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Investing in South Sudan Oil and Gas:

Legal and CommercialConsiderations

October 2017


Centurion Law Group South AfricaSuite 24 Katherine & West,

114 West StreetSandton, Johannesburg

+27 11 245 5900


Contents

Regulatory Framework

State Regulators and Actors

Investment Vehicle

Licences and Government Participation

Contractual Framework

Fiscal Framework

Current Operators and Operations

Recent Awards




Regulatory Framework

Petroleum Act of July 2012

The Petroleum Act establishes the National Petroleum and Gas Commis-sion of South Sudan to devise policy, approve agreements on behalf of the

government and co-ordinate between different government agencies.

The Ministry of Petroleum signs petroleum agreements and implements the policies of the commission.

The Act also mandated the creation of the National Petroleum and Gas Cor-poration, “which shall participate in the upstream, midstream and down-stream activities of the petroleum and gas sector.” It would hold interests in

consortia of contractors. Nilepet performs this function

Petroleum agreements under the 2012 Act cannot exceed 25 years. An ex-ploration term should not exceed six years.

The act contains local content and environmental provisions and is valid under the Transitional Constitution.

Petroleum Revenue ManagementAct of 2013

Deals with the management of petroleum revenue.

Companies Act of 2012Deals with the incorporation of corporate entities

in South Sudan.

regolatoryFRAMEWORKS


State Regulation and Actors

The Ministry of Petroleum

Oversees the oil and sector,headed by Minister for Petroleum.

National Petroleum and Gas Commission

Approves Licences and also provides strategic policy advice. Its members are appointed by the President.

The National Petroleum and Gas Corporation - Nile Petroleum Corporation (Nilepet)

• The Petroleum Act provides that the National Petroleum and Gas Corporation shall, on behalf of the Government, act as a com-mercial entity and safeguard the national interest in petroleum activities.

• Nilepet was incorporated in 2009 under the country’s new Companies Act of 2003.• It took over the properties of Sudapet (Sudan’s state oil company) upon independence. • Nilepet is an integrated national oil company with shares in the operating companies SPOC, DPOC and GPOC that produce all

of South Sudan’s oil.


Investment Vehicle

Entry requirements

• Entities entering into a petroleum agreement in South Sudan shall be incorporated and registered in the country, and shall have an office there, under the Companies Act.

• Contractor groups may be required to form an oper-ating company to undertake petroleum activities.

• If an operating company is not required to be formed, the group shall nominate an operator.

• If a contractor decides to dispose of an acreage or a part of it, the National Petroleum and Gas Corpora-tion [Nilepet] has right of first refusal to buy the in-terest.

Local Content Requirements

• Unless exempted under the regulations, the licensee or contractor shall ensure that any person engaged in pro-viding goods and services with respect to the licensee’s or contractor’s petroleum activities shall be registered or incorporated in the Republic.

• Goods and services available locally and of equal quali-ty must be purchased for oil activities unless such goods are more than 10% more expensive than when import-ed, or the after-tax value of the locally available services is more than 10% greater than in the international mar-ket


Licenses and Government Participation

Reconnaissance license

• License is non-exclusive.

• Allows contractors to collect data (includ-ing seismic activities) in a given area.

• If required, the government can issue an open tender for an exclusive reconnais-sance licence in an area that is not already covered by an agreement.

Government Participation

• Government participation through Nilepet has been minimal so far.

• It is required under the Petroleum Act that where a contractor decides to dispose of all or part of its interest under a petroleum agreement, the National Petroleum and Gas Corporation [Nilepet] shall have the right of first option to acquire the interest on the same terms as agreed to with the potential buyer.


Contractual Framework

Petroleum Agreement - Exploration and Production Sharing Agreement (EPSA)

• Petroleum agreements are to be entered into following an open, transparent, non-discriminatory and competitive tender process.• Grants exclusive right to explore for hydrocarbons. An exploration term should not exceed six years.• If a commercial discovery is made, it gives a right to develop and produce petroleum. • The area covered by an agreement may comprise one or more blocks or parts of blocks.• Petroleum agreements are valid for a maximum of 25 years. If all obligations are met and production will extend beyond the 25-year timeframe, the

Ministry can approve an extension period of up to 10 years.• Exploration periods last a maximum of six years, including a first commitment period and up to two optional periods thereafter. If and when the con-

tractor enters the first optional period, the licence area is reduced by 25 percent.• In the second optional period it is reduced by an additional 50 percent.• If there is no declaration of commercial discovery before the end of the exploration period, the area is relinquished.• Declaration of commercial discovery must be made within 90 days of a discovery.• Contractor may not assign directly or indirectly all or parts of its contractual rights and duties under a petroleum agreement to a third party, including

an affiliate, without the prior written consent of the Ministry.• If a contractor decides to dispose of an acreage or part thereof, the National Petroleum and Gas Corporation has right of first refusal to buy the interest.


Fiscal Framework

• Taxes and fees for petroleum activities are defined by the Petroleum Act of 2012, the relevant petroleum agreement (EPSA) and the Investment Promo-tion Act of 2009.

• A contractor is liable for surface rental fees, royalties, bonuses and corporate income tax. • Companies with turnover of up to 1 million South Sudanese pounds (SSP) incur tax of 10 percent. If they have turnover of up to 75 million SSP, their in-

come tax rate is 15 percent. Companies with over 75 million SSP turnover incur tax of 20 percent.• Exploration costs can be deducted over an asset’s lifetime and losses from oil and gas operations can be carried forward five years but not carried back. • Investors are obliged to set up a community development fund and training schemes.• The Ministry of Finance and Economic Planning, under the Investment Promotion Act of 2009 (passed before independence), provides investment in-

centives in the form of allowances. These are applicable for capital (20-100 percent of expenditure), annual deductibles (20-40 percent) and deprecia-tion (8-10 percent).

• South Sudan has no VAT, but it uses a sales tax of 5 percent on goods and services (15 percent during austerity periods when no oil is produced).• Specific requirements in respect of the contractor, including its capitalisation and management may be prescribed in the regulations.• All businesses must register with the Chamber of Commerce with the certificate of incorporation in order to obtain tax clearance. The contractor must

open and maintain a bank account in the Republic. The membership card/Chamber of Commerce certificate is required to open a bank account.


Sudd Petroleum Operating Company (SPOC) - Block 5A

• SPOC operates block 5A in north-central South Sudan, south of block 1. SPOC is a consortium of NilePet (8 percent), Petro-nas (67.8 percent) and ONGC (24.2 per-cent).

• Production began in 2006 at 40,000bpd and peaked at 54,000bpd in 2009 under the operatorship of the White Nile Petro-leum Operating Company. The company is not currently producing, but plans to restart production soon.

Dar Petroleum Operating Company (DPOC) -

Blocks 3 and 7

• Blocks 3 and 7, located in South Sudan’s north-east, produce most of the nation’s oil output - up to 175,000 bpd, according to the ministry.

• DPOC, the operator, is a consortium of CNPC (41 percent), Petronas (40 percent), NilePet (8 percent), Sinopec (6 percent) and Egypt’s Tri-Ocean Energy (5 percent).

• Other blocks produce Nile blend crude but blocks 3 and 7 produce Dar blend.

Greater Pioneer Operating Company (GPOC) - Block 1

• Block 1 is situated in the border region of north-central South Sudan. It contains the Unity field and may produce approx. 38,000 bpd.

• Pre-independence, block 1 was operated together with blocks 2 and 4 (now allo-cated to Sudan) by the Greater Nile Pe-troleum Operating Company. Until 2006, this was the only producing project in the unified Sudan.

• The block is now operated by the GPOC, a consortium of CNPC (40 percent), Petro-nas (30 percent), ONGC (25 percent) and Nilepet (5 percent).

current operators


Recent Awards

The Ministry of Petroleum and Oranto Petroleum

International Ltd recently signed an EPSA with respect

to Block B3.

Oranto Petroleumwill invest $500 million

to develop South Sudan’s Block B3.


Legal and Regulatory

• Unlike most jurisdictions, the South framework is homogenous. The Petro-leum Act clearly spells out all that is re-quired.

• Comparatively less bureaucracy and greater ease of doing business.

Fiscal Terms and Incentives

• Fiscal terms are comparatively fair to in-vestors and government is relatively flex-ible. Exploration costs can be deducted over an asset’s lifetime.

• Fiscal terms can be negotiated under the EPSA.

• Terms and incentives can be extended to subcontractors and partners upon negoti-ation.

Government Participation and Local Content

• Government participation is minimal (usually between 5% and 10%).

• Government carry is not mandatory.

• Local content requirements are very rea-sonable.

The South Sudan Advantage


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Our professionals perform a variety of legal and business advisory services to both public and private sector cli-ents, in a host of different industries and countries across Africa.

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