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Exploration – Gambia bends on A4 oil Block, spoils Africa Petroleum/Petronor

After nearly three years of bravado, the government of The Gambia has finally ceded to the intense pressure of Africa Petroleum claiming re-award of its license on oil Block A4, off The Gambia coasts. A bend to avoid the fall of a quasi-certain punishment similar to the July final ruling by the International Centre for Settlement of Investment Disputes (ICSID) ordering  The Gambia to pay damages for a total of US $22 million to Astron/Carnegie.

 The Gambia government, in 2017 stripped Africa Petroleum of its exploration rights over blocks Block A1 and Block A4 off the coasts of The Gambia. While Africa Petroleum sought arbitration at the International Centre for Settlement of Investment Disputes (ICSID), The Gambia handed over former African Petroleum’s Block A1 to the British oil giant BP.

In an out of court settlement signed on Friday, the government of The Gambia officially returned the license of oil Block A4 to Africa Petroleum and its partner Petronor. PetroNor joined African Petroleum in August 2019 while the tussle between Africa Petroleum and The Gambia was on course. The consortium has since maintained strong pressure on the government of The Gambia to get back the license on Oil Block A4. This settlement results in Africa Petroleum/PetroNor regaining 100% interest in the said block.

How Gambia graciously spoilt Africa Petroleum/Petronor in the settlement

The terms of the new license are based on the newly developed Petroleum, Exploration and Production License Agreement (PEPLA) model. As such, PetroNor/Africa Petroleum will be able to carry the Prior Sunk cost associated with A4 into the new agreement. The consortium will benefit of tax breaks and enhanced commercial model. In simplest terms, PetroNor will be able to use previous costs on the A4 Block (before The Gambia stripped them off in 2017) to secure tax breaks and improve its commerciality.

The same terms of the settlement agreement went beyond the return of the license of Block A4 to PetroNor and Africa Petroleum. It gives an option to the consortium to sign a 30-year lease with a very favorable provision: the deal allows a one year space to Africa Petroleum/Petronor to proceed or not with the lease agreement.

And this is where the terms of the new license are a big deal and a game changer for Africa Petroleum/Petronor. The consortium will now have enough time to observe what is happening on nearby Block A1 as drilling progresses on this adjacent block, now owned by BP. Africa Petroleum/Petronor will have time to observe without spending a dollar if A4 Block is worth making commercial and technical decisions regarding the next steps associated with their re-awarded license.

In return to all these advantages, The Gambia has obtained that PetroNor and Africa Petroleum cease to claim the license for Block A1 that has subsequently been awarded to BP.

Africa Petroleum/Petronor jubilant after Gambia’s retro pedal.

Undoubtedly, this deal saves the Gambia from the wrath of the World Bank’s International Center for Settlement of Investment Disputes (ICSID). Eyas Alhomouz, Chairman of PetroNor E&P Limited agrees that both The Gambia and his consortium save energy and resources from the ongoing arbitration.

This is undoubtedly a good outcome for all parties as it removes a lot of uncertainty and potential further cost exposure to what was a highly complex situation. The outcome is certainly one that we believe is in the best interest of the Company and its shareholders, and one that we have been driving hard to achieve for over a year“, Eyas Alhomouz said.

The Chairman of PetroNor E&P Limited did not hide his joy over the favorable business terms brokered in the settlement with the government of The Gambia. “This license instantly enhances the value of our business by some margin and provides PetroNor with optionality with regards to value realization. The outcome is certainly one that we believe is in the best interest of the company and its shareholders, and one that we have been driving hard to achieve for over a year. We thank the Government of The Gambia for their pragmatic engagement in reaching this agreement and look forward to working closely with them as we seek to progress this license for the benefit of The Gambia, its people, and of course PetroNor and its shareholders.”

 

 

 

 

 

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