The legal framework governing the exploration for, development and production of petroleum in Namibia is set out in the:
- Petroleum (Exploration and Production) Act, 1991 (the “Petroleum Act”),
- The Petroleum (Taxation) Act, 1991 (both as amended principally by the Petroleum Laws Amendment Act, 1998)
- Petroleum (Exploration and Production) Amendment Act 1993 (Act 2 of 1993)
- Petroleum Act 1991: Regulations
- and the Model Petroleum Agreement 1998.
The economic and fiscal aspects of the terms contained in these legal instruments are outlined under the Summary of Economic and Fiscal Terms.
The Petroleum Act provides for:
- Reconnaissance Licences
- Exploration Licences and
- Production Licences
Reconnaissance, exploration or production operations can be conducted in Namibia only under the authority of an appropriate licence issued under the Petroleum Act.
Applications for these licences have to conform with the requirements of the Act.
The Minister, in granting a licence, does so subject to conditions. Such conditions are in practice contained in the Model Petroleum Agreement
There are also a few mandatory statutory conditions which are set out in section 14 of the Petroleum Act. These relate to the licensee giving preference to qualified Namibian citizens in its recruitment of employees etc
The Minister is required by section 13 of the Petroleum Act to enter into a Petroleum Agreement with an applicant for a petroleum exploration licence before he/she grants such licence.
In order to facilitate the discharge of this statutory obligation, the Government has prepared and published a Model Petroleum Agreement to serve as a basis of negotiation with applicants for exploration licences
This Model is a concession type agreement and its clauses draw from international petroleum industry practice and hold no surprises for international petroleum companies.
Among the many important clauses in the Model is one which gives an applicant for an exploration licence a right to the grant of an initial exploration licence for a period not to exceed four years. This may be renewed for further periods not exceeding two years on each occasion.
In general, an exploration licence may be renewed only twice. The Act permits the Minister to extend the initial exploration period and the renewal periods by up to 12 months each, where a licensee shows good cause to him. This discretion is intended to enable the Minister to respond to the operational exigencies of particular licensees.
The Model makes provision also for an applicant for a licence to commit to a minimum exploration work programme. The contents of the work programme are a negotiable and the Government will negotiate specially tailored work programmes for each area in respect of which it grants a licence.
Also biddable are the second and third tier rates of the Additional Profits Tax and the Training and Education Fee and the negotiated figures on these items are inserted into the relevant clauses in the Model.
The Model sets out the procedure to be followed by a licensee on discovery of petroleum. The licensee is forthwith to inform the Commissioner for Petroleum Affairs and then to evaluate the discovery to determine whether it is of potential commercial interes
If it is, the licensee has to take steps to appraise the discovery in accordance with an appraisal programme conforming with the requirements of the Agreement. It is expected that implementation of the appraisal programme should be completed within two years, although upon good cause shown to the Commissioner he may extend the period.
The holder of an exploration licence who makes a commercial discovery is entitled to apply for a production licence and, subject to complying with the requirements of the Act, is entitled to the grant of such licence.
A production licence may be granted for a period not exceeding 25 years and may be renewed for such further period, not exceeding 10 years, as the Minister may determine at the time of such renewal. A production licence may be renewed only once.
The Petroleum Laws Amendment Act 1998 sets out provisions regulating the decommissioning of facilities used in petroleum exploration and production operations in Namibia . These provisions, inter alia, provide that the holder of a production licence is under an obligation to establish a trust fund after 50% of the estimated recoverable reserves of the relevant production area has been produced
After this, the holder is obliged to make annual payments into the trust fund in accordance with a specified formula to be based on the unit of production method. The money accumulated in the fund is to be used to finance, ultimately, the decommissioning of the petroleum installations which were used to produce petroleum from the field in question.
This decommissioning is to be in accordance with a decommissioning plan submitted initially as part of the licensee’s application for a production licence and reviewed, and if necessary revised, no later than one year before the date on which 50% of the estimated recoverable reserves of petroleum in the relevant production area is scheduled to be produced.
A revised decommissioning plan is to be subject to Ministerial approval. The payments made into the trust fund under this regime are deductible in the computation of Petroleum Income Tax and Additional Profits Tax.