The Nigerian tale of two oil blocks

Jul 05, 2007 02:00 AM

by Innocent Oparadike

Oil blocks 245 and 246 share location, derive their birth from a conscious effort to promote indigenous participation in the upstream oil sector and have been in the news in recent times. That about sums up their similarities.
The rest of their chequered history and the fate of their owners at the hands of the Obasanjo administration can be summed up in one phrase: changing fortunes.

At the inception of the Obasanjo administration in 1999 Chief Dan Etete was on self-exile and his oil block allocation had a question mark on it partly on account of its antecedents, and partly on the failure of the allottee to fully pay for the allocation fee also known as signature bonus. Not surprisingly revocation followed, and much later, litigation, here and abroad.
In contrast, in 1999, General Danjuma was Chief Obasanjo's chief promoter and kingmaker. His oil block allocation, according to the Christopher Kolade committee, was in order and fully paid for. The General became Chief Obasanjo's Minister of Defence, confidant and member of his kitchen cabinet. His allocation was intact and seemingly inviolate.

By the time Chief Obasanjo was settling down to his second term in office as an elected President Chief Etete had initiated the process that ensured an out-of-court settlement that paved the way for the restoration of his oil block and fortunes.
On the other hand, General Danjuma having turned down re-appointment as Defence Minister was walking out of government and without realising it, out of favour with the administration he principally mid-wifed. His public condemnation of his friends’ not-so-subtle plan to elongate his tenure via a third term quest was the last straw.

So it came to pass that General T.Y. Danjuma, professed friend of ex-president Obasanjo and twice his kingmaker, opposed his third term ambition and his request for a second oil mining lease, OML, on a subsisting (till 2008) oil prospecting licence, OPL, was turned down without reason or explanation.
The government that purports to support the Babaginda-era policy of encouraging indigenous participation in our foreigner-dominated oil industry pencilled down his rich oil lease for a mini-bid round that had pre-selected foreign (Asian) companies and pro-third term indigenous companies in tow. It was the General's timely recourse to legal action that put paid, temporarily, to that attempt to rob Nigeria's Paul to pay foreign Peter.

Perhaps for the sake of those who have not been following this epic legal battle it is best to start from the beginning. Oil prospecting licence, OPL 246, is a deep offshore oil block granted under the Petroleum Act 1969 and in pursuance of an existing policy of the Federal Government under which it invited indigenous entrepreneurs to participate in the Nigeria upstream oil industry hitherto the preserve of foreign entities.
This is the indigenous concession programme. Under this policy indigenous companies such as South Atlantic Petroleum, Sapetro and Malabu were awarded discretionary blocks in the high risk deep offshore. The oil blocks were awarded on "sole risk" basis meaning that if no yield was found the holder could not share any part of the loss with government, but if oil is found the government can invite itself back in.

In returning Chief Dan Etete's oil block, the Obasanjo government refused to exercise this right but that is exactly what the government did in Sapetro case. The sole risk partners, Sapetro, and its technical partners had expended $ 755 mm to strike oil. By this so-called "back-in" policy, the Federal Government through NNPC reduced Sapetro's 60 % shareholding to 10 % by awarding itself 50 %, free of charge and risks. The technical partners retained their 40 %.
Not satisfied with this 50 % ownership of the 500 sq km oil mining license, OML 130, awarded to Sapetro, government informed it that it was not entitled to a second OML and furthermore the area not covered by OML 130 had reverted to government. In so doing governmentignored the fact that the oil block allocation was valid till March 2008.

But why would any rational organization wish to re-allocate a block in which it had allocated, itself a 50 % interest at no cost. Because it makes no economic or any other sense, people resorted to reading politics into it, especially the fact that General Danjuma, two-time kingmaker of the president was publicly and characteristically single-mindedly opposed to the president's third term ambition.
There may in fact be an economic angle. Before the 2006 mini-bid round where General Danjuma's OPL 246 was up for grabs, the director of DPR, the government department in charge of petroleum resources, Mr Tony Chukwueke had awarded the block along with two others to a company, Natural Resources Exploration, in which a son of a top-presidency boss is said to have substantial interests.

In the letter ref DIR/DPR dated 13th March 2006 titled Award of Deep Off Shore Blocks OPLS 217, 252 and 246, Mr Chukwueke wrote and I quote: "I refer to our meeting today with your representatives in respect of your participation in the 2006 mini-round I am directed to inform you that government has favourably considered your request and has granted your company the Right of 1st refusal on OPL 217, 252 & 246."
The mini-bid round was just a formality, no wonder an affiliate of transparency international called the exercise a farce and implored ex-president Obasanjo to cancel it. That was not heeded.

In an update on 2006 mini-bid dated May 19, 2006, INC true to Mr Chukwueke's promises went home with blocks 252 and 292. There was a notation that gave cause for alarm, "INC to bid for 246 after court case", the certainty implicit in this notation was a sure cause for concern as judgement in the case was still pending. It was as if they already knew the outcome.
The judges ruling on that suit is now the subject of appeal at the Federal Court of Appeal, Lagos.

Danjuma sympathisers hold that the regulations were targeted at him and unfairly punish him for investing faith and funds in his fatherland. They reason that since oil has been discovered in the OPL 246 remnant by the current title holder, any bidding should be for OML not OPL. But surely that is one area the government would not want to go to, because it is uncharted territory.
In layman's language, if OPL is maximally 1000 km and OML is maximally 500 km it implies that two OML's can be carved out of one OPL. Both sides agree that this represents the position of extant laws and regulations. But the government lawyer argues that the minister has discretion to say no.

The law says that an OML shall not exceed 20 years and that after 10 years the holder shall relinquish one half of the area. The OML granted February 2005 will expire in 2025, while the remnant of OPL 246 will expire March 2008.
On account of this, Danjuma's lawyer argues that if a statute provides conditions upon which a minister can act, the courts have jurisdiction to inquire into the exercise of that power. He contends that mandatory relinquishment amounts to mandatory revocation. The court therefore should grant the applicant an injunction restraining the respondent from carrying out the revocation, if necessary, till March 2008 when the OPL lease expires.

The Government side has tried another tactic an appeal to patriotism and a warning that if the applicant's request is granted the consequences would be great as foreign companies that have already complied with the regulations will ask for compensation. To which the Danjuma group have replied that those who complied had already exhausted their tenure as stipulated by law. Besides, they argue, Nigeria will lose more if it is known as a nation of arbitrariness and disrespect for contractual obligations.
To the appeal to patriotism they counter, what can be more patriotic than supporting a man who attracted a $ 755 mm investment in oil exploration in uncharted territory in a sole risk venture to which government claimed 50 % of the sweets and none of the sweat.

This is more so when it is established by no less a body than the Christopher Kolade committee set up by the Obasanjo administration in 1999 the legitimacy, validity and extancy of the applicants rights.
This writer is of the view that the new president should order the case settled out of court. For even if the minister has discretion it should be exercised in favour of a Nigerian company now in possession, who has shown faith in the country by investing $ 755 mm in a sole-risk business.

Why the undue interest in OPL 246?
The answer is simple: it has proven oil reserves in commercial quantities. What the $ 755 mm spent by Sapetro and its sole risk partners achieved was to ascertain the abundance of crude oil in the two parts of OPL 246, the part covered by OML 130 and the contested remnant of OPL 246. It was because oil had been discovered in the remnant that Sapetro applied for a second OML.
To a layman, it may appear curious why you have to apply for a mining license to extract oilyou have successfully and at great cost explored and proven to exist. But that is the law and it has to be obeyed warts and all. Because of the effort expended on exploration, the grant of OML is taken for granted. It was until the Chief Obasanjo administration enacted the Oil Prospecting Licenses (conversion to oil mining leases etc, regulations 2004 which purportedly granted the minister discretion in the award of OML from OPL.

One of the questions before the Hon Judge handing the case at the Federal High Court, Lagos was: can the minister under regulations which are essentially subsidiary legislation give himself powers neither provided for nor envisaged in the main legislation? Even if the foregoing is true can the minister refuse a second OML?
The Obasanjo government did well to ask that the case with Malabu Oil & Gas be settled out of Court. It excelled itself in restoring the oil block intact, without the obnoxious "back-in" clause that punitively reduced Gen. Danjuma's majority 60 % stake to a 10 % minority stake. The argument that justified this humane treatment of Chief Dan Etete must necessarily apply to General Danjuma, for as they say what is good for the goose is good for the gander.

I do know that had things worked out the way he planned, by now General Danjuma would have thrown open the doors of his proposed University of Technology, Wukari. This world class institution remains just an idea while his oil block is locked down in unproductive litigation.
The same is true of his plan to have a refinery set up to refine his share of crude. With his share reduced to 10 % his bargaining powers are reduced. The General shares the view that each time we export a barrel of crude oil, we export jobs and each barrel of refined product we import we import along with it inflation and restiveness in the oil-producing Niger Delta.

The President has started well by being sensitive to our needs and listening to our sighs.
He should add this to his stock of good works and who knows, we may yet have another hero -- long after General Murtala.

Oparadike, a former MD, Daily Times Plc, is a media consultant to Sapetro.

Source: This Day
Market Research

The International Affairs Institute (IAI) and OCP Policy Center recently launched a new book: The Future of Natural Gas. Markets and Geopolitics.

Cover_242-width

The book is an in-depth analysis of some of the fastest moving gas markets, attempting to define the trends of a resource that will have a decisive role in shaping the global economy and modelling the geopolitical dynamics in the next decades.

Some of the top scholars in the energy sector have contributed to this volume such as Gonzalo Escribano, Director Energy and Climate Change Programme, Elcano Royal Institute, Madrid, Coby van der Linde, Director Clingendael International Energy Programme, The Hague and Houda Ben Jannet Allal, General Director Observatoire Méditerranéen de l’Energie (OME), Paris.

For only €32.50 you have your own copy of The Future of Natural Gas. Markets and Geopolitics. Click here to order now!


 

Upcoming Conferences
« June 2019 »
June
MoTuWeThFrSaSu
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

Register to announce Your Event

View All Events