MORE BS, sounds like major issues now - these investigators are messing with us
a] Voiding the round
b] Nigerian Firms skipping on Sig. Bonuses
c] Operators potentially carrying the minnows
d] Operators reducing the drilling
Sao Tome: Legal eagle takes on Nigeria
7 October 2005
Energy Compass
English
(c) 2005 Energy Intelligence Group. All rights reserved
The attorney general of tiny Sao Tome and Principe will put Nigeria on the spot this weekend with plans to request its help with an investigation into awards on five blocks in the joint development zone (JDZ) between the two countries. Adelino Pereira began his own investigation last month and has already disturbed several Nigerian companies that did well out of the awards. If the probe gathers force, it could lead to the bid round being voided, or at least prompt some US companies to reassess their positions, sources say.
The second-round awards, announced in May, are controversial for many reasons, not least the preponderance of apparently ill-qualified players linked to Nigerian power brokers and, to a lesser extent, Sao Tomean political elites (EC Jun.10,p5). An investigation launched by Sao Tome's National Assembly earlier this year found decisions were made without supporting documentation or legal opinions, and lacked respect for established processes. Pereira's probe, aided by prominent US oil lawyer Robert Langenkamp, will look further into the legalities.
Pereira is a force to be reckoned with at home, but taking on regional powerhouse Nigeria is trickier. The Nigerian government, which is keen to collect the JDZ signature bonuses, persuaded Sao Tome President Fradique de Menezes to approve the award recommendations in May by threatening to withhold Sao Tome's share of the signature bonus on Block 1, the only award in the first licensing round in 2003-04. But Pereira has a couple of cards up his sleeve. Nigerian President Olusegun Obasanjo has been making a big show of reducing corruption to persuade Western governments to write off Nigeria's debt. If Nigeria were to block the investigation, creditors who suspect Nigeria's transparency drive is oversold might not implement a tentative deal to wipe off up to $18 billion in debt.
Sao Tome's allies, who carry some weight in the world of aid and debt, will use whatever cards they can. They include Columbia University's Earth Institute, headed by prominent development economist Jeffrey Sachs, and the Open Society Institute of George Soros. The Earth Institute is highly influential in Sao Tome, drafting much of its revenue-management law last year, and helped recruit Langenkamp, who is working for free with expenses paid by the Open Society (EC Dec.3,p5).
The main beneficiary of the round was ERHC Energy, which has rights to stakes in six blocks under an earlier bilateral accord between Nigeria and Sao Tome but little capital or track record. This week, supporters of the US-listed firm, which is owned by Nigerian businessman Emeka Offor, an Obasanjo ally, tried to undermine the investigation by linking Langenkamp's assistance to interests close to US Anadarko, a disgruntled bidder for Block 4. Anadarko was the highest bidder with $90 million, but was pushed into the less prospective Block 3 to make way for ERHC and Noble Energy, which secured 60% of Block 4. ERHC also won 65% of Block 2 through a partnership with US Pioneer. Langenkamp has denied the allegations.
Under pressure from Nigeria, the Joint Development Authority (JDA) approved stakes for at least nine Nigerian companies. The move was controversial, as none of the firms has deepwater experience and some exist only on paper. Winners included Conoil, an experienced producer, set to partner ERHC/Noble on Block 4; A Hatman, which is linked to Obasanjo's political fixer, Chief Antony Anenih, and will join ERHC/Pioneer on Block 2; Equinox, owned by influential Nigerian businessman Mohamed Asebelua and Sao Tomean Isabel Meira Rita, who is linked to former president Manuel Pinto da Costa, won 10% of Block 3. Other beneficiaries included Godsonic, Overt, Broadlink and Filtim Huzod.
The ace in the investigators' pack is lack of due diligence about Nigerian players' financial and technical capabilities. London-based Clearwater did investigations for the first bid round, when it highlighted several gaps in credentials. What happened in the second round is more opaque. Nigerian officials maintain the JDA appointed two Nigerian investigators, Arrowhead Consulting and Suleiman Associates. But the National Assembly's report said this year's evaluations were based on the first round, and did not incorporate new participants or changes to the financial status of existing players.
The issues worry established operators that are pressured to take on such partners. All are wondering whether the partners will come up with their shares of signature bonuses and budgets. With production-sharing contracts due to be inked in mid-November, operators have just five weeks to secure the money. If their new best friends fail to pay up, operators will have to choose between carrying the costs of partners, buying them out or refusing to sign the deals. Other options include reducing their drilling plans -- precisely the outcome feared by Sao Tome's regulator, the National Petroleum Agency, which warned in May that investment could suffer if operators were forced to carry so many partners.
By Christina Katsouris, London
AI
