OUTSIDE the courtroom in which it is being vigorously contested, the expropriation by the Federal Government (FG) of South Atlantic Petroleum Ltd's (SAPETRO) OPL 246 continues to generate intense publicity and wide range of public commentary (informed and un-informed). Some of the commentary is impartial, but some of it is clearly inspired by covert interests.
The subject matter of the commentary is a pending litigation; SAPETRO VS Minister of Petroleum Resources, in which the FG purported expropriation of SAPETRO's rights in the extant portion of OPL 246 are being challenged by the company. The case is now in the Appeal Court where an Interim Injunction has been granted to SAPETRO against the Ministry of Petroleum Resources.
On Wednesday,7th February 2007, for example, two daily newspapers — THIS DAY and VANGUARD — published almost identical articles with the title “Danjuma's oil firm violated government's indigenization policy, FG tells court.” This was about one week after the court of appeal sitting at Lagos restrained the FG from proceeding with its attempt to alienate the subject matter of SAPETRO's claims.
The publications were remarkable because they reproduced as argument made before the court on 6th February 2007, the contents of a further affidavit filed by the FG on 26th January 2007.
The copious rebuttal of this tendentious and often perjurious affidavit by SAPETRO was not referred to. More remarkably, there were in fact no arguments on 6 February 2007 because the court of appeal did not empanel on that date. The reporters were obviously not in court on the 6th February 2007!!
The further affidavit filed by the Department of Petroleum Resources (DPR) is itself remarkable. For a document emanating from a statutory agency it is highly personal, very emotional and almost desperate in its tone.
Several statements made therein are misleading or deliberately false. The affidavit filed in response by SAPETRO on 2nd February 2007 contains documents originating from DPR itself as well as NNPC and the Minister of Petroleum which easily rebuts the main misrepresentations presented so enthusiastically by one Joseph Tolorunse from the DPR. Even facts previously admitted in open court by leading counsel for DPR in the High Court are amazingly denied on behalf of Professor Oditah SAN in a manner that is likely to embarrass both counsel and client.
In the midst of this type of information manipulation, the basic facts are untouched. SAPETRO is a “poster child” for responsible and effective indigenous participation in the national heritage that is the petroleum industry.
The public may wonder whether the extant policy to allow Nigerians to benefit from that heritage is somehow offensive in the primary success scenario for the policy.
The public may also wonder, whether the success of SAPETRO on a highly speculative investment deep offshore is a reason for recrimination and penalization, more so when commission agents who populate the industry continue to prosper under the same administration.
The origin of the indigenous participation policy in the Oil Sector was an idea mooted three years after General Babangida assumed office. The Federal Government mooted the prospect of liberalization of the Nigerian Upstream Sector by inviting indigenous companies to participate in oil exploration and production, which until then was the exclusive preserve of big multinational players.
The plan was actualized under Professor Jubril Aminu as Minister of Petroleum Resources between 1990 and 1992. The Official policy (Indigenous Concession Programme, “ICP”) was effected through the discretionary award of acreages to indigenous (Nigerian owned companies) and some form of preferential treatment was even accorded to indigenous bidders participating in the 1991 bidding round for oil acreages.
SAPETRO applied in September 1997 for the allocation of block OPL 246 in deep offshore within the continental shelf of the Federal Republic of Nigeria. The application contained very special merits. It was the first application presented to DPR, which was accompanied by the Letters of Intent of multinational companies indicating their disposition to participate together with an indigenous company as financial and technical partners.
In March 1998, SAPETRO was allocated OPL 246 and after payment of a signature bonus very substantial at that time when Nigeria deep offshore was not very attractive received it's Deed of Assignment from the Government.
By a letter dated 26th May 1998, the Honourable Minister of Petroleum Resources consented to the assignment by SAPETRO 40% of its interest in the block to foreign companies while retaining the remaining 60% of the direct equitable interests in the OPL to explore and develop it on a sole risk basis.
After the inauguration of President Obasanjo's democratic administration in 1999, the Christopher Kolade panel was constituted to review issues relating to all existing indigenous deep offshore acreage allocations. In total, all but six acreage allocations were cancelled. OPL 246 was one of those not affected by the cancellations.
On the 5th of July 2003, the “Deep Water Block Allocation to Companies (Back-in Rights) Regulations” was signed by Mr. President- with the main focus being “Federal Government's participation rights” by “acquiring five-sixths” of the indigenous company's interests, in the deep offshore blocks.
Pursuant to the said Back-in Rights Regulations, the Federal Government of Nigeria — represented by the Nigerian National Petroleum Corporation (NNPC) acquired 50% out of the 60% interest of the indigenous company (SAPETRO) in the Oil Mining Lease (OML), which was granted out of OPL 246. The foreign multinationals were not affected.
It is pertinent to recall that when SAPETRO applied for a grant of an OML covering a portion of the area of OPL 246 in August 2003, SAPETRO was requested by DPR to exclude the South East corner of the block (approximately 200km2) from OPL 246 map and to donate it to the Joint Development Zone (JDZ) of Nigeria and Sao Tome.
SAPETRO obliged this request in good faith and without asking for any compensation, in full compliance and respect for international treaties entered into by the Federal Republic of Nigeria. The geographical coordinates of OPL 246 were consequently changed but OPL maintained its status and nomenclature as OPL 246 with the full acknowledgment of DPR. This point is significant because of recent specious argument by DPR through Professor Oditah, that any change in the co-ordinates of OPL destroys the grant thereof.
SAPETRO has successfully built a team of Nigerian geologists, engineers, lawyers and financial officers who have benefitted from the abundant transfer of technology from her foreign partners in the most advanced frontier area of the oil and gas industry. Some of SAPETRO's technical staff are integrated in the development operations of OML 130. These SAPETRO staff has acquired great wealth of know-how and experience in all aspects of the oil and gas business and technology.
SAPETRO is equipped with state-of-the-art information technology in its brand new office tower in Victoria Island. Thus, making her one of the ‘most technologically advanced indigenous oil and gas companies in Nigeria.
Taking a bold step, and in order to demonstrate its maturity as a Nigerian indigenous oil and gas company, SAPETRO independently participated in an open international competitive bid in December 2004 and was awarded a block in the Republic of Benin which it is presently Operating. This offshore block includes the rehabilitation of the well-known SEME Oil Field.
On the 25th of April 2005 NNPC, SAPETRO and its Partners executed a PSC pursuant to which SAPETRO was appointed as the sole Contractor to NNPC for the PSC through negotiation with the Federal Government and as compensation for the expropriation of its rights in accordance with the Petroleum Act. SAPETRO's Partner was designated as the operator under the Contract to execute the petroleum operations on the Contractor's behalf.
With the approval of the Honourable Minister and the consent of NNPC, SAPETRO assigned to another Partner a part of its rights and obligations as a “Contractor” under the PSC in respect of OML 130. NNPC retains the ownership of the 50% equity interest in OML 130, which was acquired out of the 60% original interest of SAPETRO.
In consideration of becoming the divestee of a part of the Contractor rights and obligations under the PSC, the Partner paid to SAPETRO a certain sum of money a great portion of which was refunded to its OPL Partners being past cost paid on behalf of SAPETRO by the Partners.
Also SAPETRO and its PSC Co-Contractor respectively confirmed to NNPC that only the Contractor's expenses incurred in respect of past and future Petroleum Operations as defined in the PSC are recoverable, it being understood that any consideration paid or payable by the Co-Contractor to SAPETRO, not being Cost Oil as defined in the PSC, is not recoverable.
In OML 130, the Akpo development project is steaming ahead and is expected to come on stream in late 2008 and eventually reach peak production of 225,000 barrels of oil equivalent per day, of which nearly 80% is condensate.
In addition, after yielding several promising discoveries, the Egina field on OML 130 may be suitable for stand-alone development, with the peak production similar to Akpo.
With these two developments, SAPETRO and its partners will add in excess of 2.5 billion barrels to the oil reserves of the nation, and a production of 450,000 barrels/day.
After recovery of costs, the FG/ NNPC will benefit 5 7.5% of production oil (Tax oil and Profit oil), while SAPETRO and its other Partners will share the remaining 42.5%
All the above wealth produced by SAPETRO for the nation and future Nigerians should be compared with the heavy loses that will be produced by DPR through the nullification of the Petroleum Act by insisting on the non-observance of relinquishment obligations at OML stage. The nation will lose 50% of all the OML acreage required to be relinquished after 10 years of production.
According to THIS DAY publication of 22nd January 2007 “the DPR Director, in a letter to Esso E and P, dated February 8, 2006 had confirmed that “once OPL 209 is converted to an OML with the relinquishment of 50% of the block, no further relinquishments will be required, as Esso would have met all the relinquishment obligations regarding this bloc”.
“This decision of Mr. Chukwueke purports to amend the Act. The Director of DPR, Mr. Chukwueke, places himself over the legislators in the National Assembly by imposing his criteria and advising the petroleum companies not to pay attention to the Petroleum Act and to follow the instructions given by the Director of the DPR. This conflicts with the Petroleum Act 1969 and produces huge economic loses to the country.”
Since May 2006, the FG (Ministry of Petroleum Resources) has continued to insist on their right to expropriate the extant portion of the OPL, after issuing one OML out of OPL 246. SAPETRO is contending such action in the court and now the case is in the Appeal Court.
The expropriation if allowed to stand will not only affect SAPETRO, but also its Partners. These are multinational corporations that are listed in the international stock exchange of New York, London, Paris etc. Such an expropriation will attract serious international consequences for Nigeria as it gives the impression that foreign investments are not safe in Nigeria and Nigeria does not respect international bilateral agreements.
The application of back-in-rights Regulations in the OMLs arising from OPL 246 is in -fact an effective relinquishment of 50% of the block.
The so called “statutory duty” for the expropriation referred to by the FG/DPR is the desire to transfer SAPETRO's rights (a 100% wholly owned Nigerian company) to a foreign company controlled by an Indian businessman called, Lakshmi Mittal who has already been awarded several oil blocks by the N G in 2006 alone. The public is entitled to wonder whether it can be in the national interest to expropriate an indigenous interest in order to arrange a deal with a foreign businessman no matter how attractive he may be.
By the bad example demonstrated in SAPETRO's case, this administration is moving in a direction (indigenous companies to foreign companies) opposite to that intended by the Indigenous Concession Programme (ICP) (from foreign companies to indigenous companies). It appears therefore that to the question: who actually is violating the indigenization policy? The answer will not be Danjuma's oil firm”!
Mr. Emeka Obioma, a public affairs analyst and commentator wrote in from Lagos.
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