Madagascar's Poen Acreage, Geologic Setting (129210 bytes)
Madagascar has passed a petroleum law and reinterpreted local geology in a bid to revive oil and gas exploration by foreign companies.
The updated petroleum code offers a series of new incentives designed to spur upstream investments by exploration and development companies or groups of all sizes.
Officials hope the revised terms will prompt foreign operators to prove or disprove oil and gas play concepts identified by recently completed technical reviews of geological and geophysical data.
The first licensing round under the new legal regime was declared open in late March at presentations in London and Houston by a delegation of the Office des Mines Nationales et des Industries Strategiques (Omnis), based at Antananarivo, Madagascar. Omnis Director General Max Desire Rakoto-Andriantsilavo said the new petroleum code was to be ratified soon by Madagascar's General Assembly.
Developing Madagascar's oil and gas resources is a cornerstone of a liberalization and privatization plan moving the island-nation's economy toward a free market.
Bereft of oil or gas production, Madagascar is forced to import petroleum and refined products. The cost of such imports this year is expected to offset about 30% of Madagascar's total export revenue, an unacceptable level if the country is to achieve its targeted economic growth rate of about 3.5%/year.
Madagascar's energy consumption this year is expected to total 2.4 million metric tons of oil equivalent. As recently as 1993, crude oil imports amounted to 418,000 tons.
MORE FLEXIBILITY
Rakoto-Andriantsilavo said Madagascar's new petroleum law provides for joint ventures (JVs) or production sharing contracts (PSCs). But private investors may negotiate any type of contract, as long as legislative objectives are met'
Whatever contractual form is agreed by Omnis and a private investor or group is subject to approval by presidential decree. Approval carries with it the investor's automatic right to obtain exploration, exploitation, or pipeline transportation licenses as needed.
Oil or gas produced under a PSC is to be shared by the private investor and National Oil Co. of Madagascar (NOC). NOC is to be formed as soon as a commercial discover is declared. Under V agreements, NOC and private investors are to contract with Omnis.
Private investors are to be allowed the right to sell their shares of production at international market prices and repatriate all net income. Private investors also are to be exempt from paving customs duties on equipment and materials used in oil and gas activity.
Madagascar's current licensing round has no bidding deadlines. Omnis will assign acreage first come first served. Rakoto-Andriantsilavo in March said talks were under way with two large oil and gas companies.
Omnis has developed model JV and PSC agreements to serve as starting points for negotiations. Also to provide a basis for discussion, the agency has divided Madagascar's five prospective basins into large tracts. However, there is no restriction on the size of tract that may be awarded in the licensing round.
OVERVIEW OF CONTRACTS
Terms of Madagascar's model contract allow as many as 8 years for exploration.
The exploration term may be split into phases, with 25% of exploration acreage relinquished at the end of each phase. Work programs are negotiable and are to include minimum activity and spending obligations, based on the length of exploratory periods and size and prospectivity of the acreage. A 2 year exploration extension may be granted, if that is justified.
The production term is 15 years beginning with a declaration of a commercial discovery in each field. A 5 year extension is provided, and additional extension may be negotiated.
Fiscal terms require payment of royalties on a sliding scale for gross production of oil and gas.
Oil royalties are to be paid at these rates: 8% for production of 0-25,000 b/d, 10% for 25,001-50,000 b/d, 12% for 50,001-75,000 b/d, 14% for 75,001100,000 b/d, 17% for 100,001-130,000 b/d, and 20% for more than 130,000 b/d.
Gas royalties are to be assessed at 5% up to 12 million cu m/day, 7.5% for 12-24 million cu m/day, and 10% for more than 24 million cu m/day.
Production bonuses are negotiable.
MOPE FISCAL TERMS
Taxable income carries a flat levy of 35%.
Exploration and operating costs may be expensed 100% with unlimited carry forward. Development costs may be depreciated at an average rate of 20%/year on a straight line basis, according to various rates on specific items. Development costs may be carried forward for 5 years from the start of production.
Cost oil may amount to a maximum of 65% of gross production after payment of royalties.
Profit oil under a PSC is shared by NOC and private investors. The private company's split is negotiable but set on to a sliding scale based on an "R" factor, defined as a company's cumulative gross revenue divided by its cumulative gross investment.
Under a JV contract, each partner's share of participating interest is set by negotiation. NOC is to be carried through exploration, with full reimbursement in the event of a commercial discovery. Reimbursement installments are not to exceed 50% of NOC's share.
Madagascar may require each producing company to sell as much as 50% of its profit oil on domestic markets. Producers are to be paid in dollars, with price set according to a specified international reference.
GEOLOGIC OVERVIEW
Prospective areas in Madagascar are distributed across five offshore and onshore basins covering more than 123,500 sq miles.
Omnis said the largest and most important basins - Ambilobe, Majunga, and Morondava - are spaced along the west coast and share a common geologic history Begun as intracratonic rifts during the Permian, they contain thick sequences of continental Karroo clastics.
Later rifting and Madagascar's southward drift away from Africa created a passive margin along the west coast. Thick Mesozoic and Cenozoic sequences developed in each basin because of subsidence and tilting to the west in response to rifting of India during the late Cretaceous.
Recent drilling in the Majunga basin reportedly revealed shows of light oil in middle Cretaceous sands (OGJ, Aug. 1, 1994, p. 54).
Madagascar's two other basins are smaller and less understood. Cap St. Marie basin on the southern coast might have Karroo and Mesozoic fill underlying a Neogene cover. Similarly, Ile St. Marie basin at the northern end of the eastern coast could have a section of Mesozoic underlying volcanics.
Madagascar's new play concepts are described in a multiclient report completed in first quarter 1995 by Simon Petroleum Technology Ltd. (SPT), Llandudno, Gwynedd, U.K. SPT's project was commissioned by Omnis.
Basis of the report was the well and seismic data base held by Omnis, as well as published literature about Madagascar's regional geologic development and oil and gas potential.
SPT compiled structural elements, fault cut maps, and geoseismic cross sections based on original seismic, gravity, and magnetic data. The company also synthesized maps and other data obtained from individual operating companies and subcontractors.
Copies of the report are available as a standalone item or in conjunction with any number of four regional data packages.
SPT also assisted Omnis with technical presentations in London and Houston.
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