After a two-year delay, Mozambique has launched its new oil licensing round after the passage of a new petroleum law that governs oil and gas activities in the country.

Following the discovery of big natural gas resources in Mozambique it became necessary for the country to reform its existing petroleum laws and put in place a comprehensive legal framework and fiscal terms to facilitate development and investments in the gas and oil sector. The process took about two years and culminated in the new petroleum law and the petroleum tax law.

The National Petroleum Institute (INP), Mozambique’s regulatory authority for oil and gas E&P, launched the 5th Licensing Round in London on Oct. 23, 2014, and stated that 15 blocks will be offered for competitive bidding to explore for hydrocarbons in the country that has more natural gas than oil.

Details about the blocks, provided by INP in a statement, showed that there are 11 offshore blocks in the northern Rovuma Basin, Angoche Basin and Zambezi Basin while the remaining four onshore blocks sit in the Pande Temane and Palmeira basins.

The INP added that three blocks—R5-A, R5-B and R5-C—are on offer in the Rovuma offshore basin close to Area 1 and Area 4 where Anadarko and ENI have confirmed huge gas resources for a proposed a multibillion-dollar LNG export project.

In the Angoche area, two unexplored frontier blocks—A5-A and A5-B—are on offer, while there are six blocks in the central Zambezi area. They are Z-5-A, Z5-B, Z5-C, Z5-D, Z5-E and Z5-F.

There are also three blocks on offer in the Pande Temane fields—PT5-A, PT5-B and PT5-C. One block is available in the Palmeria area, P5-A, near Maputo, the capital of Mozambique.

The INP said the 15 blocks cover a combined area of 74,724 sq km (28,851 sq miles). Bidders have until Jan. 20, 2015, to submit applications. Bid clarification presentations are expected in February 2015, and bid evaluation is scheduled for February and March 2015. Shortlisted companies will be invited for E&P concession agreement (EPCC) discussions followed by EPCC awards.

The amended petroleum law, which was passed in August 2014, requires investors to partner with ENH, Mozambique’s national oil company, according to Esperanca Bias, the country’s minister of mineral resources.

Bid Evaluation Criteria

The Ministry of Mineral Resources and the INP appear to have set tough conditions for the licensing round and will consider the technical competence and financial strength of applicants to be able to carry out E&P of hydrocarbons within legal requirements and industry standards.

Other areas to be considered are the:

  • Technical database used in making the application;
  • Technical evaluation and obligatory work program;
  • Economic terms offered by the applicant;
  • Strength of the proposed systems, standards and management for health, safety and environmental protection and
  • Level of support and training.

Total assets and capital greater than $100 million are required for operatorship of at least one onshore exploration and development program, including seismic and drilling. Total assets and capital greater than $2 billion are required for offshore operators, which must have experience in water depths less than 500 m (1,640 ft). Operatorship in water depths greater than 500 m requires total assets and capital of at least $5 million.

The INP, according to its statement, expects companies applying for a license to include a regional overview, prospectivity analysis, duration of exploration phases and relinquishment plans.

Petroleum Law, Petroleum Tax Law

Without passage of the revised petroleum law, the government of Mozambique could not have proceeded with the oil licensing round. The law allows the government to issue new oil and gas exploration licenses.

“We were waiting for the petroleum law to be approved. Now we have the tool we were seeking for new bids because those must be regulated by the new bill,” Bias said in a Bloomberg article.

A key part of the law states that petroleum resources, onshore and offshore, belong to the state of Mozambique. The state, according to the law, reserves the right to participate in petroleum operations.

The state’s participation may occur during any phase of petroleum operation or during the construction and operation of oil and gas pipelines or other facilities in accordance with the terms and conditions agreed to in the EPCC and the development plan, a section of the law said.

The new petroleum law also requires oil and gas companies operating in Mozambique to be listed on the Mozambican Stock Exchange.

In addition, local content is a major part of the new law, which requires foreign companies to associate with Mozambican companies and people to supply goods or services, provided that local services or goods are comparable in quality to foreign goods and services and that their cost does not exceed that of foreign services or goods by more than 10%. This is essentially to promote the development of Mozambican business and know-how.

Also, the law requires international oil companies (IOCs) to ensure employment and training of nationals of Mozambique, and their participation in the management of petroleum operations.

The new petroleum tax law, which becomes effective Jan. 1, 2015, applies to all Mozambican and foreign entities performing petroleum operations under a concession contract. But taxpayers complying with obligations set in concession agreements signed under the previous law should continue complying with the previous law, unless they apply under the new regime.

The new tax law sets a corporate income tax at 32% to be paid in local currency and a petroleum production tax (or royalty) taken in kind or cash with a gross rate for crude oil of 10% and 6% for natural gas. But the rate will be reduced if production is for national industry use. A withholding tax at 10% on gross contract value and a cost recovery ceiling at 60% of the disposable petroleum are part of the law.

The law also stipulates a 25% domestic supply obligation. This means that 25% of the oil and gas produced in Mozambique’s territory by IOCs is dedicated to the national market while the government shall approve the methodology for pricing.

“There will likely be hard bargaining between the Mozambican government and international oil companies on the price the government will pay them for the oil and gas, which will be reserved for the domestic market particularly as the petroleum law does not state the methodology to be used,” said Damilola Ogunsola, a petroleum technology expert in Nigeria.

The IOCs will be expected to demand prices that are economically competitive because of their huge investments in oil and gas E&P in Mozambique, Ogunsola said, adding that the companies must make profits for their shareholders.

Mozambique has not been an oil-producing country. Africa oil+gas Report said Sasol, the South African energy and chemicals company, was hoping to produce 2,000 bbl/d of oil in 2014 or 2015 from a small oil find onshore Mozambique. If it goes ahead, the oil field will be the first to produce oil commercially in Mozambique.