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Uganda: FID Postponed Till Far into 2019

The much anticipated Final Investment Decision on Uganda’s basin wide crude oil development will not happen in 2018.

And the indicated date in 2019 is not set in concrete.

Tullow Oil, a former leader of the project and now a very minority stakeholder (with 12% equity on completion of the ongoing farm down), says that “technical work on the development and the upstream pipeline is well advanced and the Operators are now targeting First Half 2019”.

The Ugandan project has been on course since 2009, when it became reasonably clear, from exploratory and appraisal wells, that the Albert Graben held huge tanks of oil, even if it was waxy.

Financial issues between the private developers and the governments involved, surrounding the 1,450km pipeline from Hoima in Uganda through Tanga in Tanzania, are part of the reasons for delays in FID

So is the environmental impact work. Fuller details of what is going are accessible here.

Meanwhile, Tullow says it is waiting, along with its Joint Venture Partners, TOTAL and CNOOC Ltd,  approval of the farm-down transaction from the Government of Uganda. At completion of the farm-down, the Irish explorer anticipates receiving a cash completion payment of $100Million and a payment of approximately $100Million to reimburse Tullow for pre-completion capital expenditure. A further $50Million of cash consideration is due to be received when FID is taken.

Lease Renewal: Elcrest To Pay $6Million, Do A Gas Project

Nigerian authorities have asked Elcrest E&P to commit to gas monetisation as a condition to renewing its equity participation in a lease in the Western Niger Delta.

Elcrest acquired 45% of Oil Mining Lease (OML) 40 from Shell, TOTAL and ENI in 2012, but the subsisting licence with which these majors held the lease expires in 2019. Elcrest has, since 2012, held the lease in a Joint Venture partnership with NPDC, the operating subsidiary of the state hydrocarbon company NNPC.

The company announced that the Minister’s consent was “conditional on Elcrest payment of a Renewal bonus of $6.3Million within 90 days and a commitment from the Oil Mining Lease (OML) 40 JV to gas monetisation and additional sale 25MMSCF/Day with the gas sales agreement to be signed within 5 years”.

But while the company is currently preparing the title deed for OML 40 to conclude the renewal process, the authorities have given the nod.

“Honourable Minister of Petroleum Resources has consented to Elcrest’s renewal of its equity participation in OML 40, for a further 20 years, taking effect on 22 October 2018”, the company says in an update


Vitol & Co Finally Buy Out Petrobras From Nigeria

By Fred Akanni, in Lagos
A consortium led by Vitol and comprising Africa Oil Corp. (25%), Delonex Energy Ltd. (25%) and Vitol Investment Partnership II Ltd. (50%), has entered into a Share Purchase Agreement (SPA) to acquire a 50% ownership interest in Petrobras Oil and Gas B.V. for $1.407Billion.  BTG Pactual E&P B.V. will continue to own the remaining 50% of POGBV. The transaction is subject to customary conditions precedent.
The sale is coming almost exactly a full year since November 9, 2017, when Petrobras announced on its website: “We are at the teaser stage for the opportunity regarding the process of divesting 100 percent of our interest in Petrobras Oil & Gas B.V. We are leading the sales process”.
The primary assets of POGBV are an indirect 8% interest in Oil Mining Lease (OML) 127, which contains the producing Agbami Field, operated by affiliates of Chevron Corporation, and an indirect 16% interest in OML 130, operated by affiliates of TOTAL S.A., which contains the producing Akpo Field and the Egina Field, which is expected to commence production by the end of 2018. Current production of 368,000 barrels per day is anticipated to increase to over 568,000 barrels per day by the second half of 2019.
POGBV has a strong non-operated portfolio, managed by Chevron and Total and which represents circa 20% of Nigerian production. Vitol looks forward to continuing to grow and invest in Nigeria.”

The agreed base purchase price of $1.407Billion, is on a cash and debt free basis as of the effective date of 1st January 2018 (the “Effective Date”). A deferred payment of up to $123 million may be due to the Seller depending on the date and ultimate OML 127 tract participation in the Agbami Field, which is subject to a redetermination process (see below). The Consortium’s funding required to ultimately close the transaction will be reduced by any leakage paid to the Seller by POGBV, including dividends, and increased by any contributions made to POGBV by the Seller during the period between the Effective Date and completion. POGBV has an existing reserve-based lending facility, with a syndicate of international banks and commitments of $1.245 billion, which POGBV and the Consortium believe may be increased. Given the anticipated time required to complete the transaction, POGBV’s debt capacity, forecast post effective date cash flow and the structure of the transaction, Africa Oil expects to fund its share of the acquisition with cash on hand.

The three fields in these two licenses are all giant fields, located over 100 km offshore Nigeria, and are some of the largest and highest quality in Africa. Two of these fields, Agbami and Akpo, have been on production since 2008 and 2009, respectively, and in 2017 averaged a combined gross production rate of approximately 368,000 barrels of oil per day. Lifting costs in 2017 were well below $10/bbl. The TOTAL-operated Egina development project in OML 130 is the largest investment project currently ongoing in the oil and gas sector in Nigeria. The Egina FPSO, with a 200,000 barrel of oil per day capacity is currently on station and is being hooked up to existing wells. Egina first oil is expected before the end of 2018 and quickly ramp up to plateau production of approximately 200,000 barrels of oil per day during the first half of 2019. The fields all have high quality reservoirs and produce light sweet crude oil with state of the art Floating Production, Storage and Offloading (“FPSO”) facilities.

During 2017, daily oil production from the Agbami Field averaged approximately 240,000 barrels of crude oil. Production commenced from the field in 2008 and has been on plateau for over 8 years. An infill drilling programme is ongoing, aimed at extending plateau into 2020. The field spans OML 127 and OML 128 and is subject to a unitization agreement, with 62.5% of field production currently allocated to OML 127. A redetermination process has been subject to expert review and arbitration in order to finally determine an increase in the portion of the Agbami Field attributable to OML 127. During 2017, POGBV’s entitlement of daily oil production averaged approximately 21,000 barrels of crude oil (based on a 62.5% tract participation).

During 2017, daily oil production from the Akpo Field averaged approximately 128,000 barrels of crude oil. Production commenced from the field in 2009. During 2017, POGBV’s entitlement of daily oil production averaged approximately 26,000 barrels of crude oil.
In addition to the current fields under production and development there are other growth opportunities in horizons not yet under developed in existing fields and adjacent fields being considered for development together with exploration opportunities, the consortium say in a statement.

Midwestern Moves to Grab A Large Slice of San Leon

Nigerian independent Midwestern Oil &Gas has entered into a binding agreement with SunTrust Oil Company Nigeria Limited, to acquire the latter’s equity interest in San Leon Energy.

San Leon holds 10% economic interest in Oil Mining Lease (OML) 18, in which Midwestern is also an equity holder.

The AIM listed San Leon reports that Midwestern has notified the Company that Pursuant to the agreement, Midwestern will acquire a total of 71,487,179 ordinary shares in San Leon (representing 14.29 % of the issued ordinary shares of the Company and SunTrust’s entire remaining interest in the Company).

There is something curious about this breaking story for anyone who has chanced on the dispute between San Leon and Sun Trust.  Just three months ago, Suntrust summoned San Leon Energy Plc and six other defendants to appear before a Federal High Court in Lagos, Nigeria,  within 30 days in the suit number FHC/L/CS/793/2018 in respect of Oil Mining Lease (OML) 18. The six other defendants in the suit are Midwestern Leon Petroleum Limited, Martwestern Energy Limited, Midwestern Oil and Gas Company Limited, Mart Resources Inc; Minister of Petroleum Resources and the Corporate Affairs Commission (CAC). In the statements of claim Suntrust alleged that in order to acquire an indirect economic interest in OML 18, San Leon Energy Plc began acquiring direct and indirect interests in Martwestern Energy’s shareholding from March 2016, contrary to the November 2013 shareholders’ agreement between the plaintiff, Martwestern Energy, Midwestern Oil, and Mart Resources Inc. “San Leon Energy and Midwestern Oil and Gas formed Midwestern Leon Petroleum Limited as a special purpose vehicle to acquire and restore the entire shareholding in the Martwestern Energy outside the framework of the shareholders’ agreement,” Suntrust Oil alleges. The plaintiff argued that Midwestern Oil and Mart Resources Inc. transferred all their shareholdings, four million shares each, to Midwestern Leon Energy (Sale Shares), adding that Midwestern Leon did not execute the Deed of Accession as required by Clause 13 of the shareholders’ agreement.

San Leon had not made any public statement about resolution of this court dispute before the new story about Midwestern purchasing Sun Trust’s shares in San Leon.

San Leon merely states that Sun Trust’s shares in San Leon are being transferred to Midwestern in exchange for the transfer of interests in certain assets currently owned by Midwestern. San Leon has been informed by Midwestern that 47,243,590 ordinary shares in San Leon (representing 9.44% of issued ordinary shares) have already been transferred to Midwestern, and that the remaining shares will be transferred by SunTrust in the coming weeks.

San Leon says that the transaction does not directly involve San Leon or its assets.


The German Force Is Out to Get Oil

Germany has not been identified with a large, influential independent oil and gas company.

The proposed merge of LetterOne and BASF attempts to change that premise.

The two companies have signed a Business Combination Agreement to merge their oil and gas businesses and create Wintershall DEA. Closing of the transaction is subject to customary regulatory approvals.

“Wintershall DEA will be the largest independent European exploration and production company”, says a statement by the would -be new company, “with activity in twelve countries across Europe, Latin America, North Africa and the Middle East. The combined business would have had pro-forma production of approximately 575,000 barrels of oil equivalent per day in 2017, almost 70% of which comes from natural gas. Production is expected to rise to between 750,000 and 800,000 barrels of oil equivalent per day in the early 2020s as the company executes its business plan”.

DEA Deutsche Erdoel AG is an international operator in the field of exploration and production of crude oil and natural gas based in Hamburg. It has shares in production facilities and concessions in, among others, Germany, Norway, Denmark, Egypt, Algeria and Mexico. Production of DEA averaged 125,000 barrels of oil equivalent (BOE) per day in 2017; as of year-end DEA had 1P reserves of 508 million BOE, and 2P reserves of 698 million BOE.

Wintershall, headquartered in Kassel, Germany, focuses on exploration and production in oil and gas-rich regions in Europe, Russia, South America, North Africa, and the Middle East. Its production averaged 450,000 BOE per day in 2017; as of year-end Wintershall had 1P reserves of 1.67 billion BOE.

L1 Energy is the energy investment arm of LetterOne. LetterOne was founded in 2013 and is an international investment business headquartered in Luxembourg. LetterOne’s strategy is to build a new portfolio of successful companies that are leaders in their fields and sectors

In 2017, the combined business would have generated revenue of €4.7 billion and earnings before interest, taxes, depreciation and amortisation (EBITDA) of €2.8 billion. Based on the combined proven (1P) reserves of almost 2.2 billion barrels of oil equivalent at the end of 2017, the reserves to production ratio of the combined business would be approximately 10 years.

The combined portfolio and scale of Wintershall DEA will provide significant potential for sustainable, long-term growth. LetterOne and BASF expect to be able to realise synergies equivalent to at least €200 million per annum. In the medium term, the shareholders intend to offer shares in the company to the public through an initial public offering.

Wintershall DEA will be jointly headquartered in Hamburg and Kassel.

LetterOne and BASF will now begin the process of seeking regulatory approvals, a process which could take approximately six months. Until closing, DEA and Wintershall will continue to operate as independent companies.

BASF will initially hold 67% and LetterOne will hold 33% of Wintershall DEA. This does not take into account Wintershall’s gas transportation business. However, at closing of the transaction, Wintershall DEA will issue preference shares to BASF reflecting the value of Wintershall’s gas transportation business. Before IPO, but no later than 36 months after closing, these preference shares will be converted into additional ordinary shares in Wintershall DEA for BASF.


For Ghana’s Taxman, Oranto is hiding in Plain Sight

Ghana Revenue Authority GRA claims that Oranto Petroleum, the Nigerian owned E&P company, “has been located in Angola and Mozambique”.

This “revelation” is in response to a declaration that the company, in partnership with Stone Energy “has still not honoured an outstanding surface rental invoice of $67,438.36 since February 2013”, according to the 2017 report of Public Interest and Accountability Committee, PIAC, on the Management of the country’s Petroleum Revenue for the year.

The PIAC then recommends that the GRA should “collaborate with the relevant authorities in these jurisdictions to retrieve the money”.

The PIAC is the closest entity, in Ghana, to an Extractive Industry Transparency Initiative (EITI). It is a statutory body established under Section 51 of the Petroleum Revenue Management Act (PRMA), 2011 (Act 815) to ensure transparency in the generation and use of petroleum revenues. Its reports are published twice every year.

The claim, by GRA, of Oranto’s alleged location and the recommendation, by PIAC regarding retrieving Oranto’s debt are quite telling, of institutions that are run with public funds.

A click on the internet shows where Oranto’s operations are all over the continent, on its own website.

Angola and Mozambique are nowhere on the site and Oranto is not hiding; it is in the news all the time; the latest (August 2018), being that it has won two blocks in Zambia.

Kosmos Gets Its First Producing Assets outside Africa

American explorer Kosmos Energy, has completed acquisition of its first set of hydrocarbon producing properties outside the African continent.

Its acquisition of Deep Gulf Energy (DGE), a  deepwater company operating in the Gulf of Mexico, adds, immediately to its portfolio, approximately 25,000 barrels of oil equivalent per day (BOEPD) production (~85% oil), “with an estimated reserves to production ratio of 8.8, growing 2018 pro forma production by 50% from approximately 45,000 to 70,000 BOEPD”, Kosmos says in a release.

Kosmos, was until November 2017, only an oil producer in Ghana, though an aggressive explorer elsewhere. In that month, however, it acquired the entire interest of Hess Corporation in the Ceiba field and the Okoume complex, offshore Rio Muni, in Equatorial Guinea.

That, still, was an acquisition in Africa.

The takeover of Deep Gulf Energy is made in the context of Kosmos’ preference and deep understanding of hydrocarbon assets in the Atlantic margin, but this is an established producer outside of the African continent.

Kosmos says that the acquisition adds estimated 2P reserves of approximately 80Million barrels of oil equivalent (MMBOE), increasing total 2P reserves by 40% from over 200 MMBOE to approximately 280 MMBOE.

Kosmos acquired DGE for total consideration of $1.225Billion, comprised of $925Million in cash and $300Million in Kosmos common shares issued to First Reserve, management, and other DGE shareholders. Kosmos intends to fund the cash portion of the purchase price with borrowings under its existing credit facilities. In connection with the transaction, Kosmos has received $200Million of additional firm commitments to increase its reserves-based loan facility capacity.

The State is Aware that Shell Will Sell Nigerian Acreages Upon Renewal

Officials in the Nigerian Ministry of Petroleum Resources are aware that the Anglo Dutch major Shell is inclined to divest from several of the 17 onshore acreages it asked the government to renew.

But they have gone ahead to renew most of the licences anyway, because they think it is unlawful not to do so.  The extant licences on the acreages were due to expire in 2019.

“By the regulations we are working with, all these assets we have renewed deserve to be renewed”, Ministry sources categorically tell Africa Oil+Gas Report.

“Shell can take us to court if we don’t renew”, say ranking government officials in the Ministry, who also argue that, with state sponsored bid rounds not having happened in the country in the last 11 years, the frequent Shell lease divestments since 2008 “have benefited Nigerian companies”, who have purchased the stakes belonging to Shell and other international companies in these assets.

As it is, even during the process of renewal between late 2017 and mid-2018, Shell was actively negotiating on the side, with several parties, its divestment from three of the acreages in the renewal basket: Oil Mining Leases (OMLs) 11, 17 and 25.

Shell was asked to pay $820Million for renewal of 14 of the 17 acreages it sought to renew, including OML 25, an acreage that Shell had put in a divestment round in 2014, but failed to sell because of a last minute NNPC invocation of its right of first refusal. Shell, NNPC and several parties have been involved in closing that transaction since that time.

Regarding OML 11 and 17, Shell has, for a while, been negotiating with buyers and has put a $1.2Billion invoice on the table.

It would seem that such asset should not have been renewed, since Shell had demonstrated that it was going to sell them. It would, ordinarily appear intriguing, that the state would renew the licence of an acreage to a company that had clearly shown it no longer wanted it.

Why don’t you put it in a bid basket so that the state gets the benefit of the licencing?, we asked.

But MoPR officials say that Shell has paid all it needed to pay on every asset in the 30 years since they were last renewed and had extensive work programme on each of the acreages, so it would have been illegal to say no to renewal.

Out of the 17 onshore acreages Shell submitted for renewal in late 2017, only three were revoked, at the provisional conclusion of the process in February 2018, “for lack of enough work done over the last 10 years”.

Shell requested for renewal of OMLs 11, 17, 20, 21, 22, 23, 25, 27, 28, 31, 32, 35, 36, 43, 45, and 46. It succeeded in getting everything renewed, but for four acreages.

OMLs 31, 33 and 36 were denied approval, while the government decided to cut OML 11 into three because it was too large. But Shell has contested the decision on OML 11, arguing that “the proposal would unduly punish” the company, which had conducted operations in the asset “legally and in full compliance with the law”.

Timing of the PIGB Assent Withholding Debate Is Worrisome

AOGR Editorial
The timing of the debate about President Muhammadu Buhari’s withholding of Assent to the Petroleum Industry Governance Bill suggests that Nigeria is hurtling dangerously close to not getting the Petroleum Reform legislation passed in the current dispensation.

The debate, spurred by a Reuters’ report late last week, is largely about whether the long awaited passage of the industry’s reform laws is going to happen now or not.

Whereas the letter of withholding of Assent was sent to the National Assembly as far back as July 29 2018; and whereas the letter may not contain arguments that are against the fundamental structure of the Bill, the fact is that, seven months to general elections, there is still work to be done on the first of four reform Bills, while the three others have not even been passed by the legislature.

The PIGB was passed by both Senate and the House of Representatives as far back as March 2018. The remaining Bills include Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB) and the Petroleum Host Communities Bill (PHCB), which complement the Petroleum Industry Governance Bill (PIGB) to ensure holistic reform of the petroleum industry.

The PIGB is an important, foundational legislation for the rest of the petroleum reform Bills, but passing it alone does not do the reforms. The pace of work on these reform Bills in the last three years of the Buhari led administration has encouraged many in and outside the Petroleum industry to feel optimistic that the reform legislation, first introduced in the National Assembly in 2008, will become acts of the National Assembly in this 10th year.

But the pitched battles between the executive and the legislature in the last three months don’t encourage any consideration that the two could work amicably together to agree on pieces of legislation, no matter how significant it is for the health of the economy. There is an argument that the All Progressive Congress (APC) government will be keen to use the legislation as an election tool. True, it should be a plus for the APC if they are the first to pass this “certainty of investment” laws out of three governments (two of which were PDP –led) that have been saddled with delivering these very crucial pieces of legislation.

But what if, as it often happens in Nigeria, a few people in power, who have the most influence to determine things, decide it is not in their personal interests to have these laws passed?
What if that is what is happening, only that it is being couched in safe, non-threatening letter of withholding of Assent?

PIGB: Assent Decline Didn’t Pass Through The Ministry of Petroleum Resources

The recommendations to President Muhammadu Buhari to decline Assent to the Petroleum Industry Governance Bill did not come from the Ministry of Petroleum Resources.

As of the morning of Sunday, 2, September 2018, three clear days since the Reuters story broke, Ministry officials themselves were still unaware of the full content of the letter addressed to the Senate and House of Representatives by Mr. President, in which he communicated decline of Assent to the Petroleum Industry Governance Bill, 2018.

President Muhammadu Buhari is both Nigeria’s Ministry of Petroleum Resources and the nation’s Chief Executive. The Bill is sponsored by the National Assembly, but the executive’s engagement with the bicameral house of legislature has been through the Ministry of Petroleum Resources.

What is clear is that the President himself either unilaterally took the decision, or was persuaded by the very close members of his circuit in the Villa, as the residence and office of the Nigerian President is called.

A cross section of industry stakeholders and observers are comforted by the fact that excerpts from the one month old letter of decline to Assent, published by Senator Ita   Enang, Presidential liaison to the National Assembly, do not suggest any fundamental argument against the structure of the Bill itself. “The letter does not seem to say that the NNPC should not be unbundled, that the Minister’s powers should not be whittled down and that an independent regulatory commission should not be created”, enthuses a very impeccable source that has been close to the Bill for the past three years. “What the communication seems to be saying is that we should tweak the legislation here and there”.

Senator Enang himself declares “None of the reasons for withholding Assent by Mr. President adduced by the media is true”, in clear reference to the Reuters’ report, which said that President Buhari withheld Assent because the Bill whittles down the Powers of the Minister.

Enang then states, in deference to the National Assembly, “very limited of the rationale communicated to the legislature, to wit: a) That the provision of the Bill permitting the Petroleum Regulatory commission to retain as much as 10% of the revenue generated unduly increases the funds accruing to the Petroleum Regulatory commission to the detriment of the revenue available to the Federal, States, Federal capital Territory and Local governments in the country. b) Expanding the scope of Petroleum equalisation fund and some provisions in divergence from this administration’s policy and indeed conflicting provisions on independent petroleum equalisation fund. c) Some legislative drafting concerns which, if Assented to in the form presented will create ambiguity and conflict in interpretation. d) Other issues therein contained.”

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