Malawi to renegotiate oil, gas deals – Report

Malawi government is set to cancel, then, renegotiate production sharing agreements (PSAs) with companies licensed to explore oil and gas in the country, Minister of Justice and Constitutional Affairs Samuel Tembenu has confirmed.

According to published reports on Sunday, government has completed reviewing the matter and that a final announcement will be made soon, after a meeting with oil companies planned for next week.

Tembenu said although government has made a position on the matter and the announcement of its decision awaits a meeting with the companies next week.

“We have completed our process of review. The final decision will be announced soon. As I speak, I have been writing a Cabinet member on the matter,” said Tembenu , who sits on a Cabinet Task Force appointed by President Peter Mutharika to review the process.

Ministers of Foreign Affairs; Energy and Mining; Finance, Economic Planning and Development also sit on the task force.

Tembenu, who was quoted in the Nation on Sunday, declined to state the specific outcomes of the review, especially on the matter of PSAs’ cancellations and the decision to renegotiate the same.

But the paper relying on undisclosed sources close to the oil exploration review process reported that the PSAs are set to be cancelled.

The paper’s report explains that under the PSA, a licensed company extracts and develops the resource in return for a share of the production.

Normally, the company meets exploration and development costs, as is the case in Malawi at the moment.

PSAs usually specify a portion of total production that can be retained by the contractor to cover costs; hence, it is called ‘cost oil’.

The remaining oil is called ‘profit oil’ and is divided between government and the contractor based on the agreed PSA formula.

Malawi’s current PSAs have nearly all the elements of royalties, equity, income taxes and even the R-factor, reported Nation on Sunday citing a Capital Hill officials with knowledge of oil and gas licences.

Currently, government has suspended the whole process of oil exploration on the lake, pending conclusion of talks on the matter.

Lake Malawi is divided into six segments for oil and gas exploration with Block One awarded to Sac Oil Holdings Limited of South Africa in 2012.

Whereas Block Two and Three were awarded to a British firm Surestream Petroleum in 2011, but in 2013 Hamra Oil Holdings acquired 51 percent stake in the Surestream licences. Blocks Four and Five were awarded to Rak Gas in July 2013 whereas the sixth block went to Pacific Oil.

Rak Gas—owned by the Government of Ras Al Khaimah, one of the emirates of the United Arab Emirates (UAE)—has since carried out Full Tensor Gravity Gradiometry (FTG).

On its part, Hamra—a Cayman Island private company that bought 51 percent into Blocks Two and Three from Surestream with the approval of the Malawi Government—also carried out an FTG last year.

Pacific Oil, which is part of Vega Petroleum Limited—the privately owned oil and gas entity that has oil producing and exploration concessions in Egypt—and Sacoil are yet to launch exploration activities.

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