May 21, 2024
Oil on Gas Regulations Spotlight: Equatorial Guinea
Middle East: Oil demand remains low despite the ease in COVID-19 lockdown
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Equatorial Guinea’s oil and gas sector is on a path to recovery and is laying the groundwork for new initiatives towards economic advancement and legislative stability. The country’s economic structure is to be applauded as it prioritizes the development of local production and local participation in its petroleum sector. For example, Equatorial Guinea produces 244,000.00 barrels per day of oil (as of 2016), ranking 34th in the world[1], and has managed to increase its production capacity of gas significantly by 5.73%, yearly, from 6.2 million cubic metres in 2015, to 7.75 million cubic metres in 2018. As it stands, Equatorial Guinea is expected to continue to increase its production levels as new developments and projects are executed.

The county’s upstream sector plays a critical role in driving the growth of the petroleum sector, and ultimately, the economy. It is therefore important that adequate policies and regulations are put in place to ensure consistency in the county’s economic development.

It is important to highlight some of the key companies involved in the production and distribution of oil and gas. While ExxonMobil’s upstream affiliate in Equatorial Guinea, Mobil Equatorial Guinea Inc. (MEGI), is the largest oil producer in the country, Sociedad Nacional de Gas de Guinea Ecuatorial (Sonagas)—Equatorial Guinea’s state-owned hydrocarbon company—manages the distribution, marketing, and exploration of the nation’s natural gas assets, including the industrial and residential natural gas markets [2].

As the only Spanish speaking country in the African continent, Equatorial Guinea has registered the highest growth path in Africa over the last five years [3]. The country has become the most dependent on oil in the world, due to significant oil discoveries that are structurally altering the economy. To that end, Equatorial Guinea is among several emerging oil-producing nations that have shown reluctance to embrace the global aspirations regarding energy transition.

With regards to the nation’s legislative framework for the exploration and production (“development”) of hydrocarbons [4], Equatorial Guinea is governed by the Hydrocarbons Law which came into force in November 2006 and was complemented in 2013 and 2014 by Regulations on Petroleum Operations and Regulations on National Content, respectively. Under the Hydrocarbons law, petroleum contracts are negotiated using a model contract developed by the Ministry in charge of petroleum operations. These contracts usually take the form of production sharing contracts (PSCs).

The Hydrocarbons Law permits the State to derive value from the development of its oil and gas resources through:
direct investment or participation interest in the contract of 20% or more,
the royalties paid to the State corresponding to a minimum rate of 13% based on daily production (gross production),
domestic consumption requirements, and
the taxes levied on the sectors such as income taxes, taxes on transfers and assignments and export duties, to name a few.
“Africa’s oil and gas industry is entering a new era, and Equatorial Guinea is at the forefront,” said Pablo Mitogo, Attorney at Centurion Law Group.

[1] https://apo-opa.info/3Fk7A2T.

[2] Sonagas is the Equatorial Guinean national natural gas company, which was established in 2005. It operates in conjunction with GEPetrol, the nation’s principal petroleum company, and EG LNG

[3] The improvement in oil and gas production and the robustness of public infrastructure-construction projects are mostly responsible for the country’s economy’s growth.

[4] A hydrocarbon is an organic compound consisting of hydrogen and carbon found in crude oil, natural gas, and coal.

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