A Review of the Nigerian Energy Industry

Why govt withdrew operatorship of divested oil blocks from NNPC

Offshore oil platforms
Offshore oil platform.

21 May 2015, Lagos – Fresh facts have emerged indicating that the federal government withdrew the operatorship of some of the oil blocks sold by Shell Petroleum Development Company and other International Oil Companies (IOCs) from the Nigerian National Petroleum Corporation, NNPC, to the new buyers to offer training and understudy opportunities for NPDC to further develop its capacity in all areas of petroleum operation and compliance, as recommended by the Department of Petroleum Resources, DPR.

This is coming as workers of all the NNPC’s subsidiaries, including the Corporate Headquarters in Abuja, yesterday joined their colleagues in the Nigerian Petroleum Development Company, NPDC, a wholly-owned subsidiary of the NNPC, in a solidarity strike to protest the transfer of the operatorship of some of the divested assets to the new buyers. Oil workers in the employ of the NPDC had shut down oil production in all the NPDC operated joint venture assets over the transfer of operatorship of one of the divested blocks, Oil Mining Lease (OML) 42, to Neconde Energy Ltd.

The workers under the aegis of Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, and the National Union of Petroleum and Natural Gas Workers, NUPENG, are calling for the reversal of the award of the operatorship to NPDC. But THISDAY gathered that the government withdrew the operatorship from the NPDC and opted for a Joint Operatorship Model (JOM) that was recommended by the DPR to the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, because of the unsatisfactory performance of the NPDC.

For instance, it was gathered that OML 30, which was acquired by Shoreline Natural Resources, has nine flow stations with combined production capacity of 395,000 barrels of oil equivalent per day (Bopd). The flow stations include Afiesere, 60,000bpd; Eriemu, 30,000bpd; Evwreni, 30,000bpd; Kokori, 90,000 bpd; Olomoro- Oleh, 60,000bpd; Oroni, 30,000 bpd; Osioka, 15,000bpd; Oweh, 30,000bpd and Uzere West, 60,000bpd.

It was however, gathered that the current output under NPDC operatorship is only around 53,000bpd, leaving 342,000bpd undeveloped. In a memorandum dated December 12, 2014, with Reference No. PI/1124/Vol.18/1, obtained by THISDAY, which was addressed to the Petroleum Minister, the Director of DPR, Mr. George Osahon, had reminded the minister that the investors that bought the divested assets were certified as capable of holding the acreages on the basis of their financial and technical capabilities, predicated on the outcome of the thorough due diligence carried out on the companies by the DPR.

“In order to develop and strengthen the execution capacity of the respective joint ventures between the assignees and the NNPC, often represented by its wholly-owned subsidiary, the NPDC, the DPR is proposing a Joint Operatorship Model (JOM). Under the proposed model, the investor may be designated as the operator and lead an Asset Management Team (AMT) that will spear all activities in the block. The AMT will comprise staff from each of the parties as would be specified in the respective revised Joint Operating Agreements, JOAs. This initiative is expected to offer training and understudy opportunities for NPDC to further develop its capacity in all areas of petroleum operation and compliance,” Osahon explained.

In proposing the JOM, Osahon informed the minister that the DPR had held discussions with the management of the NNPC as the corporation is the central player in all the joint venture relationships. Osahon’s memorandum, which was approved personally by the minister on December 15, 2014, also recommended that in order to allow the parties to effectively benefit from the technical and financial resources of the farmees as operator in leading AMT, the JOM should be allowed to run for 10 years subject to satisfactory performance. Osahon also suggested that after 10 years, the NPDC could be requested to assume operatorship or the investor could continue, depending on the assessment by the parties and the DPR.

In order to facilitate effective operation of the assets, the DPR boss also recommended upward review of the financial authority limits set for the operator from $500,000 to $1,000,000 for foreign contracts and purchase orders relating to upstream arrangement in a JV and from $250,000 to $1,000,000 for Production Sharing Contracts (PSCs).

He suggested that the JOM be considered for the operation of divested JV assets in which NPDC is currently the operator and in subsequent divested assets. Shell to date has divested a total of 12 oil blocks, out of which only three- OMLs 4, 38 and 41 are operated by the farmee, Seplat Petroleum Development Company Plc, while the rest are operated by NPDC.

Before it recently concluded the sale of OMLs 18, 24, 25 and 29, the Anglo Dutch major had earlier sold OMLs 4, 38, 41, 26, 30, 34, 40 and 42 to local investors and their international partners. Several other divestments are in the offing, including five from Chevron, out of which three have been subject of litigation.

Neconde Energy Limited comprising Nestoil Group, Aries E&P Company Limited, VP Global, Kulczyk Investments and Kulczyk Oil Ventures has assumed the operatorship of OML 42, amid protest by NPDC and NNPC workers. All the NNPC subsidiaries and staff of the Corporate Headquarters in Abuja yesterday joined their NPDC colleagues to embark on the strike action to force the government to reverse the order.

The Elcrest’s OML 40, Shoreline’s OML 30 and FHN/Afren’s OML 26 have now been shut in, according to sources. Eland Oil & Gas Plc had also announced that its joint venture company, Elcrest Exploration and Production Nigeria Limited has received confirmation from the DPR that Elcrest had fulfilled its obligations, including the payment of the requisite premium and fees of $2.3 million, in relation to Elcrest’s appointment as operator of OML 40 for a minimum 10 year period. However, the NNPC workers have joined their colleagues in the NPDC on a solidarity strike insisting that, contrary to reports, they have the capacity and competence to operate the divested oil blocks.
*Ejiofor Alike – Thisday

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