By Nick Toscano
Australia’s largest energy producer, Woodside, is locked in a new legal fight over how much tax it must pay from its multibillion-dollar Sangomar oil project off the coast of Senegal.
Perth-based Woodside produced crude oil from the deepwater Sangomar field for the first time in June, ushering in a potentially transformative economic era for the impoverished West African nation by turning it into the world’s newest oil supplier.
Australia’s Woodside holds an 82 per cent stake in the Sangomar oil project, while Senegal’s national oil company Petrosen owns 18 per cent.
“This is an historic day for Senegal and for Woodside,” its chief executive Meg O’Neill said.
However, just weeks after oil production began, a clash between Woodside and the Senegalese government over a significant tax adjustment notice is now headed to court. Local media reports suggest the amount of tax in dispute could be as much as 41 billion CFA francs ($104 million).
A Woodside spokesperson said the company had launched proceedings with the High Court of Dakar “disputing a tax assessment from the Senegalese tax authorities”.
“Woodside respects the legal process and remains fully committed to complying with local laws and regulations wherever we operate,” he said.
“As the matter is before the court, Woodside will not comment further.”
Analysts have foreshadowed a risk that Woodside may face harsher terms for its $US5 billion ($7.7 billion) Sangomar project following the election of Senegal’s new president, Bassirou Diomaye Faye, who came to office earlier this year pledging to audit the energy and mining companies operating in the country.
“The exploitation of our natural resources, which according to the constitution belong to the people, will receive particular attention from my government,” he said at the time.
Saul Kavonic, an energy analyst with MST Marquee, said it was logical to assume some connection between Woodside’s new tax dispute and the Senegalese government taking a tougher approach to ensuring adequate revenue from its natural resources.
“Senegal is seeking ways to increase tax take from the oil and gas sector without retrospectively changing the laws,” Kavonic said. “Taking a tougher stance under the existing framework – whether it has a solid basis or not – is one avenue they could pursue.”
Woodside operates and owns 82 per cent of Sangomar, which lies about 100 kilometres off the coast of the capital city Dakar, and is expected to produce about 230 million barrels of oil in its first stage. Senegal’s national oil company Petrosen owns the other 18 per cent.
The oil produced from Sangomar will mainly be shipped to refineries in Europe and Asia to be processed into transport fuels. Woodside has reported “solid demand” and has already sold some cargoes into Europe.
Despite pledging that his government would pay “particular attention” to resource producers in Senegal, Faye has also sought to reassure investors that they remain welcome in the country. “Investor rights will always be protected, as well as the interests of the state and its people,” he said. “I would like to assure you that Senegal remains an open and welcoming country for all.”
Australian energy investors have a history of navigating government changes in frontier oil and gas provinces such as Papua New Guinea, Citi analyst James Byrne said in a note to clients earlier this year.
“Typically, a nationalistic politician promises to manufacture an outcome of greater economic rent from a project going to the state, at the expense of the project owners,” he said.
In response to renegotiations, energy companies – especially globally diversified super majors – often then threaten to allocate capital to other countries, Byrne said.
“This results in watered-down changes; though the government still receives a larger share of the pie.”
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