Oil and gas exploration

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Oil and gas exploration

Post  Sirop14 on Wed Feb 10, 2016 6:45 pm

Oil and gas exploration
Words to the wise
Despite recent setbacks government still hopes that exploration companies will strike oil in the country’s waters thereby unleashing a significant new revenue stream. But a lot of work remains to be completed to ensure that everything is done by the book.
By NR
Seychelles, like most oil importing countries, has benefitted immensely from continuously low oil prices which have had a positive impact on the country’s balance of payments. This windfall has not been without consequences however, as these depressed prices are having a dissuasive effect on oil exploration activities, especially in unproven areas such as Seychelles’ Exclusive Economic Zone (EEZ). A good thing too, one is almost tempted to say in light of the Seychelles Extractive Industries Transparency Initiative (SEITI) reconciliation report recently finalised by Moore Stephens, a British tax and audit advisory network. Indeed, the document highlights several of the shortcomings government will have to overcome if the country’s nascent oil and gas exploitation ambitions are to be realised in a responsible and transparent manner, not least of which is failure of the exploration companies to submit the reporting templates which constitute a vital part of the whole exercise.
Seychelles signalled its intention to join the Extractive Industries Transparency Initiative (EITI) via a press release in June 2013. In the words of the Principal Secretary (PS) of the Finance and Trade Department, Patrick Payet, this decision was motivated by a desire to “contribute to enhancing oil sector governance through the efficient management of oil reserves”. The EITI which was dreamed up by the then British Prime Minister, Tony Blair, and the former Nigerian President Olusegun Obasanjo in 2002 on a flight to South Africa as an answer to the haemorrhaging of oil revenues in developing countries especially due to corruption and other fraudulent practices. The principle of the initiative is relatively straightforward: full disclosure of oil revenues and expenditure to ensure that the monies collected by resource rich countries benefit the people rather than a clutch of corrupt officials.
After completing the four mandatory sign-up steps, Seychelles was accepted as an EITI candidate country in August 2014. This World Bank supported programme seeks to “improve transparency and accountability in the management of revenues from natural resources”. Indeed, experience has shown, in the developing world in particular, that the huge wealth derived from natural resources, is more often than not, not passed onto the population, even leaving countries worse off than before the discovery of mineral riches. The “resource curse” as it is also known also stifles innovation and growth as it creates an overdependence on the exploitation of natural resources at the expense of other economic sectors. The EITI seeks to address some of these issues by making all the revenues derived from extractive activities public and reconciling them with government expenditure.
In Seychelles, the stewardship of the EITI has been confided to a Multi-Stakeholder Group (MSG) tasked with overseeing its implementation. It is comprised of Mr Payet, the Governor of the Central Bank of Seychelles, the CEO of PetroSeychelles, the Commissioner of the Seychelles Revenue Commission, representatives of various ministries and the private sector and four members of civil society. Moore Stephens’ reconciliation report is Seychelles’ first EITI report and it seeks “to define the scope of the extractive industries in the Seychelles and to reconcile the data provided by extractive companies with the data provided by relevant government”. This undertaking was rendered more complicated by the fact that several of the aforementioned extractive companies failed to submit their reporting templates. According to data submitted by government, the extractive industry generated revenues of SCR8.13 million in the 2013 and 2014 fiscal years.
“PetroSeychelles accounted for 100% of the total revenue streams generated by the sector”, the report notes. In 2013, profit commissions on the sale of data by exploration companies accounted for the lion’s share of revenues (SCR1.59 million), whilst in 2014 most of the revenues were generated by annual rentals (SCR2.23 million). Given these small numbers, it’s unsurprising to learn that extractive industries contributed only 0.1% of government revenues in 2013. The exploration company which contributed the most to government coffers in 2013 and 2014 was East African Exploration Seychelles Limited (EAX) and AVANA Petroleum Limited. Indeed, it accounted for almost SCR3.7 million of revenues during the two fiscal years (Afren acquired the parent company of EAX in 2010 before going into administration last year). All of these monies were paid to PetroSeychelles, which in turn is a subsidiary of government’s holding company, the Société Seychelloise d’Investissement (SSI).
These figures had to be “reconciled” by Moore Stephens due to the fact five extractive companies – Afren, Adamantime Energy Limited, GX Technology, Petroquest International and Rhino Resources – failed to submit their reporting templates in both 2013 and 2014 (as did the Registrar General). Moore Stephens reconciled the numbers on “a cash accounting basis”. Just as tellingly, only two out of seven extractive companies submitted information on their beneficial ownership: Japan Oil, Gas and Metals Corporation (JOGMEC) and Ophir Seychelles. This absence of communication is indicative of precisely the kind of attitude that EITI was established to overcome. Interestingly, PetroSeychelles received a total of SCR3.61 million from PetroQuest International and SEYPEC which it failed to report. In addition, SEYPEC and SSI reported payments of SCR531.2 million to the Seychelles Revenue Commission which Moore Stephens concluded “are not out of the upstream activities and should therefore be excluded”. In 2013 and 2014, SEYPEC brought SCR62.7 million worth of shares in Afren and WHL Energy.
During the course of its elaboration of the reconciliation report, Moore Stephens came across a series of issues which it believes should be addressed. These include the introduction of contract waivers to counteract “the confidentiality restrictions in the petroleum agreements”; the formalization of the minutes of MSG meetings; the standardization of financial statements made by State Owned Enterprises; the introduction of legislation to compel companies to adhere to the EITI’s reporting requirements; the setting up of an environmental fund “to ensure that safety standards and procedures are properly implemented within the exploration and exploitation areas”; capacity building to ensure that the SRC and PetroSeychelles are able to check up on exploration companies; and the carrying out of audits of all exploration companies, be they private or public.
Moore Stephens also stumbled on a incongruence regarding PetroSeychelles’ tax status. “In the course of our review of the audited financial statements of PetroSeychelles, we note that reference is made to schedule II of the Business Tax Act 2009 exempting PetroSeychelles from business tax. The Act 2009 only confers exemption to Seychelles National Oil Company (SNOC), from paying business taxes. We further note that SNOC has been liquidated. As schedule II of the Business Tax Act makes no explicit mention of PetroSeychelles as being exempted, the latter is still liable to pay business taxes. We recommend that the legislation governing the tax regime for State Owned Enterprises is updated to leave no ambiguity with regards to the taxes applicable and exemptions to newly created entities”, the report states.
Despite the industry still being in its infancy it’s clear that there’s a lot of room for improvement when it comes to transparency and accountability. Low oil prices might mean that the country’s ambition of striking oil and gas remains a pipedream but that’s no excuse, really...

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Sirop14

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