Liberia Petroleum Sector:

background, reform and prospects

Media Workshop

July 30, 2012

Background of Liberia Oil and gas development program

Reform Process

Draft Policy Paper

Outline

Background to Sector

1960s-1972

1940s 1980s 2011

First petroleum exploration awarded to Mr.Jake Simmons

Chevron, Union Carbide, Reeds and Bets and Crystal Oil drilled four wells but did not engage in production of oil as no discoveries were declared.

AMOCO Liberia Exploration Company signed two successive petroleum exploration agreements and drilled three offshore wells but oil deposit was discovered

First Major Oil discovery in Liberia by African Petroleum

Liberia is not producing oil yet. Oil was only discovered for the first time in Feb 2012

We do not know yet if that discovery is in commercial quantities – enough to produce. It must be analyzed first

If after analysis later this year it is proved to be commercial, production could start in 5 to 7 years

Oil is a finite resource – it is difficult to extract and it runs out eventually

Oil can generate huge revenues, but it also carries risks. It can increase corruption, inequality, damage the environment and even cause war

To benefit a country, it must be managed well. It must be produced and regulated properly, and revenues must be spent transparently on development

That requires the right policies, laws and capacity. That is why the Government is reforming the whole sector, starting with a new petroleum policy

Reason for reform

History of ReformDecember

2011

January 2012

April 2012

June 2012

August 2012

President Sirleaf requested the Chair of the HTC (NOCAL) to immediately proceed with the reform process

PAG and HTC convened a round table discussion with different stakeholders to officially commence the reform

NOCAL organized retreat for HTC, PAG and civil society organizations in Buchanan to develop underlying principles for the draft policy

HTC principals agreed on the underlying principles and authorized the drafting committee to develop the first draft policy paper

Nationwide ConsultationConducted by HTC subcommittee and other key stakeholders to generate comments from public

Who is leading the reforms

Hydrocarbon Technical CommitteeNOCAL (Chair)

Ministry of Finance and PlanningMinistry of Lands, Mines and Energy

Ministry of LabourNational Investment Commission

Office of the Legal Advisor to the PresidentEnvironmental Protection Agency

Policy and Law Drafting Team Drawn from subcommittee

(Law Reform Comm. (Chair), NOCAL, MOJ, OLA, MLME)

Policy Advisory Group(Norad, Revenue Watch Institute, ACET)

Technical Sub-CommitteeRepresentatives from same bodies as HTCCivil Society Goups (LEITI, LOGI, LipWatch)

A cross-governmental task force is managing the process:

HTC Principals review proposals of Sub-committee, and make final decisions on policies

Sub-committee does main work of deliberating and generating policy

Drafting Committee does detailed drafting

External PAG advises and supports

Outcomes of the Reform

Development of Petroleum Policy Paper

Revision of the New Petroleum Law 2002

Revision of the Act Establishing NOCAL

Establishing Model Production Sharing Contract (PSC)

Development of a Revenue Management Act

Deadline: Sep 2012

Deadline: December

2012

Deadline: December

2012

Deadline: March 2013

Deadline: TBC

Consultation Strategy

1. PublicLocal Communities and

publics across Liberia and in the Diaspora

1. Town Hall Meeting (TH)

- Approx 150 people- Short introduction- Facilitated open

discussion

Divide stakeholders into two broad categories:

2. Special Interest Groups

• Associations/Academia

• CSOs/Nos• Youths/students

• IOCs and Businesses• Legislature and

caucusesTwo categories of events to match the stakeholder

types2. Roundtables

(RT)- Approx 30 people

- Closed door session- Detailed discussion

Consultation Strategy

Counties1. Nimba2. Lofa

Counties1. Grand Bassa2. Rivercess3. Sinoe

Counties1. Grand Gedeh2. Grand Kru3. Maryland4. River Gee

Team 1

Team 2

Team 3

Team 4

Counties1. Margibi2. Bong

Team 5

Counties1. Bomi2. Cape Mount3. Gbarpolu

Team 6

County1. Montserrado

9 thematic areas

1. Resource Ownership and Maritime Boundary 2. Legal Framework and Institutional Oversight3. State Participation and Fiscal Regime4. Revenue Management & State – NOC Financial

and Tax Arrangements5. Transparency and Accountability6. Safety, Health and Environment7. Licensing and Contracting8. Work Program and Operations9. Local Content

The draft policy

Policy Goal

“To manage Liberia's petroleum sector in a way that ensures that petroleum resources equitably benefit the people of Liberia now and in the future.”

A. Oil shall be used for the maximum benefit of all Liberians

B. The Constitution says that mineral resources under the ground or sea shall be owned by the State, not by individuals. Land owners shall be compensated

C. The oil sector shall be sustainably managed and seek the maximum Liberian participation

D. The policy recognizes territorial boundaries, and seeks to amicably resolve any maritime boundary disputes

E. It shall not exploit a resource on a boundary without an amicable agreement and unitization plan

1. Resource Ownership and Maritime Boundary

A. The sector shall adhere to international leading practice and separate 3 key institutional roles to avoid conflicts of interest

B. NOCAL shall manage the commercial interests of the State and state equity

C. The relevant Ministry (MLME) shall manage policy-making and forming regulations

D. Regulation shall be managed by a new Independent Regulator. This regulator shall be formed over the coming years, and begin at the start of substantial commercial production of oil

E. Until then, NOCAL shall act as regulator along with other regulatory bodies (eg EPA, LMA)

2. Legal Framework and Institutional Oversight

A. The fiscal regime shall create incentives for responsible investors while providing a fair and equitable return to Liberia

B. The fiscal regime shall include ‘progressive’ elements, so that returns to the country increase with overall returns

C. The overall fiscal regime shall be a coherent whole, balancing different revenue streams and using a range of fiscal tools

D. The fiscal regime shall be transparent and predictable, and available to the public

E. The State shall participate in the sector through carried interest

3. State Participation and Fiscal Regime

A. The Goal of revenue management is to use oil revenues for the benefit of ALL Liberians regardless of region or background

B. The government shall put in place mechanisms to facilitate efficient collection of revenues and auditing

C. Revenues shall be put in designated accounts for intergenerational equity, future investment, and stabilizing oil price  fluctuations

D. NOCAL shall eventually be funded through its state equity share. Until that share is actualized, the Government shall ensure it has sufficient budget allocations

E. Revenue Management systems shall strike the balance between investment in development needs like education and infrastructure, and saving for the future.

4. Revenue Management & State–NOC Financing

A. The Government shall operate with complete transparency and accountability in the sector

B. The sector shall adhere to the principles of LEITI and regularly publish information about revenues

C. The Government shall encourage active engagement of civil society organizations in monitoring and reporting

D. The legal framework shall establish the right for citizens to seek legal redress in the judicial system

E. The Government shall commission annual  audits of petroleum activities by qualified auditing companies awarded by bids

F. Government shall adhere to recognized principles of gender balance and equality

G. All public officials and civil servants within the petroleum sector shall undergo periodic checks for mismanagement.

5. Transparency and Accountability

A. All petroleum operations will require an Environmental and Social Impact Assessment, including a spill contingency plan and an Emergency Preparedness Response Plan

F. At the end of a petroleum activity, the environment shall, to the extent possible, be brought back to its original state

G. It promote using best practices for prevention and rapid emergency response mechanisms designed to mitigate air and water pollution

H. The Government shall review and update waste disposal standards including inspection, monitoring, evaluation and control mechanisms

I. The holders of a license, its parent, subsidiaries, and contractors shall be strictly, jointly and severally liable for pollution, harm to the environment, property or injury to persons resulting from their operations

6. Safety, Health and Environment

A. The Government shall adopt a hybrid form of Petroleum Sharing Contract

B. The Government shall adopt the principles of competitive bidding, pre-qualification, and publish the bid criteria

C. In the case of a reservoir spanning more than one block, unitization shall be applied

D. The government shall set criteria for transfer of license or operatorship including due diligence and payment of transfer fees. Any transfer shall be subject to Government approval

E. The assets of each license shall be managed independently or “ring fenced”

7. Licensing and Contracting

A. The exploration program  shall be divided into 3 phases:i. First exploration period for 3 yearsii. Second exploration period for 2 yearsiii. Third exploration period for 2 years

B. Government shall establish effective systems for monitoring and auditing petroleum operations

C. Work plans shall be subject to Government approval

D. Companies must relinquish non-commercially viable areas to the Government

E. All data shall belong to the State

F. All petroleum companies shall be expected to optimize production

G. Spare capacity in infrastructure shall be made available to other users

8. Work Program and Operations

The value created in the Liberian economy by systematic development of capacity and capabilities through the utilization of indigenous Liberian human and material resources, and services.”

A. A Liberian-owned company is defined as: “a company or any business venture where a minimum of 25% of its shares is owned by Liberians.”

B. The Government shall create a local content strategy to protect Liberian business interests and develop Liberians to achieve maximum benefits from petroleum resources

C. The Government shall prioritize local and International Oil and Services Companies with proven track records of support for local content during the bidding process

D. Liberian goods and services shall be used in the conduct of petroleum activities to the extent feasible

9. Local Content

A. Government will enact laws, policies and regulations for inclusion in contracts and other legal instruments that will commit international oil companies to:

i. Prioritize employment of qualified and competent Liberian citizens in the oil and gas and other associate industries;

ii. Train Liberians in relevant fields relating to the oil and gas sector;

iii. Contribute to institutions involved in the training of Liberian citizens to enable them to be eligible and meet the requirements for positions in the oil industry

iv. Contribute to community development programs through joint ventures to transfer technology.

B. The Government shall utilize oil revenue to support, develop and expand public and private entities in order to strengthen their capacity in service delivery.

9. Local Content (cont.)

Questions, Discussion, Input

Thank You!!!