**UPSTREAM NEWS ERHC** MARCH 31
Hopes grow for big catch in Sao Tome
By Upstream staff
Hopes for an oil bonanza are building in the Gulf of Guinea Joint Development Zone (JDZ) managed by Nigeria and Sao Tome&Principe as indications strengthen that Chevron has made a significant discovery in Block 1.
The find comes just after blocks 2, 3 and 4 have been signed up by respective operators Sinopec, Anadarko and Addax Petroleum, which will net the two countries more than $200 million in signature bonuses, payable within a month and split between Abuja and Sao Tome on a 60:40 basis.
Drilling on blocks 2,3 and 4 could get under way later this year.
Chevron and partners ExxonMobil and a tie-up between Dangote, Energy Equity Resources and Afren, agreed a bonus of $123 million in 2003 for Block 1, and the operator aims to post positive results for debut wildcat Obo-1, which was completed this month.
The partners have remained tight-lipped on the details, but multiple sources have suggested the so-called Hercules structure could contain more than 1 billion barrels of oil and at least 1 trillion cubic feet of gas.
A Deutsche Bank report released this week is already touting a $3.2 billion development for Obo, with a 2013 start-up.
Analyst Wood Mackenzie suggested test results may be delayed by ongoing efforts by Chevron to enter Nigerian independent Conoil's neighbouring deep-water Block OPL-257, but the parties have declined to comment.
Among those set to benefit from the Block 1 find are partners Addax and Houston-based ERHC Energy, which together hold stakes in blocks 2 and 3 and operate Block 4.
However, Sao Tome's National Petroleum Agency posted a statement this week indicating that ERHC has lost its preferential and bidding rights to the remaining second-round blocks 5 and 6 after failing to comply with the JDZ Joint Ministerial Council's demands for signing effective joint operating agreements.
Despite intense negotiations by suitors to finalise a production sharing contract for at least one of these blocks, it is understood that the Joint Development Authority (JDA) may consider offering them in a third round, possibly later this year.
Completion of the latest JDA round paves the way for Sao Tome to belatedly start licensing acreage in its own Exclusive Economic Zone (EEZ).
However, discord is again brewing over conflicting claims to preferential rights to EEZ acreage, with ERHC claiming access to two blocks of its choice, and AIM-listed Equator Exploration insisting on similar privileges.
The Sao Tome National Petroleum Agency recently declared on its website that Equator has "acquired two blocks from Petroleum Geo-Services under the option agreement (dating back to) February 2001".
However, ERHC contests the legal basis of this assertion.
Equator also holds a junior equity stake in Sinopec-operated JDZ Block 2.
However, this, along with its EEZ claim, is subject to alternative claims by former ERHC partner Procura Financial.
Upstream understands that lawsuits related to the various claims are being prepared in a move that could further delay exploration and production in both Block 2 and Sao Tome's EEZ.
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30 March 2006 23:01 GMT | last updated: 30 March 2006 23:01 GMT
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