The oil and gas industry is well known for being a very capital-intensive industry. The likes of BP, Exxon-Mobil, Saudi Aramco or Shell, routinely make the top-ten of the world’s largest companies by revenue, and the figures can be so strikingly large as to cause confusion from the point of view of the individual. That could have been a possible explanation for the BBC’s Panorama show’s outlandish claim over an alleged USD$10 billion “scandal” taking place in Senegal and involving the highest levels of government and most of the country’s main oil and gas players. It was either that or the sheer necessity to present an over-sensationalized view of the facts for the sake of audience shares, which I liked to believe was beneath such a respected media institution.
If not let’s see. Panorama’s story covers the sale and acquisition of two offshore oil and gas blocks in Senegal by a company named Petro-Tim, an unknown company registered in the Cayman Islands as a subsidiary of another ghost-like global entreprise named PetroAsia resources. Petro-Tim is controlled by Frank Timiș, a Romanian-Australian businessman with a rather cloudy reputation, to put it extremely mildly.
In 2012, former president Abdoulaye Wade and his economy minister Karim Wade approved the deal after allegedly doing some extensive due diligence and assessing the “proven track-record” of PetroAsia, which backed Petro-Tim. Timiș later sold much off its license to Kosmos Energy, another well-known exploration company with an impeccable track-record. After massive natural gas discoveries were made in the company’s two licenses, Timiș sold his remaining shares to global oil company BP for a reported USD$250 million and some undisclosed “royalty concessions”. After some share exchange with Kosmos, today, BP controls an operating 60% stake in the Cayar Offshore Profond and St. Louis Profond licenses, with Kosmos retaining 30% and Petrosen, Senegal’s national oil company, controlling the remaining 10%.
Now, Timiș initial acquisition of the licenses during the Wade administration might have happened under suspicious circumstances, as the BBC alleges, and might certainly be worth investigating, which president Macky Sall has already initiated. That, however, is no reason to demonize the whole of the country’s oil sector and produce false claims that jeopardize the work being done to develop an industry with the potential to bring considerable wealth, jobs and economic development to this impoverished nation.
The BBC states that BP paid USD$250 million for Timiș’ share of the two oil licenses, but that besides that hefty figure, Timiș was still entitled, or “could receive” as the narrator tells us, to anywhere between USD$9 and USD$12 billion dollars in royalties, depending on the price per million British terminal unit of natural gas. The reporter decided to round up the figure to USD$10 billion, for no other reason than to make the title of the story more appealing, I believe.
Now, let’s put that figure, which is allegedly to be paid to one single individual, into perspective. Senegal’s annual gross domestic product in 2017 amounted to USD$16.37 billion. From a corporate point of view, BP, which ranks as the world’s seventh biggest company and has operations all across the globe in several different sectors, recorded record profits in 2018, more than doubling its 2017 earnings, at the tune of USD$12.7 billion.
In light of these values, the statement that BP had agreed to pay Timiș the sum of USD$10 billion as royalties for his former minority stake in two non-producing natural gas licenses in Senegal is not only outlandish, it is irresponsible, and reveals a thorough ignorance of how the oil and gas industry functions.
It is somewhat ironic that when, during the half an hour reportage, the BBC journalist shows opposition MP Mamadou Lamine Diallo a sheet of paper with the BP logo featuring what the reporter claims is a scaling payment sheet of royalties due to Timiș (BP has since said it “does not recognise the document shown that referenced these figures”), Mr. Diallo’s reaction is one of disbelief, looking around and repeating the sentence “is this true?” several times. Well, it is a question worth asking, for it can not be true. As BP stated, and industry standards confirm, “the potential royalty figures referred to in the programme are wholly inaccurate and exaggerated beyond the realm of reality”. Whatever royalty agreement it has with Timiș “would be less than one percent of what the Republic of Senegal would receive. And again – very importantly – anything paid would not in any way affect the agreed share received by Senegal”, since it would be paid from BP’s share of profits and does not being stolen from poor Senegalese people, as the story claims.
Further, this report is unfairly damaging on several fronts. It perpetuates an image of inevitable chronic corruption in African business that so many African leaders, including president Macky Sall, having been working hard to reverse by promoting good governance and transparency. It jeopardizes the many efforts made in recent years by the current Senegalese administration to promote the development of an oil and gas industry that could help lift millions out of poverty and bring economic development to the nation. It causes uncertainty for investors and raises political instability.
It also perpetuates the image that the oil industry is inherently destructive for African nations like Senegal, ignoring considerable evidence of the contrary, and smudges the reputation of some of the most regulated companies in the world by accusing them of knowingly supporting corrupt deals when all the information about the deal has been submitted and evaluated by the Securities and Exchange Commission in the United States and other oversight institutions without raising any flags. Finally, it seeks to attack the work made by president Macky Sall in trying to promote foreign investment and economic development in Senegal.
Finally, let us look at the actual contract made between the government of Senegal and the license holders, which the story deems as so damaging for the Senegalese coffers.
First of all, when the initial concession contract was made for these two licenses, Senegal had no relevant commercial oil and gas discoveries at all, particularly in the high-cost deep offshore region. This represents a considerable added risk to investors and is commonly associated with more favourable contract terms than other proven oil regions. Nothing new there. Within this context, the contracts covering the exploration and production of Cayar offshore Profond and Saint-Louis Offshore profond foresee that once first oil or first gas is attained, the operating company can recover up to 75% of its extensive operating costs from the production profits. After costs are paid for the production is divided between the state and the license holders in a scale depending on how much oil or gas is being produced. Within that scale, the Senegalese state receives between 35% and 58% of the production. On top of that, we must consider Petrosen’s 10% participation, which can be expanded, under the contractual conditions, to 20% if there is a discovery. So, at a 20% share, Petrosen could receive between a minimum of 8.4% (20% of 42%) and 13% (20% of 65%) of the production. Once divided, the production kept by the producing companies is taxed as profit by the State at a rate of 25%. To sum it up, the Senegalese state will receive anywhere between 61% and 74.8% of all production coming from these licenses. What the BBC has said to have been described as “the most generous (contract) in the industry”, even though it never said who described it that way, seems very much standard for the region.
Within this framework, it is difficult to understand why this story would be drafted in such sensationalistic terms to involve companies that are well-known for its adherence to anti-corruption and due diligence procedures. It is also strange that the reporters would choose to so blatantly attack political leaders that were not even in power when the deal was done, and that have been responsible for ground-breaking reforms that are already producing benefits for the Senegalese economy.
Senegal is well on its way to become a de facto oil and gas producer by 2022 and with it, billions of dollars will be injected in the Senegalese economy, supporting job creation and economic development in a country that still depends mostly on a non-industrialized agricultural sector. Senegal’s efforts to develop its oil industry and its economy should be supported and lauded by international well-informed observers and not harmed by inaccurate reporting.