Sao Tome so Near, Yet so Far
Five more production sharing agreements (PSAs) have been signed for acreage on the joint development zone (JDZ) shared by Nigeria and So Tom and Prncipe.
Hopes were high that exploration efforts could begin soon after the JDZ was created, but a combination of political problems in So Tom and contractual difficulties held up the process for some time. Now, however, it is hoped that the search for oil can begin in earnest, adding yet one more element to the Gulf of Guinea oil boom.
The JDZ was created in order to enable oil exploration in an area that is claimed by both Nigeria and So Tom and Principe.
Following his election victory in 1999, Nigeria's President Olusegun Obasanjo was keen to solve the various Gulf of Guinea maritime boundary disputes that were holding up exploration in the region.
Oil companies are particularly but understandably reluctant to invest in acreage with uncertain sovereignty and Obasanjo saw the settlement of boundary disputes as an excellent method of providing yet more impetus to the burgeoning oil sector in Central and West Africa. While boundary delimitation has been possible in some areas, So Tom and Abuja were unable to reach' a settlement and so the two governments opted to set up a JDZ for an initial period of 45 years. During that time, revenues will be shared in a ratio of 60:40 between the two governments.
As a result of its position at the heart of the Gulf of Guinea and because its islands are strung out over a wide area, So Tom and Prncipe possesses a great deal of deepwater maritime territory that will attract oil sector interest - but it was decided to licence JDZ acreage in the first instance in order to make the most of Nigeria's experience in the industry.
Table 1: Nigeria -So Tom and Principe JDZ 2004 licensing round results
Although earlier deals between previous So Toman governments and smaller oil companies hindered the licensing process, the Lagos based joint development zone authority (JDA) offered nine blocks in a licensing round that was launched in April 2003.
A total of 33 bids were submitted but most of these came from smaller, independent firms and were rejected, possibly because the signature bonuses on offer were too low but perhaps also because the two governments believed that the bidders lacked the technical expertise and financial muscle to make the most of the acreage on offer.
Just one bid was accepted. Block 1, which lies next to sizeable Nigerian fields beyond the JDZ boundary, was awarded to a consortium of ChevronTexaco (51%), ExxonMobil (40%) and Dangote Energy Equity Resources (9%), which is owned by Nigerian and Norwegian interests. The PSA for Block 1 was not signed until earlier this year but brought with it a signature bonus of $ 123m, which will provide a massive boost to the So Toman economy. Blocks 2, 3,4, 5 and 6 were offered in a second licensing round, which was launched towards the end of 2004. Yet again, a large number of bids were received from smaller companies but this time the JDA decided to award PSAs.
The results of the round, which were announced on 1 June and which are listed in the table, revealed that an existing agreement between Environmental Remedial Holding Corporation (ERHC) and So Tom had had a great influence on the awards.
ERHC, which is owned by Nigerian businessman Emeka Offor but which is registered in the US, has little deepwater experience but has been awarded stakes in all five blocks. The company was named joint operator of block 4 with a 60% stake and received between 15% and 30% equity in the other four blocks.
Established oil and gas companies that were awarded stakes in the various blocks include Anadarko, Conoil, Devon Energy, ONGC Videsh of India and Pioneer oil and Gas. Several lesser known companies, such as Filtim Huzod of Nigeria, International Commerce and Communications - registered in the Cayman Islands - and Oil Exploration Consortium, based in the US also secured equity. The awards were approved by both the Nigerian and So Toman governments.
Lesson for rest of Africa?
The Nigerian government tried to ensure that local companies were involved in developing the JDZ's presumed hydrocarbon wealth. President Obasanjo commented: "The results of this 2004 licensing round, which runs into 2005, have been analysed by our ministers and advisers. They have come together to agree on the basis of technical information and they have made recommendations on local participation."
The Sao Tome archipelago's economy will be transformed by JDZ oil revenues
The partnership between Presidents Obasanjo (l) and Menezes promises transparency and accountability in the oil sector.
Speaking to President de Menezes of Sao Tom, he added: "We want people either sponsored by citizens of your country or citizens of Nigeria who can be part of the exercise in order to learn. The way things have been done is sufficiently satisfactory for all of us to feel proud that we have done the best."
The Nigerian government has promised that this and all future JDZ licensing rounds will be transparent and accountable.
President de Menezes tried to explain the earlier delays. He said: "You will understand that our worries and questions we have often raised for clarification were only and shall always be questions and clarifications. We just wanted to know as a curious younger brother why our bigger brother is doing this because we are younger in this industry. Nigeria is older and more experienced. We are just asking you why not the other way; nothing whatsoever apart from curiosity and anxiety."
He described the decision to split revenues 60:40 as "a novelty and a lesson for the rest of Africa".
Despite the new PSAs, there are fears that a combination of the licensing process and the expected influx of large amounts of money into the So Toman government coffers are further unsettling an already unstable political system on the islands.
Prime minister Damio Vaz d'Almeida resigned after the PSAs were announced, complaining that parliament had not been consulted by President Fradique de Menezes, although the civil service strike in the country also played a role in his decision. The country has now had six prime ministers in the past four years, and there are real fears that the political instability could continue. So Tom and Prncipe's national cohesion has been seriously damaged by the short- lived, bloodless coup of July 2003.
While unofficial estimates put the size of the oil reserves in the JDZ at 8bn barrels, the truth is that nobody really knows because of the lack of both preliminary exploration work and drilling in the area. The eventual figure could be a great deal higher, whilst it is also just possible that nothing will be found.
Nevertheless, oil sector investment is having a massive impact on the So Toman economy with or without actual oil. So Tom's share of the Block 1 signature bonus will be $49.4m and will be paid during the course of this year, while a further $113.2m will be provided by the bonuses on blocks 2-6. Annual GDP in the country stands at little more than $50m, so this injection of money will have a big impact, for better or for worse. In many ways it seems odd that so few established oil companies have been interested in the JDZ acreage over the course of two licensing rounds.
The success of so many small Nigerian firms could be an indication of political favouritism at work but it is also possible that it is a genuine attempt by Abuja to promote the development of a domestic oil sector, which finds it difficult to make headway against the financial and technical strength of the majors.
Only time will tell whether all successful bidders have the ability to make the most of the acreage they have secured, but it is to be hoped for So Tom's sake that they have been well chosen.
Copyright International Communications Aug/Sep 2005
RedNova August 23, 2005
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