Petroleum laws in Africa are mostly structured to reflect the value chain of petroleum activities. In other words, the legislation is a sequence reflecting the normal life span of a successful petroleum project. Its purpose is to provide the rules which govern petroleum activities in a Host Nation and how they are regulated.

In line with international best practice, the petroleum legislation must encompass the contractual and fiscal regime for petroleum activities in line with the legislative framework of the Host Nation and international best practice for petroleum operations.  Thus, the preliminary section of most petroleum laws, contain general provisions on the scope of the law and the policy aims and objectives of the Host Nation in developing its petroleum resources.

After assertion of the Host Nation’s ownership rights and policy imperatives for developing the sector, this section of the petroleum law sets out the type of rights on offer. The key issue considered by Host Nations in designing petroleum rights are mainly how profits, or rents from petroleum resources are shared between the Host Nation and investors, and how the costs of petroleum activities will be treated. Answers to these issues determine the type of fiscal system to be adopted by a Host Nation, which in turn influences the nature of petroleum rights a Host Nation decides to award to investors. Against this background the details of the fiscal regime could also be designed to achieve further governmental policy objectives, which are not necessarily tied to mere profit, but may include skills and knowledge transfer, attraction of technology and investment to an undeveloped basin, and local content maximisation.[1]

There are two main legal frameworks governing acquisition of rights to petroleum resources and the rights and obligations of a Host Nation and investors:  Concessions and licences utilised in civil law jurisdictions, such as Cameroon, Algeria, and Angola, and contract-based approaches, such as Production Sharing Contracts (PSC) or Production Sharing Agreements (PSA) utilised in common law jurisdictions, such as Ghana, Kenya, and Tanzania.

Differences in the two main systems boil down to the extent of the IOC’s control, and the NOC’s level of participation in petroleum activities. Another key distinguishing feature is the compensatory arrangements for the Host Nation’s petroleum resources. These are further dealt with below under the Payments Topic. Despite the distinguishing features, it is possible to combine a number of tools from each approach to achieve the desired optimal fiscal outcome. As a result, it is becoming increasingly rare for an award of petroleum rights to fit into any one particular system. In reality, most arrangements for award of petroleum rights by Host Nations combine elements of both systems with a resulting blend of fiscal systems designed to maximize the Host Nation’s share of profit from its petroleum resources. Nevertheless, the PSC is now the most common approach in Africa by which Host Nation’s awards petroleum rights.

In considering the route by which petroleum rights are awarded, a Host Nation must ensure that its policy imperatives in the upstream petroleum sector will be ultimately achieved.