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Equatorial Guinea President Clears Higher Oil Royalties

Source: www.gulfoilandgas.com 11/28/2006, Location: Africa

Equatorial Guinea's powerful President Teodoro Obiang has ratified a new law that increases the government's take in one of Sub-Saharan Africa's fastest growing oil and gas producing areas. The legislation raises minimum royalties to 13% from 10%, mandates training for local workers and includes regulations for the petrochemical sector and the country's nascent natural gas industry.

The changes are modest in comparison to more aggressive legal overhauls undertaken by Bolivia and Venezuela, but just like those countries, the small West African republic seeks a bigger share of the oil rent. The legislation is expected to incrementally diminish profits for Exxon Mobil Corp. and other U.S. companies that dominate oilfield development in Equatorial Guinea, all of whom either declined comment or said they weren't familiar enough with the changes to substantively address them.

"They are just harmonizing and modernizing their laws to reflect the fact that their hydrocarbon sector has grown considerably since they first put their laws in place," said Monica Enfield, a Washington-based Africa expert for PFC Energy.

Some new regulations, however, worry observers. The new law opens the door for the possibility of a windfall tax, and also allows for the renegotiation of existing contracts to grant the government a bigger stake in oil and gas projects. It is unclear whether the Equatoguinean government will resort to these measures, though.

Devon Energy Corp. (DVN) spokesman Chip Minty said the company is "in the process of reviewing the new law to determine how it will affect our business."

Marathon Oil Corp.'s (MRO) spokesman Paul Weeditz said his company plans to participate in upcoming meetings with government representatives to review the changes.

"It would be premature for us to comment at this point until we have a chance to thoroughly review this law and to participate in the workshop that's going to take place," Weeditz said.

Hess Corp. (HES) declined comment. A spokeswoman for ExxonMobil, the country's biggest producer, couldn't provide a comment in time for publication.

Following the ratification of the new law, the ministry extended the closing date of its 2006 Licensing Round to March 31, 2007, from Jan. 31 "in order to allow pre-qualified companies to fully evaluate the available acreage," according to a ministry press release.

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