A Review of the Nigerian Energy Industry

Oil block sales: Asset management more important than operatorship – Shell

Clara Nwachukwu

11 September 2012, Sweetcrude, LAGOS – THE Country Chair, Shell Companies in Nigeria, Mr. Mutiu Sunmonu, has cleared the air on the controversy over operatorship of some of its divested oil blocks in Nigeria’s onshore Niger Delta, saying it is unnecessary.
Management of the assets is more important than operatorship, he said.

In the wake of the divestment exercise, indigenous companies which had scrambled for the oil blocks had hoped to also acquire the operatorship from Shell, and had bided handsomely for them.

However, they were shocked by Federal Government’s handover of the operator rights to the Nigerian Petroleum Development Company, NPDC, the operating arm of the Nigerian National Petroleum Corporation, NNPC.

Some of the companies which had participated in the programme like Conoil Producing Nigeria Limited, had withdrawn from the exercise even after paying substantial amount of deposit in excess of $100million for it.

But Sunmonu, who spoke recently at the agreements signing for the handover of Oil Mining Lease, OML 40 to Elcrest Petroleum Production Company, insisted that what is important in an oil block is not who gets operator right but how the asset is governed by the joint venture, JV partners.

He said, “The asset (oil block) is governed by the partners that jointly own the asset. So I will rather put a lot of emphasis on the governance of the asset to ensure that whoever is operating is delivering value to the joint venture.

“Two points for me: it is not really important who operates, what is important is how the asset is governed among the partners, and what value whoever the operator delivers on the asset

“The second point of course is, I think we should also see NPDC operating as another form of indigenous participation. So it means that Nigerians are running the assets and if NPDC grows, I think the country will also be better for it.

“The country is hoping, because we also want our own national oil operating company like the likes of Petronas, the likes of PetroBras, and which is what NPDC is aiming to achieve. We all need to support them, and I wouldn’t really have too much worry about it.”

Indigenous companies fallen short of expectations
On his part, the Group Managing Director, NNPC, Mr. Andrew Yakubu, defended that NPDC deserved to get the operatorship of the Shell divested blocks. He noted that the performance of indigenous companies in the nation’s upstream sector has not been very encouraging, seeing that the combined capacity of the 26 Marginal Field Operators, MFOs, are less than 10 percent of Nigeria’s crude oil production capacity.

“I have always said each time I had the opportunity of doing so, that when we look at our participation in the upstream, indigenous participants have performed very poorly because we hardly have up to 10% of total production in the upstream. With this step, in-country capability in the upstream,” he said.

Yakubu also argued that government’s action was fair considering that NPDC had the best capacity and capability among the new partners to operate the blocks, in which the NNPC retained 55 percent working interest.

He said, “Of course, as an interested party I will say it is fair because it was given to me. But all the same, you are aware that the equity belongs to government, and NPDC is an arm of NNPC and NNPC is also owned by government. So if a father gives a son his car, any problem with that.

“But all the same, let’s look at the justification for that. We had partners coming to join us and NPDC is the operating arm of NNPC, we don’t have any other operating arm, so naturally the operating arm of NNPC that we believe that out of the indigenous participants have the best experience in terms of capacity and capability, at least much better than those that are coming in.

“Naturally, if we’re coming into partnership, we would also want to be the one operating and I’m sure they will be happy that a company like NPDC is the one operating because we operate on behalf of our JVs, I think, Shell and Chevron, so we have that clearly that the partnership which is currently owned by NNPC and Shell as the operator, other partners are Agip and Total.

“So, if SPDC is divesting and NNPC now wants to exercise their right to operate, who should be the natural person with right to operate? It is NPDC.arm of NNPC, who are also partners in the joint venture.”
On his part, the Group Executive Director, Exploration and Production, NNPC, Mr. Abiye Membere, argued that it was a misconception to say that government unilaterally handed over the operatorship of the blocks to NPDC.

According to him, “we need to correct this impression that government unilaterally handed operatorship to NPDC. if you have an asset owned by four parties and if three parties out of the four is leaving, the only person standing in that asset is NNPC. That is how the operatorship issue came about; it is not that government unilaterally handed over operatorship to NPDC.”
Current agreements

Three documents were signed between the Shell joint venture partners and Elcrest to seal the transfer of ownership of the 45 percent interest owned by the Shell JV, which also included French oil giant, Total, and Italy’s Eni/Agip. The first is the Joint Operating Agreement, JOA for OML 40 separated from the rest of the JV. The Second agreement is also a JOA between NPDC and Elcrest while the third is the Innovation Agreement between the respective parties.

While the NNPC boss urged other JV partners to follow in the steps of Shell and dispose of their dormant assets through competitive bidding as it will boost indigenous capacity in the upstream sector, Sunmonu expressed confidence in the ability of the Elcrest JV to put the asset to good use. In addition, he noted that what Shell is doing is to boost Federal Government’s
Nigerian Content Policy, aimed at growing indigenous participation in the upstream petroleum sector.
Previous oil block sales

Since 2010, the Shell has continued to divest its stakes in onshore facilities as part of it’s portfolio management programme. Last year, the Anglo Dutch company sold its 30 percent stakes in OMLs 42, and 26 to a consortium of Neconde Energy, and First Hydrocarbon Nigeria, respectively; and in 2010, sold OMLs 4, 38, and 41 to Seplat Petroleum.

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