More reasons have emerged as to why Nigeria’s Department of Petroleum Resources (DPR) decided to revoke five oil mining licences (OML) and one oil prospecting licence (OPL) belonging to five companies.
The DPR, in a public notice issued on Thursday, said the revocation was based on a presidential directive to “recover legacy debts” owed by the companies operating the licences.
“Notice is hereby given that in furtherance of the presidential directive on recovery of legacy debts owed the federation and in line with the provisions of the Petroleum Act Cap. P10 LFN 2004, the under-listed Oil Mining Leases (OML) and Oil Prospecting Licence (OPL) have been revoked by the Federal Government of Nigeria for non-compliance with statutory regulatory obligations,” DPR said a statement on Thursday.
An OPL gives its holder the exclusive right to explore for and develop oil and gas within a defined area while an OML gives its holder the exclusive right to explore for, develop and produce oil and gas within a defined area.
BusinessDay had earlier reported on May 8 that the Federal Government had reportedly revoked licences of six OMLs and one oil prospecting lease (OPL) in the onshore, shallow water and deepwater Niger Delta basin over alleged non-payment of royalties.
The assets affected are OML 98 controlled by Pan Ocean, OMLs 120 and 121 held by Allied Energy, now Erin Energy (which is now bankrupt), OML 108 owned by Express Petroleum, OML 110 held by Cavendish Petroleum Nigeria Limited, and OPL 206 held by Summit Oil International, a company founded by the late Moshood Abiola.
But while the DPR said it took the action to “recover legacy debts”, sources close to the government agency said the move was to calm speculations going around about the revocation of licences and to ascertain those that are really affected.
While some industry stakeholders are alleging double standards in the Federal Government’s action as it was said to have applied different and milder sanctions on other companies that committed the same offence, other stakeholders are of the opinion that the decision would send positive signals to others who currently occupy oil fields that are not producing.
Another industry source close to the matter said all the revocations may not make sense as Pan Ocean is finding it a bit surprising because it has invested so much money and technology in producing oil from OML 98 which is currently producing about 3,500 bpd.
“A substantial volume of oil and gas is being produced. So what will happen to the million-dollar investments invested by Pan Ocean in developing the bloc or its 40 percent working interest? Will it be given to another person?” an industry expert asked.
Ayodele Oni, energy partner at Bloomfield Law Practice, said the government acted within the scope of the laws governing the petroleum sector and each breach has a corresponding penalty.
“Remember also that the minister possesses discretionary powers to revoke or withdraw oil licences,” Oni said.
Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), said that it’s within the powers of DPR to revoke licences, especially oil blocs not producing.
“Why keep something that is depriving the country of huge revenue which we desperately need now when we can find other investors?” Henry told BusinessDay.
On the implication of DPR’s decision going forward, Henry said, “It means people that bid for licences should be those that have both financial and technical capacity, which implies DPR should make sure those that bid for these licences are well vetted.
“It means we will probably get quality investment and we will have more people who actually can do the business and maybe we eliminate the card-carrying contractor who just wants to get the licences to sell.”
OML 98 controlled by Pan Ocean
Located in the onshore Niger Delta, OML 98 is the only asset belonging to a Joint Venture (JV) between NNPC which owns 60 percent working interest and Pan Ocean Oil which has 40 percent.
According to a source close to the matter, OML 98 has a more delicate and complicated relationship between the JV partners, the NNPC represented by National Petroleum Investment Management Services (NAPIMS), the investment and management arm of NNPC, and Pan Ocean Oil Corporation.
The source disclosed that high-level negotiations held previously to resolve the issues of outstanding payment as well as related projects tied to the JV and other assets within the vicinity of OML 98 between representatives of the Federal Ministry of Petroleum Resources led by the minister of state for Petroleum Resources, Ibe Kachikwu, and Pan Ocean had failed to yield any positive result.
Another meeting was scheduled for early last month to iron out all matters regarding the asset with Pan Ocean agreeing to work with the government to ensure smooth resolution. However, no positive result was achieved after the meeting.
OML 98 is located in the Northern Delta Depobelt and in the northern fringe of Niger Delta Basin. It covers an area of 523 km² in Edo and Delta States. Fields within the bloc include the Ogharefe, Ologbo, Asaboro, Adolo, Owe, Ossiomo, Ona and Erimwindu fields. Pan Ocean commenced crude oil production at the Ogharefe field (OML 98) with an initial production of about 11,000bpd in 1976.
OML 108 owned by Express Petroleum
Earlier in the year, reports had made the rounds hinting that many oil licences would not be renewed, and OPL 108 owned by Express Petroleum was among those listed. The licences had expired in 2014. However, five years later, aside from defaulting in payment of royalties, the licence for OML 108 is yet to be renewed.
“OML 108 hasn’t been a vibrant asset through the years. They have found it difficult to maintain production and sustain the asset. That’s why it was difficult paying royalties and renewing,” the source added.
The OML 108 (formerly OPL 74) assigned 40 percent interest to Conoco Energy Nigeria Limited as technical advisor. Conoco relinquished its 40 percent stake in the bloc in 2004 and transferred it to Shebah Exploration & Production Company Limited same year.
OML 108 covers an area of 750sqkm in a water depth of 88ft (30m) in the western edge of the Niger Delta in shallow water offshore Nigeria, six miles southwest of Chevron’s Meren field, but reaches water depth of 700ft (213m) on the southern portion of OML 108.
The bloc is composed of oil-producing Ukpokiti field, Kunza discovery and deeper pool prospects in the southern portion of the bloc. The Ukpokiti field comprises five oil wells and one injector well.
OMLs 120 and 121 held by Allied Energy
After Allied Energy plc (now Erin Energy) acquired 40 percent working interest in Nigerian OMLs 120 and 121 from Nigerian Agip Exploration, a subsidiary of Eni SpA, in 2012, not much production activity has been done on those fields.
In April 2018, New York and Johannesburg-listed Erin Energy filed for bankruptcy as it sought to restructure its debt and regain financial viability as Allied Energy plc and Camac International Nigeria Ltd founded by renowned Nigerian-born industrialist Kase Lawal.
Erin bought what it called the “economic rights” to Nigerian oil mining licences 120 and 121, which included the productive Oyo oil field owned by Lawal and his family. However, Oyo oil field turned out not to be as productive as forecast as Erin shareholders sued the CEO and certain directors of Erin over the deal.
The shareholders claimed the CEO of Erin Energy overpaid by almost $200 million in the Oyo field deal that also benefitted Allied Energy, another company controlled by Kase Lawal.
The shareholders also claimed that certain directors failed to protect the negotiations from the CEO’s undue influence and then sent out the transaction proxy which misleadingly portrayed the deal process as pristine.
The legal dispute started in 2012 when Allied Energy bought 40 percent of the oil rights from a subsidiary of Italian oil major ENI. However, Allied only paid $100 million of a $270 million purchase price, according to court records, putting Erin Energy in jeopardy leading to a subsequent embarrassing scenario for Erin Energy.
In another development, a Federal Court in Texas, United States of America (USA), also ruled in mid-March 2018 in favour of two drilling firms Transocean Offshore Gulf of Guinea VII and Indigo Drillings on claim of $14 million against Erin Energy. The claims arose from unpaid bills in respect of work which they carried out on OMLs 120 and 121 offshore Nigeria.
OML 110 held by Cavendish Petroleum Nigeria Limited
OML 110 has been operated by the family-owned Nigerian firm Cavendish Petroleum since 1996 but has not had an official titleholder since Cavendish’s rights to the zone expired in 2016.
Cavendish Petroleum was founded by the late entrepreneur Alhaji Mai Deribe, who hailed from the northern Borno State. He was able to pull strings under Sani Abacha, military head of state from 1993 to 1998, to pick up oil blocs and become one of the richest businessmen in his state.
OPL 206 held by Summit Oil International
The only OPL among the six is OPL 206, held by Summit Oil International, a company founded by the late Moshood Abiola, politician and businessman, whose victory at the country’s presidential elections in 1993 was annulled by the military. OPL 206 has over the years struggled to produce any commercial quantity of crude oil despite several attempts.