Thursday, August 29, 2013

FG Loses $40bn in Investments Non-producing Oil Leases

Local and foreign companies that won about 77 oil blocks in the oil
licensing rounds conducted by the federal government in 2005, 2006 and
2007 are yet to bring 76 of the blocks into production, thus
effectively stalling about $40 billion in investments that they
pledged in the country's rail, power and downstream infrastructure
sectors,THISDAY has learnt.
It also emerged thursday that the Shell Petroleum Development Company
(SPDC) may offerthree more Nigerian oil blocks for sale in line with
its divestment plan. The blocks likely to be sold, according to
sources, are Oil Mining Leases (OMLs) 74, 77 and 79, which were among
the expired leasesfour years ago.
Speaking thursday in Lagos, on the "Review of 2005-2007 Licensing
Rounds and Government's Perspectives", the Director of the Department
of Petroleum Resources (DPR), Mr. George Osahon, stated that the
inability of these investors to meet their work obligations in the 76
blocks, had also hampered the federal government's efforts to meet
crude oil reserves targets of 40 billion barrels and a daily
production of four million barrels per day.
He disclosed that only one oil blocks was producingamong all the
acreages offered to investors in 2005, 2006 and 2007, while only a few
Production Sharing Contracts (PSCs) had been signed with the winners
of the leases
A total of 44 oil blocks were awarded in the 2005 licensing rounds,
while 16 and 17 acreages were awarded in 2006 and 2005, respectively,
by the administration of former President Olusegun Obasanjo.
Aside the payment of signature bonuses, which amounted to several
billions of dollars, the successful bidders also pledged to make
investments worth about $40 billion in the construction of rail
system, power plants, refineries and other downstream infrastructures.
In a bid to drive investments to needed areas such as power
generation, downstream and railway construction, the federal
government gave the right of first refusal on some of the blocks
offered in May 2007 to companies that pledged to investa minimum of $2
billion into these areas.
However, the major oil companies shunned the 2007 bidding because many
of the blocks offered by the government were retrieved from them over
their failure to develop the blocks within the time-frame allowed by
the government.
Osahon, however, noted that though the federal government was not
interested in revoking the blocks, something needed to be done
urgently to address the challenges facing the operators.
"Only one block is on production, while less than 30 per cent of
blocks are actively worked; several PSCs are yet to be signed; bank
guarantees are yetto be put in place; work obligations not respected;
at a crossroads with concessionaire over order of operations; while
downstream obligations are not performed," he explained.
On the way forward, Osahon charged the awardees and operators to take
advantage of yesterday's forum to build relationship with prospective
investors and financial institutions and also build synergies where
possible, as in contiguous blocks fordata acquisition or conjugate
He assured that the DPR would entertain concernof awardees within the
next three weeks.
According to him, specific challenges such as evacuation and
downstream project obligation and other issues or obstacles to
operations should be addressed.
He said the government was concerned over the wrong impression about
the investment climate in the Petroleum Industry Bill (PIB); limited
attraction for investors; limited activities in the industry; and the
inability to establish national competitive advantage in the global
energy scene.
Osahon listed security issues; technical challenges;partnership issues
and limited capacity and financing as some of the challenges facing
the operators.
However, Essar Energy, operator of OPL 226 said its major challenge
was that it was chasing oil and gas in deep water, even though the
acreage is shallow water by definition.
The company said with this challenge, it would require subsea
infrastructure, thus requiring more time to meet its work obligations.
The company also noted that with the roll over extension of
Exploration Phase 1 into Phase 2 expiring in March 2014, the
exploration phase 1 would require further extension to 2015.
The Managing Director of Oando Exploration and Production Limited,
operators of OPL 278, Mr. Pade Durotoye, said his company was facing
the challenges of security; acquiring seismic data and difficult
terrain as the block had both land part and marine part.
Meanwhile, THISDAY gathered that the delay in the renewal of the oil
licences more than four yearsafter, might have prompted Shell's
resolve to sell the oil blocks.
Shell, the biggest operator in Nigeria, has onshore assets that can
produce as much as one million barrels of crude oil per day. Its
partners in these projects are the Nigerian National Petroleum
Corporation (NNPC), Italy's Eni and France's Total.
Several onshore drilling licences belonging to Shell and Chevron,
which expired as far back as 2009 have not been renewed, despite
federal government'sassurance that the oil licences would be renewed
in 2012. The oil blocks are OMLs 71, 72, 74, 77 and 79.
A Shell spokesman, Precious Okolobo, declined to respond to THISDAY
inquiry on the planned sale of the oil blocks. "We do not have any
comment on your inquiry", Okolobo said, in an SMS message to THISDAY.
However, THISDAY gathered that the delay in therenewal of the oil
licences, might have prompted Shell's resolve to sell the oil blocks.
The Royal Dutch firm in July announced that it would sell four more
oil blocks in Niger Delta in its latest divestment from Nigeria. The
blocks putup for grab included OMLs 71 and 72, which licenceswere
awaiting renewal by the Minister of Petroleum Resources.
Industry sources said the OML 72 has proven oil reserves of around 120
million barrels, while OML 71has significantly lower reserves. The two
onshore blocks, lie in the Ogoniland region where Shell had
experienced long-running disputes with local communities, multiple oil
spills and widespread pipeline sabotage and theft.
It was learnt that the oil majors were initially reluctant to pay the
amount, which the Ministry of Petroleum Resources said was the
required signature bonuses for the oil blocks.
They were said to have initially viewed the renewal of the licences as
their right but became jolted after the China National Oil Corporation
(CNOOC) made a $50 billion offer to the federal governmentto acquire a
49 per cent stake, translating to 6 billion barrels in oil reserves in
23 of the oil leasesheld by the IOCs.
The CNOOC, acting under the auspices of Sunrise Consortium had applied
for 49 per cent equity participation in the following blocks: OMLs 67,
68, and 70; ii. OMLs 11 and 13; iii. OMLs 71, 72, 74, 77, 79, 83, 85,
86, 88, 89, 90, 91, 95, 118, 127, 133, 139 and 140.
Chevron and Exxon, after the expiration of their oil licences expired
in November, 2008 had won a year'sextension, but Shell had sought a
court injunctionallowing it to continue to operate.
However the federal government, through the Ministry of Petroleum
Resources in November 2008, renewed three shallow water oil licences
jointly operated by the NNPC and Exxonmobil, granting it (Mobil)
leases for a further 20 years with the option to renew again. The US
oil major was said to have paid an estimated $600 million signature
bonus as revenue to the federal government for the three blocks
estimated to havea combined output of 580,000 barrels per day of crude
are OMLs 67, 68 and 70. Shell, which later withdrew its court case
against the government was seeking the renewal of five of its leases -
OMLs71, 72, 74, 77 and 79.
The NNPC's Group Executive Director (GED) in charge of Exploration and
Production, Mr. Abiye Membere, explained that the DPR, which was in
charge of regulatory issues, had been instructed toput together a
template for renewal of oil licences.
He explained that due to lapses discovered in the past ones handled by
the NNPC, the Minister of Petroleum Resources, Mrs. Diezani
Alison-Madueke, on assumption of office, issued directives that all
regulatory issues be handle by the DPR henceforth.Membere said, the
minister had also directed the DPR to put together a new template
which will serve as a guide for renewal of oil block licences, adding
that the issue of what the oil companies should be paid had already
been settled

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