The Titanic Battle for Nigeria’s Oil...
10.08.2009
Yesterday, THISDAY broke the story on how the delay by the National Assembly in passing the Petroleum Industry Bill (PIB) into law is playing into the hands of the oil majors. Ijeoma Nwogwugwu writes on the intrigues and the politics of the waiting game.
The Chinese National Offshore Oil Corporation’s(CNOOC) application for the acquisition of a 49-per-cent interest in 23 oil blocks, some of which are currently held by major operating companies, and the response of the Federal Government to same, has sent shock waves among the multinational oil companies which currently hold the leases.
The offer was actually made under the administration of President Olusegun Obasanjo, but nothing was done about it until a year ago when talks on the leases intensified.
It also brings to the fore the law suit instituted by Shell recently challenging the Federal Government’s decision to renew its expired acreages under new terms without taking into consideration the subsisting Petroleum Act of 1969 that provides for a renewal of the leases for another 40 years under the same terms.
The CNOOC is said to have made an offer of $30 billion for the 49 per cent stake in the oil blocks, translating to 6 billion barrels in oil reserves, which will be hived off from most likely the Nigerian National Petroleum Corporation (NNPC) stake in the joint ventures.
In its quest to acquire six billion barrels of oil, the CNOOC acting under the auspices of Sunrise Consortium applied for 49 per cent equity participation in the following blocks: OMLs 67, 68, 70, 11, 13, OMLs 71, 72, 74, 77, 79, 83, 85, 86, 88, 89, 90, 91, 95, 118, 127, 133, 139 and 140.
Concerns raised by NNPC
According to a memo by NNPC, the request is being given consideration as instructions have gone out from the Ministry of Petroleum Resources for the data on the blocks to be released to Sunrise by the Department of Petroleum Resources (DPR). In addition, a negotiating committee has been set up in NNPC to handle discussions with the company.
The committee is to consider the request and determine an optimum price for the reserves in the blocks against the backdrop of the offer made by CNOOC.
Eighteen of the 23 blocks requested are currently operated under the JV arrangement while the remaining five are operated under the Production Sharing Contracts (PSCs).
Of the JV blocks, 16 were awarded in 1968 (41 years ago) and expired late last year while two are due for renewal in 2019. Also, virtually all the expired blocks are located in the continental shelf except the two unexpired ones that are located onshore.
The PSCs were only recently converted to OMLs and are not due for renewal until 2020 at the earliest. Expectedly, all the PSC blocks are located in the deepwater and belong in the first set of deep offshore blocks awarded in the 1993 licensing round.
Of the 23 JV blocks, seven are operated by Chevron while three are operated by Mobil. The rest are held by the NNPC/Shell/Elf/Agip JV operated by Shell.
Though many of the blocks have expired since the end of 2008, they were renewed for one year while discussions on the terms of longer renewal leases are still ongoing.
The CNOOC initiative packaged by Sunrise, indicated the NNPC memo, is a welcome development as it might give some boost to exploration and production activities that have been flagging on account of the restive situation in the Niger Delta.
However, assigning highly productive blocks to a third party requires some strategic thinking. Granted that the blocks in question are due for renewal but where discussions are still ongoing, assignment to a third party could erode confidence and jeopardize the future of the JV arrangements.
According to the memo, other points to consider in respect of the overall request are as follows:
a) Need to settle the issue of the renewal of the expired blocks before venturing to assign interest to CNOOC;
b) Divestment of government interest in the blocks would translate to depleting the assets of the entities being proposed for Incorporated JV (IJV) arrangement as contained in the draft Petroleum Industry Bill (PIB);
c) With the execution of the back-in rights (Partial PSC) agreement with the International Oil Companies (IOCs) there may be no interest to assign to the third party unless the initial agreement is terminated;
d) Assigning interest in the highly productive JV blocks to CNOOC should merit an open sale that could attract other industry players.
e) If government intends to strengthen NNPC as proposed in the PIB, assigning such interest to the corporation should be the first consideration;
f) So far, Chinese companies have been awarded blocks in previous licensing rounds as follows: i. OPL 275 (onshore) - won by Chinese Petroleum Corporation (CPC) in the 2005 round; ii. OPLs 226 and 291 [formerly 216] (Continental shelf and Deepwater respectively) won by CPC in the 2006 round; iii. OPLs 721 and 732 (Chad Basin) won by Chinese National Petroleum Corporation (CNPC) in the 2006 round; iv. OPL 471 (Continental shelf) won by CNPC in the 2006 round; v. OPL 298 (formerly OML 65 onshore) won by CNPC in the 2006 round, but the block has been re-awarded to NPDC. In addition, SINOPEC, another Chinese National Oil Company, is in partnership with NPDC in the operation of OMLs 64 and 66. Apart from one well drilled in OML 64, not much has been done with the above awards. Therefore, one would wonder why the nation would be “assigning” proven reserves to the same entity without any recourse to shoring up the nation’s reserves base.
g) With Shell in court over the take-over of some of its blocks and discussions currently ongoing with the other asset operators, this latest development would compound issues and set government on a collision course with the operators.
Position of the IOCs
The IOCs have had issues with the new fiscal terms being proposed under the PIB and incorporation of the JVs. The request by the CNOOC will certainly add to their woes.
An official with one of the major oil companies operating in the country admitted that the problem is two-fold. He said that if the Federal Government fails to renew the leases, it means that November and December lifting of crude oil might already be jeopardized since the leases would have expired, and oil is sold several months ahead of time.
He said: “Our leases cannot be an incentive to delay the PIB. Our concerns have to do with securing our investment under reasonable terms that are a win-win for all parties.”
He stated that the government should be weary about giving a 49-per-cent stake to the CNOOC because the IOCs are entitled to a renewal of the lease for another 40 years, irrespective of the PIB.
What would happen with the passage of the PIB, he explained, is that the JVs would simply become incorporated and the current ownership structure would continue to subsist.
Explaining further, the official said the contract terms and the Act are very clear and stipulates that insofar as the IOCs have paid their royalties, petroleum profits taxes and other charges that may be imposed by the government under the contracts, the companies are entitled to a renewal for another 40 years.
“We have a letter from the Federal Government signed by the Minister of Petroleum Resources, acknowledging that we have met the contractual terms as defined under the contracts. This means we are entitled to another 40 years lease.
“But recently, the government told us that we should match or better the terms of the CNOOC, failing which our stake will be sold to the Chinese,” he disclosed.
Shell, he said, had gone to court to challenge the propriety of the government’s attempt to sell part of its stake in the JVs and PSCs.
If there is no resolution in sight, the other oil majors might have to take the some course of action to protect their rights, he stated.
But even he the official volunteered the information, little did he know that one of oil majors, Exxon-Mobil, had broken ranks by making an offer to the federal government of less than $100 million for all its oil acreages that are up for renewal.
Confirming the development, an official with NNPC who did not want to be identified, said Exxon-Mobil has made an offer that is significantly less than $100 million for its three blocks that have reserves in excess of 2 billion, “but had qualified it by attaching all sorts of conditions to the amount.”
The offer made by Exxon-Mobil, he explained, is rather unattractive and will certainly not excite officials in the petroleum ministry.
FG’s position
Providing clarification on the imbroglio arising from the request by the CNOOC, the Chief Economic Adviser to the president, Mr. Tanimu Yakubu, said he understands the concerns of the IOCs and they have informed the government that they have the right of first refusal on the said 23 blocks wanted by the Chinese.
He, however, explained that even as the IOCs are pushing to renew their leases, they have offered peanuts for the blocks in question.
“They are not even contemplating offering anything close to the figures being contemplated by the CNOOC,” he stated.
Added to this, he said the acreages cover oil field in which the oil majors had been flaring gas for decades, despite all the missed deadlines, entreaties and even penalties imposed by the government to get them to shut in the gas flares.
“The IOCs have been flaring associated gas produced with crude oil for decades, wasting a valuable resource and polluting the environment.
“We cannot continue under this kind of regime, so they have to offer us better terms than CNOOC,” he said.
But a source in the presidency who did not want to be named, said the government still had a long way to reaching an agreement with CNOOC.
In a text message sent yesterday, he wrote: “The Chinese offer is not as attractive as it appears. Its net present value as computed by NNPC is less than $30 billion.
“This is not commensurate with the asset class they are seeking from us. Not only are oil reserves a more valuable asset than US dollar reserves, the oil reserves will also meet the future energy security of the Chinese.
“The discussion with the Chinese has reportedly left out acreages that are committed, though the offer extended to those fields not yet available.
“It is hoped that the Chinese will improve their offer. Alternatively, the IOCs should better it.”
When contacted, the Minister of State for Petroleum Resources, Mr Odein Ajumogobia, said the CNOOC came with a generic proposal for 6 billion reserves for a certain consideration. According to him, their proposal coincided with the time the leases on 16 acreages were expiring and since the CNOOC had done its homework it added those leases to the list of 23 it wanted.
He said when the ministry granted the one-year extension to the IOCs on their expired leases last year, it had hoped that the PIB would have been passed before the one-year deadline, as this would have meant that the leases will be negotiated under different terms. “Unfortunately, this did not happen,” he said.
“So what we have told the IOCs is that if we must renew the leases for another 40 years, they must take into cognizance that the oil blocks have value (P1 – proven preserves and P2 – probable reserves), which means that they would have to make a payment for the blocks if they want them back.”
Ajumogobia, however, was emphatic that the request by the ministry to the IOCs is not tantamount to asking them to match or better the offer made by CNOOC. “This is not a bidding war. The CNOOC’s offer was just coincidental. After all, NNPC, as the majority partner in the JVs, reserves the right to sell down part of its stake to a third party without touching what the IOCs hold in the blocks.”
The minister disclosed that rather than make an offer that the government would find hard to resist, Shell has gone to court to challenge the government’s decision to renew the leases under different terms. Shell, along with other IOCs, is citing a provision in the Petroleum Act which stipulates that the acreages can be renewed for another 40 years under the same terms, insofar as they have met the conditions of the Act.
But the minister said that they have informed the IOCs that the same Act also allows the minister to impose new conditions for renewal, which “includes payment for the blocks, akin to a signature bonus.”
What next for National Assembly?
With all the intrigues playing out, questions are being asked about the continued delay on the part of the National Assembly in the passage of the PIB. The delay is playing to the advantage of the oil majors as the PSCs, renewed for one year in 2008, will soon expire again and the Federal Government will be unable to act.
AI
