Morocco: Oil & Gas

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding oil and gas law in Morocco.

This Q&A is part of the global guide to Oil & Gas.

For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/oil-and-gas

  1. Does your jurisdiction have an established upstream oil and gas industry? What are the current production levels and what are the oil and gas reserve levels?

    Moroccan upstream oil and gas industry is being developed and promoted by Moroccan authorities as Morocco is not yet a significant producer.

    Total petroleum and other liquids production has never exceeded 5,000 barrels per day (b/d) and total petroleum and other liquids consumption stood at 286,000 b/d.

    Moroccan's proven reserves are currently estimated at 60,000 tonnes of oil, 1,020 million cu. m. of natural gas and 160,000 tonnes of gas condensate.

    In this context, the Moroccan Government has established a legislative and regulatory framework including a number of incentives to promote investment.

    Foreign and national companies invested MAD 1.44 billion in oil and gas exploration in Morocco in 2018 over an area of 127,000 square kilometres and there is approximately thirteen partners currently carrying out exploration or exploitation activities in Morocco.

    In 2018, 28 onshore exploration permits and 42 offshore permits have been awarded along with one reconnaissance license and 10 exploitation concessions.

  2. How are rights to explore and exploit oil and gas resources granted? Please provide a brief overview of the structure of the regulatory regime for upstream oil and gas. Is the regime the same for both onshore and offshore?

    Hydrocarbon exploration and exploitation activities in Morocco are mainly governed by the provisions of the Law no. 21-90 relating to hydrocarbon exploration and exploitation, promulgated by the Dahir no. 1-91-118 dated 22 May 1991 (the "Hydrocarbon Law") and its implementing decree no. 2-93-786 dated 3 November 1993 (the "Hydrocarbon Decree").

    The Hydrocarbon Law distinguishes between reconnaissance works, exploration and exploitation activities, either conducted onshore or offshore. The same Oil and Gas permitting regimes do apply to onshore and offshore activities.

    (a) Reconnaissance works

    Reconnaissance works refer to geological, geochemical, geophysical and airborne works or surveys to determine the nature of subsoil, with the exclusion of scientific works and production drilling activities.

    There are subject to the award of a reconnaissance authorization by the Ministry of Energy further to filling a request and the provision of documents justifying legal and financial capabilities of the applicant. The awarding of the reconnaissance authorization is subject to the conclusion of a reconnaissance contract governing the rules applicable to the reconnaissance work program to be performed by the applicant.

    (b) Exploration works

    Exploration works refer to research operations to discover hydrocarbons in commercial quantities.

    There are subject to (i) the conclusion of a petroleum agreement with the Moroccan state represented by the National Office of Hydrocarbons and Mines ("ONHYM"), under which the state holds a maximum 25% participating interest in any subsequent exploration permits and concessions and (ii) an exploration permit issued by the Ministry of Energy the purpose of which is to award exclusive exploration rights in relation to hydrocarbons within the area of interest covered by the relevant permit.

    (c) Exploitation activities

    Exploitation activities are subject to the award of a concession issued by Decree, authorizing the holder of an exploration permit who made a commercial discovery to develop and further exploit the discovery in view of its commercialization.

    The holder of a concession is the owner of the available deposits and can freely dispose of recovered deposits during the term of the concession.

    Rights to oil and gas are shared between the state and the holder of valid concession rights in proportion to their respective participating interests in any applicable concession (i.e. in practice 75% for the private partner and 25% for the State represented by ONHYM) . As a result, each partner in a licence can freely sell its share of the available reserves.

    Please see further information on the main features of the reconnaissance authorization, exploration permit and concession in our response to question 3 below.

  3. What are the key features of the licence/production sharing contract/concession/other pursuant to which oil and gas companies undertake oil and gas exploration and exploitation?

    (a) Reconnaissance authorizations

    The Ministry of Energy awards reconnaissance authorisations for a maximum period of one year, renewable every year for a one-year period. Reconnaissance authorisations can only cover geographical areas that do not overlap with the area of an existing exploration permit or concession. However, they do not, in principle, give exclusive rights to conduct reconnaissance works within a geographical area, and several applicants can obtain reconnaissance authorisations for the same area. Under Article 21 of the Hydrocarbon Law, read in conjunction with Article 5 of Hydrocarbon Decree, the data collected during the reconnaissance works must be freely transferred by the holder to the Ministry of Energy.

    (b) Exploration permits

    Exploration permits can be granted to a sole legal entity or in common to several legal entities. It is subject to technical and financial capabilities of the applicants, which must be sufficient to carry out the minimum work obligation defined under the terms and conditions of the petroleum agreement.

    The standard petroleum agreement to be concluded between ONHYM and the private partner has been developed by the Moroccan State and differs from the PSC AIPN model used in many other jurisdictions (including within the Maghreb area).

    Under Article 24 of the Hydrocarbon Law, the overall duration of an exploration permit cannot exceed 8 consecutive years, which can be extended in exceptional circumstances. Sub-periods (usually referred to as an initial period, first extension period and second extension period under the terms of applicable petroleum agreement) are defined in the Ministry of Energy's administrative order awarding the licence. Exceptionally, a maximum two-year extension can be granted in case of discovery of a hydrocarbon deposit during the last year of validity of an exploration permit.

    (c) Hydrocarbon exploitation

    Under Article 27 of the Hydrocarbon Law, if there is a commercial discovery by a holder of an exploration permit, and the holder has completed their legal and contractual obligations (that is, completion of the minimum work obligation), the holder is entitled to be granted an exploitation concession.

    A discovery is regarded as commercial if it consists in an hydrocarbon deposit with recoverable reserves that are sufficient for economically sound development and exploitation activities.

    A concession cannot exceed 25 years but can be prolonged for a ten-year period. Upon expiry, the concession and assets affected by the operation of the concession automatically return to the State without consideration and free from any lien or charge. However, an exceptional ten-year extension can be granted where continuation of the operations is economically justified.

    This is subject to the grant of a specific administrative approval in the form of a Ministry of Energy decree. The exceptional extension request must be filed with the Ministry of Energy at least two years before the expiry of the term of the concession and must include similar information/documents to the ones initially filed at the time of the original award of the concession.

    The concession can also be subject to an early termination (déchéance) if the concessionaire does not comply with its obligations such as the timely completion of development works and start of operations or the implementation standard industry practices.

  4. Are there any unconventional hydrocarbon resources (such as shale gas) being exploited and is there a separate regulatory regime for unconventionals?

    The definition of "Hydrocarbons" provided in the Hydrocarbon Law expressly excludes bituminous shales which are therefore subject to the provisions of the Law no. 33-13 relating to mines.

    In this respect, it should be noted that few area have been identified by ONHYM to carry out bituminous shares exploration activities and oil shale deposits have been identified at Timahdit and Tarfaya in the Atlas Mountains.

    However, the legislative and regulatory framework related to oil shale and gas shale remain unclear and the Ministry of Energyhave been considering amending the Hydrocarbon Law to regulate non-conventional hydrocarbons.

  5. Who are the key regulators for the upstream oil and gas industry?

    The main authorities acting in the oil and gas sector are (i) the Ministry of Energy, Mines, Water and Environment (the "Ministry") which regulates hydrocarbon exploration and exploitation and (ii) ONHYM which conducts reconnaissance, exploration and exploitation of hydrocarbon deposits.

    ONHYM acts under the supervision of the Ministry, which supervises its activities to ensure that they are consistent with the provisions of the Hydrocarbon Law and the Hydrocarbon Decree.

    Under Article 71 of the Hydrocarbon Law, ONHYM can, on behalf of the State:

    • Enter into petroleum agreements with oil companies.
    • Hold participating interests in exploration licences or concessions.
    • Exercise pre-emption rights on behalf of the state in case of the assignment of participating interests in a specific oil and gas licence.

    The ONHYM's internal department the Oil Agreements Negotiation Division (Division Négociations des Accords Pétroliers) attached to the Directorate for Partnership and Cooperation (Direction Partenariat et Coopération) is the key contact for operators carrying out exploration works in Morocco. This department is in charge of the preparation and submission of all applications to be filed with the Ministry of Energy, and generally ensures the daily follow-up of applicable administrative procedures on behalf of its partners in the various licences. Therefore, operators should develop close working relationships with this team to ensure the efficient management of their licence portfolio in Morocco.

    The Ministry of Finance is also involved in the monitoring of oil and gas exploration and exploitation activities. Under Article 34 of Hydrocarbon Law and Article 60 of Hydrocarbon Decree, petroleum agreements must be approved by a joint order (arrêté conjoint) of the Ministry of Energy and the Ministry of Finance.

  6. Is the government directly involved in the upstream oil and gas industry? Is there a government-owned oil and gas company?

    The state, through ONHYM, holds participating interests (limited to 25%) under the relevant petroleum agreement and related exploration permits and concessions. It therefore benefits from the proceeds of any oil and gas exploitation activity.

    The state also benefits from the development of any exploration and exploitation activity through the levy of applicable taxes and royalties.

  7. Are there any special requirements for or restrictions on participation in the upstream oil and gas industry by foreign oil and gas companies?

    There is no restriction on the nationality of shareholders of a company engaging in hydrocarbon exploration and exploitation activities Morocco. It is not necessary to have a majority of local managers or directors, and there is no particular balance required with respect to the nationality of the members of the board or managers. As there is no citizenship requirement, shareholders are free to have exclusively foreign directors and/or managers.

    There is no specific requirement under the Hydrocarbon Law to set-up a branch or incorporate a company in Morocco to carry out contemplated oil & gas activities.

    However, it is worth noting that foreign exchange transactions are regulated in Morocco by the Moroccan Foreign Exchange Office ("Office des Changes", hereinafter the "FEO") which provides that all outbound transfers of money from Morocco to a foreign country must be expressly set forth under the Moroccan Foreign Exchange Instruction dated 1 January 2019 (the "FX Regulations"), namely a cash transfer from Morocco to a foreign country cannot be completed if it does not comply with the FX Regulations: in this case, it must be approved by the FEO on a case by case basis.

    In this respect, companies holding reconnaissance authorizations or exploration permits that are not incorporated under Moroccan law must provide for their foreign currency needs in full and foreigners holding an operating concession are required to repatriate to Morocco the foreign currency funds necessary to cover their local expenses and financial and tax obligations, in addition to the proceeds from their sales on the domestic market.

    In addition, Article 55 of Hydrocarbon Law provides that foreigners holding an operating concession must periodically provide, in the forms provided for in the exchange regulations, a statement of their foreign assets resulting from their export sales of hydrocarbons and payments made using these assets for operations relating to their activity as holders of hydrocarbon exploitation concessions.

  8. What are the key features of the environmental and health and safety regime that applies to upstream oil and gas activities?

    The award of reconnaissance authorizations, exploration permits and exploitation concessions does not waive health, safety and environmental laws and regulations.

    In this respect, article 32 of Hydrocarbon Decree provides that the holder of a reconnaissance authorisation, exploration permit or concession must:

    • Comply with hygiene and health and safety requirements applicable to its employees and neighbouring habitants.
    • Minimise social and ecological burdens.
    • Avoid injury or damage to public or private properties.

    In particular, the holder must take precautions to ensure the protection of:

    • Vehicular traffic and shipping navigation.
    • Aquatic resources and the prevention of pollution of seas, lakes, beaches, rivers and groundwater.
    • Forests, farmlands and plantations.

    The holder must also take out insurance against any damage caused to the environment.
    Article 35 of the Hydrocarbon Law also sets out a general obligation for the holder of a reconnaissance authorisation, exploration permit or concession to repair damages caused to the owners of the relevant lands (for onshore activities) and/or to other companies undertaking exploration or production works in the vicinity of the holder's activities.
    Furthermore, other laws and regulations related to environmental protection apply to hydrocarbon exploration and exploitation activities, including:

    • Law No 12-03 on environmental impact assessment promulgated by the Dahir No 1-03-60 dated 12 May 2003 which requires certain project that could have adverse effects for the biophysical and social environment to be subject to an environmental impact assessment and an environmental acceptability decision;
    • Dahir dated 25 August 1914 on establishments classified as unhealthy, unpleasant or dangerous under which the opening and operation of facilities contemplating the carrying out of dangerous activities are subject to either a prior authorisation of the Ministry or the Wali or a declaration receipt delivered by the local authorities.
  9. How does the government derive value from oil and gas resources (royalties/production sharing/taxes)? Are there any special tax deductions or incentives offered?

    The State, through ONHYM, holds participating interests (limited to 25%) under the relevant petroleum agreement and related exploration permits and concessions. It therefore benefits from the proceeds of any oil and gas exploitation activity.

    The State also benefits from the development of any exploration and exploitation activity through the levy of applicable taxes and royalties. The payment of these royalties is made by the various holders of participating interests in the concession in proportion to their respective interests.

    Moreover, petroleum agreements entered into between ONHYM and private partners provides for training commitments for the benefit of Moroccan nationals.

  10. Are there any restrictions on export, local content obligations or domestic supply obligations?

    Prior contemplating export of its share of production of available crude oil, the holder of a concession must contribute part of its share of production of available crude oil to satisfy the needs of the domestic market.

  11. Does the regulatory regime include any specific decommissioning obligations?

    Pursuant to article 35 of the Hydrocarbon Law, in the event of termination, for any reason whatsoever, of the rights of a holder of a reconnaissance authorization, an exploration permit or an exploitation concession over all or part or the area of the reconnaissance, the exploration permit or the exploitation concession, the holder is bound to restore such area according to conditions set out in applicable regulations.

    In practice, decommissioning obligations are now imposed on the signatories of petroleum agreements (and consecutive holders of exploration permits or concessions) to address standard post-operations concerns such as the re-plugging of wells, site rehabilitation and so on.

    Furthermore, article 6 of the Hydrocarbon Code provides that the concession and its outbuildings return to the State upon the ending of its term, free of any charges.

  12. What is the regulatory regime that applies to the construction and operation of offshore and onshore oil and gas pipelines?

    The construction and operation of oil and gas pipelines falls within the scope of ancillary installations which refer to installations used to carry out ancillary activities.

    Ancillary activities are defined as "operations relating to the separation, preparation, loading and transport of extracted hydrocarbons, for the purpose of making such hydrocarbons marketable, together with the development of such installations as are necessary for this purpose."

    In this respect, articles 50 et seq. of the Hydrocarbon Decree provides for specific rules in relation to ancillary activities carried out by concession holders and distinguishes between installations that do not have any interest for the public and those having an interest for the public to determine how the construction of the considered installation will be financed and operated.

    Notwithstanding the above, implementation plans relating to the building of pipelines must be approved by the Ministry in charge of Energy - fuels department.

    The development of pipelines and/or infrastructure necessary for the transport and distribution of oil is also subject to general statutory obligations in relation to the environment, rights of way and urban development.

    In this respect, to facilitate access to private land, the Hydrocarbon Law provides for specific rules to resolve the situation where the concession holder does not agree with a private land owner to access its land. In such case, the Holder may be authorized by the authorities to occupy on a temporary basis the land located within the permit / exploitation concession area which is needed to carry out exploration, exploitation and transport of hydrocarbons or for the building of railways, workshops and ancillary industries.

    On a separate note, it is worth noting that the Dahir dated 30 December 1927 relating to the transportation of hydrocarbons and liquid fuels provides with specific terms and conditions to comply when carrying out transportation activities.

  13. What is the regulatory regime that applies to LNG liquefaction and LNG receiving terminals? Are there any such terminals in your jurisdiction?

    As for the construction and operation of oil and gas pipelines, LNG liquefaction and LNG receiving terminals refer to installations used to carry out ancillary activities.

    Therefore, such projects are subject to the provision of the articles 50 et seq. of the Hydrocarbon Decree which provides for specific rules in relation to ancillary activities carried out by concession holders the purpose of which is to specify the terms and conditions under which an concession holder will build and operate such installations and finance such project.

    It should be noted that the legal framework related to such activity will probably change in the context of the contemplated "gas to power" project which have been delayed over the last couple of years (please see our answer to question 18 below).

  14. What is the regulatory regime that applies to gas storage (not LNG)? Are there any gas storage facilities in your jurisdiction?

    It results from the Law no. 09-71 dated 12 October 1971 related to safety stock and Order no. 393-76 dated 17 February 1977, as amended, that importers of refined hydrocarbons, refinery buyers and refinery operators are subject to an obligation to establish and maintain hydrocarbons safety reserve.

    Furthermore, article 4 of Law No. 1-72-255 dated 22 February 1973 on the import, export, refining, takeover in refineries and filling centres, storage and distribution of hydrocarbons provides that the refiner, distributors of LPG, owners of filling centres and importers of refined hydrocarbons are required to have storage deposits with sufficient capacity to enable them to meet their safety stock obligations.

    Despite these legal provisions, there is a lack of storage capacity and several investments are currently carried out by operators to comply with their legal obligations.

  15. Is there a gas transmission and distribution system in your jurisdiction? How is gas distribution and transmission infrastructure owned and regulated? Is there a third party access regime?

    Oil & gas infrastructures developed in the context of downstream activities are mainly regulated by the Law No. 1-72-255 relating to the import, export, refining, collection, storage and distribution of hydrocarbons, enacted by Dahir dated 22 February 1973 (the "Law 1-72-255") which provides in particular with an authorization regime for the construction or certain infrastructure that remain owned by the operator.
    With respect to third party access in the context of upstream activities, article 51.2 of Hydrocarbon Decree provides that third parties can access existing pipelines and other infrastructure on the request of the Ministry of Energy, with the conditions that:

    • the holder is not obliged to build or maintain infrastructure exceeding its own requirements;
    • the specific needs of the holder have priority over the needs of third parties;
    • the use by third parties must not impede the use of the installation by the holder for its own needs; and
    • the third parties must provide the holder with fair compensation determined by mutual agreement.
  16. Is there a competitive and privatised downstream gas market or is gas supplied to end-customers by one or more incumbent/government-owned suppliers? Can customers choose their supplier?

    Gas distribution is carried out by private companies mainly through the commercialization of bulk gas cylinders or gas and storage tanks.

    There is no government-owned company carrying out this activity but a mandatory price-setting regime for butane gas distribution.

    The draft law no. 94-17 contemplates however to amend the gas distribution legal framework in setting up an new organization of gas sector and an appropriate tariff system for the natural gas market which could result in awarding the gas transportation activities to a state-owned company and distribution activities to different concessionaries.

  17. How is the downstream gas market regulated?

    Downstream gas market is regulated by the Law 1-72-255 which set out the terms and conditions under which gas can be imported and distributed.

    In this respect, article 1 of the Law 1-72-255 provides that hydrocarbon importation (which includes natural gas importation) is subject to a prior authorization from the authorities.

    Also, the Law 1-72-255 regulates the transportation of liquefied gas containers which can only be carried out by filing plant buyers (repreneurs en centre emplisseur) and wholesalers (dépositaires-grossistes).

    With respect to services-stations, Law 1-72-255 provides that the opening and operation of services stations is subject to a prior authorization from the authorities.

    Law no. 67-15 dated 2 March 2016 has amended the Law 1-72-255 but has not yet entered into force because of the absence of publication of the implementing decrees.

  18. Have there been any significant recent changes in government policy and regulation in relation to the oil and gas industry?

    A draft law no. 94-17 related to downstream natural gas sector prepared by the Ministry of Energy has been drafted in the context of the national plan for the development of natural gas which was developed through the roadmap that was launched on December 16, 2014 and notably aims at the realization of the Moroccan "Gas to Power Project" for which a tender process is expected to be launched by the end of 2019 / beginning of 2020.

    The purpose of this draft law is to support the implementation of this project and organize the control of the different activities in regulating the purchase, import, infrastructure building and operations, storage, transport and distribution of natural gas (excluding the natural gas fuel "Gaz naturel Carburant") together with the construction and operation of gas installations.

  19. What key challenges have been identified by the government and/or industry in relation to your jurisdiction’s oil and gas industry?

    The main challenges faced by the Moroccan Government in relation to the development of oil and gas industry are the following:

    - promoting the development of exploration works Morocco still being largely under-explored compared to other neighbouring countries;

    - ensuring a balance between environmental concerns and prospective economic benefits brought by the oil and gas sector;

    - developing hydrocarbon storage capacities;

    - providing with visibility on the upcoming legislative change resulting from the realization of the Moroccan "Gas to Power" Project.

  20. Are there any policies or regulatory requirements relating to the oil and gas industry which reflect/implement the global trend towards the low-carbon energy transition?

    Morocco policies initiatives aim to diversify its generation mix in the electricity sector. Renewable energies are a priority for the Moroccan Government but the authorities are still acting to promote the development of oil and gas industry through the provision of several tax and customs incentives including:

    - a total exemption from corporate income tax applicable to the holder or each of the joint holders of an exploitation concession for ten consecutive years from the commencement date of regular production from the exploitation concession;

    - withholding tax exemption for profits and dividends distributed by exploitation permit holders to its shareholders;

    - a VAT exemption applicable to goods and services acquired in the domestic market or imported from abroad that are necessary for the activities of reconnaissance authorisation, exploration permit and concession holders, as well as their contractors and sub-contractors.