Nigeria in scandalous crude oil grab


Risk $8bn judgment award

Hector Igbikiowubo

THREE of the international oil companies operating production sharing contracts, PSCs with the Federal Government through the Nigerian National Petroleum Corporation, NNPC have dragged the later before arbitration seeking restitution over alleged scandalous crude oil grab denying them revenues in excess of $8 billion.

If feelers from presentations made by the legal representation of both the IOCs and the government before the arbitration in Abuja are anything to go by, chances are that judgment may be awarded against Nigeria with attendant costs.

The Nigeria Agip Oil Company and Mobil Producing Nigeria Unlimited had gone before arbitration demanding restitution after government had challenged their interpretation of the PSCs governing operations of the Abo field and Erha respectively.

Hearing in both cases has been concluded, the legal representation of government was poorly handled and judgment is expected anytime soon.

Shell Nigeria Exploration and Production Company, operator of the Bonga oil field has also dragged the government through the NNPC before arbitration for the same reason and hearing is scheduled to commence in November this year.

The PSC stipulates that the contractor, that is, the operator of the field, and is to determine how the crude oil is split.

But in 2008, government jettisoned the terms of the PSCs stipulating the terms under which the crude oil should be split and took a unilateral action culminating in the seizure of crude oil volumes from Agip, Mobil and Shell valued between $7 bn and $8 bn.

Hearing on the Abo arbitration started in December 2010 and ended in January 2011, and was adjourned for judgment, while the hearing on Erha started in May, 2011 and has since been adjourned for judgment.

An official within the legal department of the NNPC claims that some action had been initiated at the attorney general’s level to get affected parties to the negotiating table but not much has come out of this.

When contacted, Dr. Levi Ajuonuma, group general manager in charge of the corporation’s group public affairs division noted that since the matter had been dragged before arbitration, the best thing would be to refrain stirring any controversy.

On efforts to arrive at amicable settlement, he admitted that efforts are being made to resolve outstanding issues to the satisfaction of all parties concerned, ‘I can assure you that we value the relationship with our joint venture partners and that Nigeria remains an important investment destination choice in Sub-Saharan Africa’.

However, joint venture company officials who did not want their names in print for fear of reprimand dismissed this claim of attempts at amicable resolution of the matter, noting that spirited efforts were made by the contractors to get government to see reason, and that the contractors only resorted to arbitration when it was clear that government was not ready to listen.

In an official reaction to Sweetcrude enquiry, ExxonMobil explained that its affiliate, Esso Exploration and Production Nigeria Limited (EEPNL) is the operator of the Erha block under the OML133 Production Sharing Contract (PSC) with the Nigerian National Petroleum Corporation (NNPC).

“The Erha Contractor and NNPC are in disagreement over the Parties’ respective entitlements to lift crude oil under the Erha PSC.
The Erha Contractor’s efforts to resolve this disagreement through discussions with NNPC and the Federal Government of Nigeria have, to date, been unsuccessful.
In order to protect its rights, the Erha Contractor issued a Notice of Arbitration in July 2009, pursuant the dispute resolution procedures of the Erha PSC.
We can confirm that the arbitration hearing ended in Abuja on March 2, 2011, and the parties are currently awaiting an award by the Tribunal.
It would not be appropriate for us to comment on the specifics of a matter that currently is under active arbitration.
Even as arbitration proceedings continue, the Erha Contractor remains open to working directly with NNPC and the Federal Government of Nigeria to resolve this matter.”
The Erha Contractor is comprised of EEPNL (56.25%) and Shell Nigeria Exploration and Production Company Limited, SNEPCO (43.75%).

Erha field
Esso Exploration and Production Nigeria Limited (EEPNL), an affiliate of ExxonMobil Corporation started production from the world-class Erha deepwater development located approximately 60 miles (97 kilometers) offshore Nigeria in 3,900 feet (1,200 meters) of water, in 2006.
The development includes Erha and Erha North, a satellite development due to come onstream in the third quarter of this year. This is EEPNL’s first operated production from Nigeria’s deepwater Block 209. Erha production is expected to ramp up to 150,000 barrels a day by the third quarter, and Erha North will contribute another 40,000 daily barrels by year-end for a total production output of 190,000 barrels a day. Erha North will be on production within 30 months of discovery, setting a Nigeria deepwater record. Associated natural gas production from the projects will be approximately 300 million cubic feet a day. The gas will be reinjected for reservoir management.
The Erha and Erha North developments consist of 32 subsea wells tied to a floating production storage and offloading (FPSO) vessel. A single-point mooring buoy, one of the world’s largest, will be used for crude carrier docking and product transfer. The facilities were constructed within budget. The total cost for the two developments, including facilities and drilling, is approximately $3.5 billion.

“Erha and Erha North are another demonstration of ExxonMobil’s global project execution capability and deepwater technology expertise,” said Stuart McGill, ExxonMobil’s senior vice president. “Along with our other successful West Africa deepwater developments, Erha and Erha North are helping ExxonMobil meet growing global demand for oil. In addition, these major projects demonstrate our continued commitment to support Nigeria in meeting national goals. Erha and Erha North, along with the recent startup of the Yoho full-field facilities, underscore our commitment to increasing local business development and capacity.”

The Erha developments included contract awards to several Nigerian companies for in-country fabrication services, logistics support, as well as training, development, and employment of Nigerians. Activities involved fabrication of the mooring buoy, subsea manifolds, drilling unit pilings, and modules for the FPSO such as the flare tower, pipe racks, and riser protection frames.

Abo field
Abo, Nigeria’s first deepwater oil field is located in the southeastern part of Oil Mining Lease (OML) 125, about 34 miles (55 kilometers) off the coast in water depths ranging from 1,476 to 2,461 feet (450 to 750 meters). The oil field is estimated to hold more than 700 million barrels in reserves.

Abo is operated under a production sharing contract between Nigerian Agip Exploration; Nigerian National Petroleum Corporation; Shell Nigeria Exploration and Production Company; and Oando PLC.

Development of the field consisted of several subsea wells connected to the Abo FPSO, which processes, stores and discharges oil into export tankers. The FPSO has a storage capacity of 900,000 bopd and an oil treatment capacity of up to 45,000 bopd, a water injection capacity of 30,000 /pd and a gas injection capacity of 35 MMcf/d. Due to the Government’s regulations of zero flaring, the associated gas is re-injected into the reservoir.

Prosafe received a contract for the provision of an FPSO for the Abo field. The company supplied the Suexmax Grey Warrior tanker, and converted, operates and owns the unit on a 100% basis. Measuring 919 feet (280 meters) in length, the tanker was converted in 2002, and was deployed to the field in the first quarter of 2003.
The Abo field came online in April 2003, and produces about 40,000 bopd.

Bonga field
In November 2005, The Shell Nigeria Exploration and Production Company Limited (SNEPCo) began to produce oil
and gas at Bonga, 120 kilometres (km) offshore Nigeria in the Gulf of Guinea. The project – the country’s first in deep water – increased Nigeria’s oil capacity by 10%.

First discovered in 1995, Bonga lies in water 1,000 metres deep across an area of 60 square km. It has the capacity to produce more than 200,000 barrels of oil a day and 150 million standard cubic feet of gas a day. By the end of March 2010, Bonga had produced over 280 million barrels of oil.

Bonga has set new standards for the Nigerian energy industry. The skills and technology we have used here could enable Nigeria to become a major offshore producer and help meet global demand for energy long into the future.

The Bonga field supplies gas to the Nigeria Liquefied Natural Gas Company Limited (NLNG) at Bonny Island, from where it is exported to European and other markets. Oil is exported globally from the Bonga FPSO – the giant floating, production, storage and offloading vessel that is at the heart of the field’s development.

Advanced technology and engineering

Bonga is one of the world’s largest FPSOs. Three hundred metres long and the height of a12-storey building, Bonga’s deck is the size of three football fields. It receives crude from production wells on the seabed. The oil is processed onboard, stored and then sent to the single point mooring (SPM) – a buoy anchored nearby that is used to load it onto tankers for export. When fully laden with oil, Bonga weighs 300,000 tons. It is held in place by 500 – tonne anchors linked by 20 km of high-strength chains.

Constructing Bonga was an international effort involving thousands of workers across the globe. Samsung Heavy
Industries built the hull in South Korea. Tug boats then towed it 24,000 km via Egypt’s Suez Canal to Wallsend in the north of England, where it was fitted with processing equipment modules before making its final journey to Nigeria where the last of the equipment was installed.

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