Nigeria NNPC Vs IOCs: Tragedy Of Divestment/Assets Sale In Black Markets

AddNNPC Vs IOCs 

By Ifeanyi Izeze

Though true as said by the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2014 that Foreign Direct Investment inflows to Nigeria fell from $7.1billion in 2012 to $5.6 Billion in 2013 but describing the downturn in foreign direct investments in the nation’s oil sector as signifying “a mass retreat of foreign transnational corporations (TNCs) from the nation’s oil industry” blurred the facts of the matter and smacks of an outright mischief to create unnecessary panic.

Nigeria’s oil production had remained steady at a window of between 1.8- 2million barrels per day, representing approximately 2.4 per cent of global production. Gas production has also increased from 2.4 billion cubic feet per day (bcfpd) in 2009 to about 8.0 bcfpd at present, representing about 1.1 per cent of global gas production.

Rather the current wave of divestment in Nigeria actually signifies a shift in International Oil Companies (IOCs’) strategy toward the offshore which now accounts for at least 60 per cent of Nigeria’s total production.  How could the IOCs be said to be running away because of harsh operating conditions in the Nigerian arena? The truth is that a number of them are moving into more challenging frontiers in the Nigerian deep offshore and are leaving the onshore blocs which they consider less profitable. Some of these IOCs have been sitting on oil blocks and have allowed the acreage to go fallow for years without significant development.

Remarkably, the wave of divestments is fast changing the onshore corporate landscape and creating ‘material brown field’ opportunities for serious indigenous and Asian players, looking to enter the Nigerian upstream space.
Data from the Petroleum Ministry show that International Oil Companies (IOCs) operating in Nigeria may divest more than $11.5 billion (about N1.9 trillion) worth of oil blocs by the end of this year. Some of the IOCs have either sold off or are in the process of selling up to 28 oil blocks since 2010. The oil blocks account for about 4billion barrels of crude worth about five billion dollars or N840 billion.

The Nigerian situation is similar to what is happening in Angola which also has continued to register net divestments, though lower than ours because foreign transnational investors in that country have been asked to team-up with local partners. The only difference is that unlike Nigeria, projects are failing to materialize for lack of indigenous participators in Angola.
From the ongoing shift in asset ownership, production from indigenous players now accounts for about 10 per cent of Nigeria’s total output, a level which is anticipated to rise to about 300,000 bpd by 2015. Also, marginal field operators were expected to produce about 50,000bpd based on current work programs. This is a big plus to our local content and indigenous participation initiative.

For instance, Oando’s imminent take -over of  ConocoPhillips ‘s assets in Nigeria will add between 17,000 and 21,000 Barrels of Oil to the company’s average net daily output, increasing it to between 21,000 and 24,000 BOPD. It will also top up Oando’s gas production by about 138MMscf/d.

The take-over will thus ramp up the aggregate equity production of Nigerian independents in the country by 14% at the most, from 147,668BOPD to 167,668BOPD. The top five of such producers and their equity production include Seplat (27,050BOPD), Shoreline (18,540BOPD), Famfa (15,000BOPD), Conoil (10,100BOPD) and Sapetro (10,000BOPD). The figures are all from May 2014 data.

At 24,000BOPD, Oando will become the second largest indigenous Nigerian producer after Seplat, although the company’s E&P subsidiary, which holds these oil and gas assets, is listed on the Toronto Stock Exchange.   Until the buy- out of the ConocoPhillips’ assets, of which the main properties are 20% non-operating equity in Oil Mining Leases (OMLs) 60, 61, 62 and 63, Oando had net equity production of 4,000BOPD from its holdings in the Energia operated Ebendo Marginal Field and the ENI operated Abo deep water field, in the Niger Delta basin.

The non-producing properties that come with the purchase include a 95% operating interest in deep water OML 131 and a 20% non-operating interest in Oil Prospecting Lease (OPL) 214, which holds the Uge field, currently a key item on ExxonMobil’s agenda for field development, but about a year away from final investment decision. There would have been a17% equity in Brass LNG, but Oando terminated the Purchase Agreement on that $198.4 Million property, as it was considered non-strategic.

We should actually raise questions on some of the obviously worrisome aspects of these divestment and asset sale transactions by the foreign operators.
If we are in partnership (joint venture) and co-owned every asset in the operation, it would be wrong or outrightly criminal for one party to go ahead disposing assets belonging to the joint venture without recourse to the position of the other party. It is worse still when the NNPC is the major partner in almost all the existing joint venture arrangements. This should be a source of serious concern to the federal government and even the civil society groups as we cannot just sit and allow these IOCs take us for granted as such disposition by the foreign operators smacks an outright violation of the existing statutory framework for such activities.

Facts from the industry also clearly show the tendency by some of the seller IOCs to impose conditions, which linger beyond the closure of the deals. This should be checked by the federal government. For example, a situation where buyers are forced into crude oil sale purchase agreements (CSPA), as a condition for sale of the assets simply fetters the right of the buyers to sell to whomever they wish, thus rendering them incapable of making reasonable commercial decisions. The implication of this arrangement was that the conditions literally diminished government’s revenues from the sales of crude oil by the buyers.

It would be recalled that in a recent memo with reference number PI/1160/A/Vol.10/251, which was addressed to companies involved in the sale of assets, the Department of Petroleum Resources (DPR) noted that in virtually every transaction that takes place, the divesting parties apply to the minister for consent after the transaction has been consummated, thereby giving the federal government a “fait accompli.”

The memo, which was signed by the Director of DPR, Mr. George Osahon also pointed out that by failing to obtain the consent of the minister before the consummation of the deal as required by law, the divesting parties flagrantly contravene the provisions of the Petroleum Act of 1969.

According to paragraph 14 of schedule 1 of the Petroleum Act as amended and of course which is not very different from stipulations under the pending Petroleum Industry Bill, the prior consent of the Minister of Petroleum Resources (the minister) is required for any assignment or transfer of a license, lease or any associated right, power or interest. The Petroleum Act provides that the holder of an oil prospecting lease (OPL or an Oil Mining Lease (OML) shall not assign his license or lease, or any right, power or interest therein without the prior consent of the Minister for Petroleum Resources. In addition to this, the Petroleum (Drilling and Production) Regulations (the Regulations) provide the procedure to be adopted for the application to the minister for the assignment or takeover of an oil prospecting license or a mining lease or of an interest in either. But all these procedures are being circumvented by the foreign operators for their own selfish interests.

The federal government should ensure any divestments in the sector must comply strictly with the extant provisions of the law which require the prior consent of the minister before the assignment of any right, power or interest in a prospecting license or an oil mining lease. This would help check situations such as the one that has led to a  face-off between Chevron Nigeria limited and Brittania –U, an indigenous oil company, over a bid for OMLs 52,53, and 55 that has now become a subject of  litigation.
 

(IFEANYI IZEZE is an Abuja-based Consultant and can be reached on: iizeze@yahoo.com)