The Nigerian Supreme Court ruling on Famfa Petroleum’s stake in the Oil Mining Lease (OML 127) simply affirms the pronouncement of the lower courts with which industry watchers are familiar, if not in respect of the implications for the parties and the country but in terms of defining the “winner” and the “loser”.
With the judgement, Famfa’s entitlement to lift 150,000BOPD, or 60% of the 250,000BOPD production from Agbami is now a done deal. This is huge. To put it in context, the volume is around 6% of Nigeria’s 2.5MMBOPD, and clearly a higher volume than (the French Major) TOTAL’s entire equity production in shallow water Nigeria. Yet TOTAL operates four Nigerian offshore acreages and is the fourth largest producer of Nigerian crude.
Famfa, a local independent, went to court to contest the Nigerian government’s “back –in rule” (BIR), which stipulate a takeover, by Government, of 50% equity in indigenous deepwater blocks upon declaration of commerciality and OML 127 happens to be one. As provided in BIR, all of the 50% is to come from Famfa’s 60%, leaving the company with 10%. The company immediately headed for the court and won, before production commenced in 2008. The NNPC, (the government’s representative and concessionaire on the asset) contested the ruling in both Appeal and the Supreme Court and the judgement has been the same: That the acquisition of a proportion of Famfa’s interest by the Federal Government of Nigeria in OML 127 was in “breach of the proper procedure laid down by statue, and was thus illegal, null and void”. Agbami has produced around 250,000BOPD for four years. Famfa has thus been entitled to lift 150,000BOPD all these years, but had never been allowed to lift more than the 10% that the back in rights stipulated.
The NNPC’s tooth and nail battle to keep Famfa’s equity at 10% is widely perceived as being as altruistic as the principle which informed the “back in rights” rule, enunciated in 2007. The state hydrocarbon company was hoping to claw back, by regulation, what the soldiers who ruled the country until 1999 gave away by Fiat. The NNPC is more or less saying: “how could a single company (read INDIVIDUAL), without any significant investment, just be entitled to six percent of the entire national daily production?”
Perhaps, the BIR was not annulled by the pronouncement of the Apex Court but according to Famfa’s argument which was upheld by the Court, Government ought to have sat down in negotiations before recoursing to an action that would lead to a substantial reduction of its interest and supposed erosion of the company’s fundamental rights.
What Famfa won’t say in public, is that there is another company, which benefited from the same patronage regime in which Famfa was involved and walked away with the prize without the punishment that the back in rights rule was meant to mete out to Famfa. That company is SOUTH Atlantic Petroleum (SAPETRO), which indeed stood in as the financier and operator of NNPC’s 50% interest which right the company sold to CNOOC, the Chinese state hydrocarbon giant, for $2.268 billion. On the contrary, Chevron is the financier to NNPC in the Famfa deal.
The back-in right rule was one of the ways the Civilian government that came to power in 1999, attempted to undo the wide sweep of discretionary awards between 1996 and 1998, during which the Nigerian military handed out the most prolific deepwater acreages in the country to their cronies, without consideration for the market worth of those assets
It is on record that none of the companies awarded deepwater leases between 1990 and 1999 paid any more than two million dollars ($5MM) as signature bonus to the government. In one case, for example, Kase Lawal’s Allied Energy received $$27Million as sign on fee from Statoil, while the company itself paid $$5Million to the Federal Government.
Malabu was awarded OPL 245 in April 1998, two months after SAPETRO collected OPL 246. Around the same time, OPL 248 went to Zebra Energy Limited and OPL 249 to Oil and Gas Limited, all Nigerian companies. Shell has encountered extensive pool of oil in OPL 245, and whenever the current heated debate over new Petroleum law clears off, the AngloDutch major may be producing hundreds of barrels of oil per day, of which Malabu will be entitled to 60%. That is the implication of the ruling.