With ExxonMobil entering Liberia, the country forges ahead with development of its nascent oil sector since African Petroleum discovered a large accumulation of oil deposits last year.

The National Oil Company of Liberia (NOCAL) said in a release on April 5, 2013, that it has completed “a historic landmark deal to secure the entry of ExxonMobil and Canadian Overseas Petroleum (COPL) into the country’s offshore hydrocarbon sector.” ExxonMobil will be the operator.

The production-sharing contract (PSC) gives ExxonMobil an 80% interest in Liberia’s offshore Block 13 (LB13) and COPL a 20% interest, according to the NOCAL release. The new PSC, which replaces the previous contract for Block 13, is among the country’s first to include provisions in which citizens could receive dividends if exploration leads to production.

“The PSC includes a 5% citizen participation share in Block 13. If exploration and development in Block 13 are successful, revenues will be available to share with citizens after ExxonMobil and COPL have recovered their exploration, development, and production costs,” Israel Akinsanya, vice president, public affairs of NOCAL, said in the release.

If the provisions for citizens are successful in Liberia, they may be copied by other African oil producers to pacify agitations for shares in oil resources by host communities in West Africa’s oil-producing areas.

The PSC establishes a 10% royalty on oil produced from wells drilled below water depths of 1,500 m (4,921 ft) and a 5% royalty for oil produced from wells drilled more than 1,501 m (4,923 ft). There was no provision for royalty in the previous PSC for Block 13, which transferred from Peppercoast Petroleum PLC (formerly Broadway Consolidated Ltd.) to ExxonMobil Exploration and Production Liberia Ltd. and Canadian Overseas Petroleum (Bermuda) Ltd.

The PSC includes the right for Liberia to receive a 10% share in Block 13 at the start of commercial production, Akinsanya stated.

This means ExxonMobil and COPL would give up part of their current stakes to the government of Liberia or the entire 10% may come from the shares of one of them, an oil industry analyst in Lagos, Nigeria said while commenting on the deal.

The renegotiated contract yields US $50 million up front to Liberia through a combination of taxes, transfer fees, and signature bonuses. This includes Liberia’s highest ever signature bonus of $21.25 million. Until now, the largest signature bonus Liberia had received for a single offshore oil block was $3.33 million, according to the release.

Project Requires Local Content

If the project moves to the development stage, the PSC requires ExxonMobil and COPL to provide managerial and technical training for Liberian citizens involved in the development. This includes engineering design, information technology, and petroleum geology technology, the release said.

The PSC also requires ExxonMobil and COPL to develop “project linkage plans” for each of the exploration and development periods to identify opportunities for local suppliers, contractors, and service providers to supply goods and services to operators and to develop clear local purchasing plans, the release said.

“This event is a massive leap forward for our oil sector and for our country, and it is the Liberian people who will benefit,” said Randolph McClain, NOCAL president and CEO. “All the terms of this deal have been negotiated with the maximum benefit of the public in mind, and we are proud of what we have secured on their behalf. The fact that we will be working with the world’s number one supermajor in oil and gas, ExxonMobil, also speaks volumes about Liberia’s progress.”

Liberia, according to NOCAL, still has several more years before it produces its first barrel of oil but active exploration is ongoing toward production.

Companies with exploration programs underway in Liberia include Chevron in offshore blocks 11, 12, and 14; Anadarko, offshore blocks 10 and 15; and Repsol, offshore blocks 16 and 17, NOCAL said.

“Liberia is at least five to seven years away from producing a drop of oil,” Akinsaya said. “We are still in the exploration phase, and the discovery made by African Petroleum in February needs to be further evaluated.”

African Petroleum announced in February 2012 that its Narina-1 exploratory well drilled in Block LB-09 off the country’s coast had a potentially large accumulation of oil deposits. The company’s two-well drilling program commenced with the Bee Eater-1 well offshore Liberia in January 2013.

“The well was designed to test the Turonian fan by way of a large step-out of 9.5 km (5.9 miles), west of the original Narina-1 oil discovery, and has encountered 48 m (157 ft) of Narina equivalent oil bearing Turonian sandstone out of a 135 m (443 ft) oil interval, in line with the company’s pre-drill expectations,” African Petroleum CEO Karl Thompson said in a February 2013 release announcing the discovery. “Reservoir permeabilities over the hydrocarbon-bearing section of the well were lower than anticipated and further investigation is underway.”

The well, which was spudded on Jan. 4, 2013, with the Eirik Raude drilling rig, took 48 days to drill, of which 21 days was downtime due to a malfunctioning blowout preventer (BOP), Thompson said. Given the sizeable downtime and previous issues surrounding the BOP, African Petroleum decided not to proceed with the planned second well and is in discussion to find an alternative drilling rig. The well, according to Thompson, was drilled to a total depth of 4,100 m (13,451 ft) in a water depth of 1,067 m (3,501 ft).

African Petroleum holds a 100% interest in Blocks LB-08 and LB-09, offshore Liberia, Thompson added.