Contributing upwards of 60% to the national fiscus, oil represents the largest sector of the Republic of the Congo’s economy, and by leveraging its reserves of 2.9 billion barrels of crude oil and 10 trillion cubic feet of natural gas, the Central African country has been committed to the establishment of a competitive hydrocarbon market to help serve as a major catalyst for socioeconomic development.
While the Republic of the Congo continues to experience an economic recession as a result of the oil sector’s underperformance, due primarily to the decline in production and volatile global oil prices, the Congolese government has remained committed to introducing more favorable terms for operators and investors, aiming to attract new investment and develop its hydrocarbon industry through the implementation of changes to key legal and regulatory frameworks.
The oil price shocks that have come as a result of the COVID-19 pandemic have taken a toll on the country’s economy, which contracted by 6.8% in 2020 following a 0.6% contraction in 2019. Recently, however, the contraction of oil production has eased as investment and access to oil fields have re-gained traction. By ensuring the robust development of infrastructure and by directing investment towards exploration and production, the Republic of the Congo has made significant progress towards the establishment of a competitive, export-based hydrocarbons industry.
Through strategic changes made within its fiscal framework, as well as through the introduction of two bid licensing rounds – launched in 2015 and 2018-2019 respectively – the government of the Congo has been proactive in the development of an attractive market destination for international investors. The government launched a licensing round for hydrocarbon production in October 2015, with 13 blocks available for bidding, which led to five licenses being awarded to oil supermajor, TotalEnergies; independent oil and gas company, Perenco; and deepwater exploration and production company, Kosmos Energy. The second licensing round in 2018-2019, offered an additional 15 blocks for bidding, of which three were awarded to Italian oil and gas company, Eni; Russian multinational energy corporation, Lukoil; and Kosmos Energy.
Additionally, the government of the Congo introduced a revised Hydrocarbons Code to accelerate exploration and increase production and revenue in 2016. The revised Code reduces natural gas royalties from 15% to 5%, and crude oil royalties – for offshore fields located at depths greater than 500 metres – from 15% to 12%. The 2016 Hydrocarbons Code also contains industry-specific regulations for foreign investments and maintains the interest of the Congolese government and the SNPC. According to the Code, petroleum contracts require approval from the government and must be structured as either a production sharing contract or services agreement, requiring a minimum participating interest of 15% – 25% from participating private Congolese petroleum companies.
The participation of IOCs, prudent debt management and the finalization of fiscal policies that continue to off-set trade-offs by prioritizing socio-economic objectives have collectively served to accelerate production in more recent years with notable developments. These include the deepwater Moho Bilondo Phase 1B project and Moho Nord extension- off the coast of Pointe-Noire- with joint production capacity of 14,000 barrels per day (bpd), the Nene Marine offshore development with 50,000 bpd capacity, and the Lianzi offshore area development with 40,000 bpd capacity.
Meanwhile, an executive order issued by the government on November 15, 2019, requires international companies to ensure that 80% of management positions and 90% of all other positions be occupied by the local Congolese workforce. Over and above this, foreign-owned businesses are required to pursue joint venture arrangements with the country’s National Oil Company, La Sociėtė des Pėtroles du Congo (SNPC). The SNPC retains its status as the country’s exclusive concessionaire of petroleum exploration permits, together with minimum participating interest of 15%.
Despite the global transition to low-carbon economies presenting notable challenges to the existing fragility within the country’s hydrocarbon sector, the Republic of the Congo serves as an example of how an African market can enhance its sectoral attractiveness and drive associated energy investment and development.