Sao Tome coup scares oil firms

A coup in the West African island nation of Sao Tome and Principe is reverberating in the corporate suites of the energy industry, oil company executives said. Officials from several companies said they were anxiously monitoring events on the potentially oil-rich archipelago, a former Portuguese colony on the Equator in the Gulf of Guinea.
ExxonMobil of Irving, Texas, the world's largest oil company, and Chrome Energy, a small Houston-based oil and gas company controlled by Nigerian investors, have secured options for oil exploration in the waters off Sao Tome, an area just south of oil-rich Nigeria that geologists estimate could hold up to 6 bn barrels of reserves.

ChevronTexaco, Shell and TotalFinaElf are among the other big oil companies that have shown interest in bidding for licenses to explore other areas in auctions scheduled for October. This interest has sent expectations soaring in the two-island country of 1,000 square miles and 160,000 people where the main export crop is cocoa and the average annual income is $ 280.
"Oil has created dreams of grandeur for a tiny place that has been on the margins of global affairs for many years," said Gerhard Seibert, an authority on Sao Tome at the Institute of Tropical Scientific Investigation in Lisbon, Portugal. "The army and the political and business elites sense something coming and want a part of it."

American and European companies are not the only potential investors in Sao Tome's nascent oil industry. Nigeria has a treaty with Sao Tome establishing a joint development zone in waters off both countries, allowing 60 % of the revenue from the area to go to Nigeria. And Sonangol, Angola's state-controlled oil company, has reached a preliminary agreement to train Sao Tomean oil officials and invest in future projects.
The coup leader, Major Fernando Pereira, reportedly said that the troops under his command had no plans to alter existing agreements. He also agreed to talks on with representatives from the US, the Community of Portuguese Speaking Countries and Nigeria, in one of the first indications that tension in the former Portuguese colony could ease.

Still, most Cabinet members, including the oil minister, Rafael Branco, were being held captive, adding to uncertainty over the effect the coup may have on oil exploration. The coup has already affected Sao Tome's fragile economy: The World Bank said it would suspend all aid to the nation as long as the coup leaders remained in power.
"Our contracts are with the government of Sao Tome, so we're assuming that they will be honoured no matter what takes place," said John Coleman, director of investor relations at Chrome, a publicly traded company whose formal name is Environmental Remediation Holdings. But, he also said, "It's too early to tell what's going to happen."
Marcia Zilensky, a spokeswoman here for ExxonMobil, said the company was "closely following the situation like everybody else." ExxonMobil has yet to start operations in Sao Tome.

No oil has yet been drilled in Sao Tome and none is expected to be extracted until 2007 or 2008, but the country has nonetheless become a international flash point, leading experts on West Africa to speculate it was only a matter of time before jostling for power ahead of the oil rush would evolve into political instability. Revenue from licensing agreements alone could reach $ 200 mm in the next two years, an amount about four times the size of the national budget.
"Sao Tome is a microstate with limited capacity to absorb a big influx of cash," said Stephen Harrison, director of the Africa program at the Centre for Strategic and International Studies in Washington. "It's also in a neighbourhood with two very muscular players, Angola and Nigeria, opening the door for runaway competition for its resources."

Fradique Bandeira de Menezes, the president of Sao Tome, was in the Nigerian capital of Abuja when Pereira led the apparently bloodless revolution. The president accused mutinous troops of being influenced by "the smellof oil." He has remained in Nigeria since then.
James Burkhard, an Africa analyst at Cambridge Energy Research Associates, said investors were expecting the coup to collapse in the face of international pressure much in the way a similar power grab in 1995 dissipated after Angola stepped in to mediate between parties.