Nigerian oil block sales appear to be heading for a messy conclusion, as the Nigerian National Petroleum Corporation (NNPC) at the weekend said there was no going back on its decision to operate the fields put on offer by Shell.
Shell, along with foreign oil major partners Total and Eni, have agreed to sell their share in four on-shore oil blocks which Shell operates in the Niger Delta wetlands but they need ministerial approval.
Deals for the blocks, one of which attracted a bid of over $1 billion, have already been agreed upon and a 10 percent deposit paid. These payments triggered a 180-day window for the deals to be completed, the first of which expires at the end of this month, according to sources involved.
The state owned Nigerian National Petroleum Corporation (NNPC), which owns the majority stake in the blocks, is at loggerheads with the buyers because it says its subsidiary will take over from Shell as operator of the fields, once the deals are completed.
A consortium led by Poland’s Kulczk Oil Ventures agreed a deal for Shell’s block OML 42, while independent energy firm Eland Oil, in partnership with Nigeria’s Starcrest, has agreed to buy OML 40. Niger Delta E&P and Petrolin won OML 34 and Conoil, owned by Nigerian billionaire, Mike Adenuga, picked up the biggest block OML 30.
Financial backers will not want to lose their initial funding – in one case topping $100 million, while the NNPC and Shell will want deals to go through, to realise financial returns, so a compromise should be found.
But the NNPC insisted weekend, that it has taken over the operatorship of these blocks and it would not rescind its decision on the matter.
Levi Ajuonuma, the NNPC’s group general manager, public affairs, who spoke to BusinessDay weekend, said the NNPC has not changed its mind, saying “we cannot play second fiddle to anybody anymore.”
The NNPC says it bases its action on section 2.4.1 of the Joint Operating Agreement (JOA) which allows a senior partner to take over the operatorship of blocks which any of its joint venture partners decides to relinquish operatorship of.
The section states that when an operator ceases to be the operator of a block, it shall be removed by the non operators in any of the following circumstance: If the operator has signed or purports to have signed to relinquish the operatorship of the oil block, pursuant to clause 19.3 of this agreement, its power, responsibilities of supervision and management as operators, then NNPC can take over.
Already, the NNPC has ordered that the assets be transferred to the NPDC, it production arm.
But some industry operators have said that the action is against the spirit of local content development, as it would mean a huge set back to the empowerment of operators of indigenous oil companies which had hoped that they could increase their capacities through the acquisition of such investments.
Others are of the view that the NNPCs decision is a poor one, as they believe that the NPDC would not have the financial and technical capability to handle the development of the blocks.
The appropriate action, in their opinion, would be that the ownership of the oil blocks be spread among other Nigerian firms.
The NPDC is already responding in this direction by engaging a service -contract with a firm that will provide both funding and technical capacity.
The NPDC currently produces over 100,000 barrels per day, as an operator of other blocks.
Shell, Total is selling their combined 45 percent of the blocks OML 30, 34, 40 and 42, while NNPC holds the remaining 55 percent.