Gloves come off in African fight Dispute over Equatorial Guinea Block R set to enter round two
UK-registered Energy Equity Resources (EER) is gearing up for the second phase of its altercation with the Equatorial Guinea government over what the company believes is the de facto withdrawal of its rights over Block E, now known as Block R, west of Bioko Island.
This potentially deepening rift may yet have profound consequences for oil company confidence in Malabo's negotiating procedures, with little consensus emerging as to who has the authority to rubber stamp production sharing contract approvals.
Smarting from the abrupt decision of Malabo's Ministry of Mines, Industry&Energy to award the licence to Ophir Energy earlier this month, EER is now considering arbitration as none of its letters seeking clarification have yet been answered by the ministry.
Other observers claimed the fracas represents little more than loser's pique and that clear grounds for arbitration do not exist, either under international or Equatorial Guinea law.
Some Equatorial Guinea watchers interpret recent events as laying bare a deepening conflict of interest within the ruling family in the lucrative oil sector. EER is understood to believe Equatorial Guinea law and practice should support the PSC initialled with state oil company Gepetrol because subsequent approval and ratification by parliament and the energy ministry would normally be seen as a formality.
Industry sources suggested the deal struck with EER achieved the highest ever level of government revenue, while joint operating agreements had been exchanged and both sides had even begun their respective reviews.
Following an earlier memorandum of understanding and notification of interest, EER signed a 100-page production-sharing contract on 11 May, having spent $2.5 million assessing the block.
Gepetrol retained 35% of the PSC, while EER negotiated a 65% stake in the Campo basin block where Total had drilled a duster in 2002.
The dryhole led EER to lower its signature bonus and instead agree to boost its local training budget while offering higher royalties were oil to be discovered, structuring the deal to limit upfront risk.
By contrast, Ophir offered $75 million to win Malabo's favour, about 10 times what EER believed the block is worth.
Ophir, backed by majority shareholder Mvelaphanda Holdings, South Africa's cash-rich black empowerment vehicle, further offered to drill three wells in the first phase of the four-year exploration period, underlining its confidence in the play's prospectivity.
Those backing Ophir's stance have indicated that EER's latest remonstrations betray a lack of understanding of where the power lies in Malabo, and that no PSC can exist until approved by the ministry as required by Equatorial Guinea law.
The ministry was allegedly unhappy with terms and conditions in EER's PSC and reserved its right to discontinue talks with EER, despite Gepetrol's recommendations.
EER's putative PSC was signed by Gepetrol national director Candido Nsue Okomo, the First Lady's brother, while the about-turn appears to have been orchestrated by Mines, Industry&Energy Vice Minister Gabriel Mbego Lima.
Lima is President Teodoro Obiang's son and the right hand man of Atanasio-Ela Ntugu Nsa, who heads up the ministry.
Ministry officials wrote to a batch of oil companies inviting them to bid for Block R on 1 September and later attempted to marry up several suitors Kosmos Energy, Anadarko and Ophir into one large consortium.
Anadarko is understood to have balked at Ophir as operator but the latter won, while Kosmos had expected to land a key stake in the block but ended up with nothing.
Moreover, it is understood Ophir knew of EER's PSC since it partners EER on the recently awarded Sao Tome-Nigeria joint development zone Block 3 in which Anadarko is the provisional operator.
AI
