Sept/Oct 2008

Eye on Business

New international developments in oil sands projects

By J. Vercoe

We often think of oil sands as being synonymous with Canada and Venezuela. The announcement in May by Eni SPA (ENI) that it had reached agreement with the Republic of Congo for the development of a large oil sands project in the country, linked with investments in biofuels, power and social issues, now puts Africa (Congo) on the oil sands map.

Driven by worldwide competition for oil assets and a deeper understanding of country needs, governments, national oil companies operating outside their own territory and international oil companies are helping to build new policy in oil extraction. Company boards are personalizing their oil, gas, liquefied natural gas and oil sands projects with supplementary business and support, such as low-interest loans, construction of transportation, healthcare, biofuel projects, power plants, new technology and armaments. Recent developments in international policy in terms of Africa may have some influence on how these projects develop.

Africa Energy Commission

After many years of discussion, in February 2008 the Africa Energy Commission was inaugurated in Algiers. It is seen as the African Union’s answer to the Organisation of Petroleum Exporting Countries (OPEC) and was set up with the intent of coordinating policy and to act as a framework of action for Africa in the energy sector.

Education and training

Much effort is being made to promote petroleum expertise in Congo by Total, ENI and other oil companies. In new projects, there may be opportunities to further build legal framework and contracts to drive existing training and human resource policies. The Congo national oil company can continue to focus its attention on training and hiring of experts in different fields. Countries will continue to initiate and implement nascent local content policies. The transfer of technology and international oil company cooperation in research and development is always on the agenda.

National oil companies

Since April 2008, the World Bank has been studying national oil companies and value creation. The study will analyze factors that explain the creation of value and test their relative importance on the basis of the experience of a selected group of national oil companies. The dynamics of the oil industry, said the World Bank, involves changing conditions with respect to prices, technology, competition and management techniques, and this requires nimble decision-making processes that might not be compatible with all state-owned enterprises.

Biofuels

Congo has joined Brazil in calling for a Pan-African biofuel alliance. Brazil recently signed two agreements with Congo to provide the African state with training, technology and financing to produce biofuels from sugar cane and palm oil. Brazil is studying a formula that will transform debts into Brazilian investments in Congo.

Last month, Britain and Norway announced a large financial contribution to the launch of a Congo Basin Forest Fund aimed at helping the inhabitants of the Congo rainforests to protect their environment.

Environment and regulations

Environmental concerns related to oil sands projects range from the environmental impact assessment before the implementation of such a project to the management of air and water pollution during the life of the project and rehabilitation of the site. While international environmental agreements promote sustainable development, environmental protection is essentially established by domestic legislation.

Carbon credits market

Africa’s carbon credits market lags behind in comparison with India, China and South American countries. As a member of the Kyoto Protocol on climate change, Congo offers opportunities for foreign companies implementing greenhouse gas emission reduction projects to trade the certified emission credits resulting from such a project, if all the requirements are satisfied. An all-African carbon forum will be held in Senegal in September.

Mine closure

The Congo oil sands project allows oil companies, government and banks to identify situations for the new era. The process of closure of oil sands operations, the release of company responsibility from the mining side, and the rights of landowners and communities around the mine are driven by applicable contracts and legislation. Normally, mine closure requirements occur either within the applicable mining law and its associated implementing rules and regulations, or within the specific environmental legislation, which is applicable to the mining sector or both.

Extractive Industries Transparency Initiative

In February 2008, the Congo was accepted as an Extractive Industries Transparency Initiative candidate country and now must go through the process of validation. EITI aims to strengthen governance by improving transparency and accountability in the extractives sector.

Conclusion

There are other African countries such as Nigeria where oil sands development is now a possibility. The world will follow with interest the development of the ENI project in Congo to determine how these multi-faceted oil projects will work in practice.


John Vercoe is a partner in Fasken Martineau DuMoulin LLP (London). A serious malignant melanoma six years ago, duly beaten, has not gotten in the way of John completing nearly 30 years working in law in the oil and gas sector.


Florence Dagicour (Montreal) and Mutoba Mpinga (Lubumbashi, DRC) of Fasken Martineau DuMoulin LLP assisted in the preparation of this article.

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