Pursuant to legislative authorization granted by Law No. 4/16, of 17 May 2016, the President of the Republic enacted the authorized Presidential Legislative Decree No. 2/16, of 13 June 2016 (“PLD 2/16”), establishing the “Procedure and Incentives for the Adjustment of the Contractual and Fiscal Terms Applicable to Concessions Including Marginal Discoveries”.

The following points provide an outline of the key aspects of PLD 2/16:

I - GENERAL

• PLD 2/16 is structured in two main parts covering: (i) the procedure for declaration of a marginal discovery; and (ii) the incentives for the adjustment of the contractual and fiscal terms applicable to concessions including marginal discoveries.
• Referring to the principle of ‘Tolerance and Contractual Flexibility’, PLD 2/16 determines that the incentives to the development of marginal discoveries aim at ensuring an adjustment of the concession’s contractual and fiscal terms, and promoting investment by SONANGOL E.P.’s associates and contractors carrying out petroleum operations. Such incentives are to be granted in a progressive manner in accordance with the inclusion of new marginal discoveries in qualified zones.
• A “Marginal Discovery” is defined as occurring “where one or more deposits, even if jointly developed, present at any given moment reduced profitability that does not warrant a declaration of commercial discovery by the National Concessionaire and its associates, considering the existing legal and tax framework”.
• The following characteristics constitute an indicator of the existence of one or more deposits which may be deemed a marginal discovery:

1. Reserves under 300 million barrels;
2. Water depth in excess of 800 meters;
3. Revenues for the State of not less than USD 10.5/barrel;
4. Revenues for the National Concessionaire’s associates of less than USD 21/barrel;
5. An Internal Rate of Return substantially lower than 10%.

II - PROCEDURE

• The Ministry of Petroleum (“MinPet”) is responsible for, upon SONANGOL E.P.’s prior proposal, deciding: (i) whether a discovery should be considered marginal; and (ii) what incentives should be granted so that there is a Declaration of Marginal Discovery (“DMD”).
• The operator (acting on behalf of the Contractor Group or the consortium) may, on duly grounded terms, apply to SONANGOL E.P. to have any discovery considered as marginal for the purposes of the DMD, in view of the aforementioned indicators.
• The application for a DMD must be submitted until the end of the appraisal phase, automatically suspending the deadline for the declaration of commercial discovery.
• SONANGOL E.P. is to submit its proposal to MinPet within 60 business days following receipt of the application for a DMD, MinPet having to approve the DMD by means of an Executive Decree within 45 business days following receipt of the proposal from SONANGOL E.P..
• In the event that: (i) SONANGOL E.P. does not submit its proposal; or (ii) the MinPet does not approve the DMD within the relevant deadlines, the operator’s application for a DMD is deemed tacitly rejected.
• A DMD expires in the following cases: (i) if within 30 business days from notification of the approval of the DMD, the associates or the entity hired by the SONANGOL E.P. fail to issue a DMD for the qualified zone; and (ii) if following a DMD the operator fails to submit the general development plan to the MinPet within the deadline established by law. In such cases, the relevant discoveries revert to the Angolan State.

III - FISCAL INCENTIVES

• Any amendment of the contractual and fiscal terms of a concession is dependent on the issuance of the relevant DMD.
• Amendments of the existing contractual and fiscal terms are to apply only to the relevant qualified zone, all other concession areas continuing subject to the original contractual and fiscal terms.
• The fiscal incentives comprise the following:

1. The rates for Petroleum Production Tax and Petroleum Income Tax (“PIT”), and the percentage of Investment Allowance for PIT purposes and of Production Bonus, are to be determined by reference to the volume of recoverable resources.
2. The amortization period for capital expenditures varies between 2 and 4 years, depending on the volume of recoverable resources.
3. The assessment of PIT only becomes required as of the third, fourth or fifth year of amortization of capital expenditures, at percentages depending on the volume of recoverable resources.
4. The period for recovery of development expenses will be determined between 2 and 4 years, based on the volume of recoverable resources.
5. A full exemption of customs charges and duties on petroleum exports is to be granted for a 5-year period from commencement of commercial production.

For more information, please contact:

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