running.

Thus, it will be necessary that our private sector is present on all the chain of value but in a competitive way. This means that it will have to be trained according to the specific requirements of the hydrocarbon exploitation sector.

With a realistic and ambitious strategy, we will get there as this and other projects develop.
Despite often ambitious and voluntary laws, the average local content rate in Africa probably does not exceed 20% of development and production costs.

The development of local content was at the heart of the agreements between BP and the two states of Mauritania and Senegal and was one of the main levers of the negotiations. In order to support both countries in this direction, the World Bank has provided a grant of $20 million for each country. Mauritania has not yet made any progress in this direction. The process of developing a strategy for the development of local content in Mauritania has not yet been initiated, let alone the adoption of a law on the subject. Senegal - which is currently receiving ADB funding for its PADCEJ project - has already adopted its law on the subject!  

Will each country market its share of gas production on its own?

Not at all. The commercialization of the gas production has already been the subject of an international tender that was won by BP Gas Marketing (a subsidiary of BP) and the final contract will be signed in early 2020 for a period of 20 years. 

How was the project structured in its various components? 

The GTA project has four (04) main components: the construction of an offshore breakwater that will house the liquefaction plant. This EPC contract was awarded to the French-Italian consortium Eiffage-Saipen for an amount of 350 million dollars (EPC contract).  The subsea engineering component for gas extraction was awarded to McDermott in partnership with Baker Hughes (a subsidiary of General Electric) for $750 million in EPCI mode (engenering, procurement, construction and installation). The third component is the floating production, storage and offloading (FPSO) vessel for a contract worth approximately $1 billion won by TechnipFMC in EPCIC mode, which covers construction and operation. And the fourth component is the FLNG (floating gas liquefaction plant), a contract won by Golar LNG, through its wholly-owned subsidiary GIMI Corporation. Worth $1.3 billion, this contract is a 20-year lease and operate agreement (LOA). The FLNG will be built in partnership with Singapore's Keppel Shipyards. The volume of investment in these contracts alone already amounts to almost $4 billion.

Are the ports of Nouakchott and Dakar sufficiently equipped for a volume of activities of this scale?

The port of Nouakchott has the advantage of being less congested than Dakar. On the other hand, the port of Dakar is better equipped than the port of Nouakchott, which cruelly lacks infrastructure and adequate facilities. To give you an idea of the scale of the problem, the figures speak for themselves: Just for the logistical part of McDermott, it is a question of transporting 250,000 tons of equipment that must arrive mainly at the port of Nouakchott in a time interval of a year and a half at the latest. In this total, there will be 110,000 tons of pipe to connect 80 to 100 km of subsea pipelines. The logistical challenge is simply enormous. For example, there will be equipment that weighs 350 tons/piece. Add to that the rock hauling activity by Eiffage and port congestion is guaranteed.

On the other hand, Mauritania has the advantage of the port of Ndiago, whose proximity to the offshore exploitation site constitutes a first advantage. In my humble opinion, this is the future major offshore hub of the sub-region. Because in the near future, most of the logistics services related to the oil and gas industry will be housed in this port. It is true that this requires huge investments to make it a real special economic zone and a pole of economic development like Saldanha Bay in South Africa.

Speaking of McDermott, what about its bankruptcy last January, which caused panic in international stock market circles?

Not so much. There were certainly some cold sweats but more on the side of McDermott's operating partners. Originally, the latter had acquired in early 2018 Chicago Bridge & Iron (CBI) for a transaction worth Six (06) Billion Dollars and since McDermott did not manage to balance its finances and dragged global debts of four (04) Billion Dollars of which 02 billion 600 Million particularly harmful. This situation lasted until the beginning of December 2019 when it saw its quotation on the New York Stock Exchange fall in one day from 47 Dollars to less than 1 Dollar a share! In reaction to such a situation, the SEC (Security Exchange Commission), which is the New York stock market regulator, gave them an ultimatum to rectify the situation or, failing that, to declare bankruptcy, invoking Article 11. Cornered, McDermott finally - last January - activated Article 11 bankruptcy. A solution was quickly found and everything was done in almost a day. As a result, calm was quickly restored.

Will the bankruptcy have an impact on the progress of the GTA project?

Absolutely not. Because the agreement to negotiate to avoid a real total bankruptcy was mainly - among other things - about the conversion of receivables into assets, the sale of some of these subsidiaries and in return McDermott will receive an amount of 500 million dollars of new money to bail out these empty coffers. Following this, there were official announcements from BP and other authorized channels to ensure that all of McDermott's commitments to its customers, partners, subcontractors, employees, etc. would be honored. So, everyone is smiling again and McDermott is off to a good start, much to the delight of Mauritanians and Senegalese. It is true that it was a week of general panic.

Finally, how will the environmental challenge be managed given the areas marine protected areas such as the Banc d'Arguin?

The threat is not only to the coastline but also to the seabed. However, all stakeholders in the project put this issue at the top of the priority list. It is a major issue taken into account in the preliminary environmental studies and the spectre of a potential ecological disaster is always present in mind. I only hope that all the necessary precautions and arrangements have been made to avert such a fate.

It is true that BP still has the grim memory of the Deepwater Horizon tragedy in 2010 in the Gulf of Mexico. A tragedy caused by human error and that can happen anywhere. God forbid.

Adama WADE, Financial Afrik