For the third time in the space of nine months, the Nigerian Petroleum Development Company NPDC is about to grant a contractor the opportunity to fund and manage an Oil Mining Licence on its behalf.
It is what is called funding and technical services agreement FTSA.
State owned NPDC accepted bids from 14 companies for OML 119, an offshore acreage which hosts two producing fields collectively outputting about 20,000Barrels of Oil Per Day.
Whoever wins the FTSA will take over day to day running of the OML.
Last July, the company signed an FTSA with the Indian owned independent, Sterling Energy Exploration and Production Company (SEEPCO) for the development of OML 13.
And in late September 2019, it awarded another FTSA to a Nigerian entity named CMES-OMS Petroleum Development Company
Funding and Technical services indicate operatorship by other means.
What these transactions suggest is that the NPDC, itself set up as the operating subsidiary of the Nigerian National Petroleum Corporation NNPC, the state hydrocarbon company, is unable or unwilling to directly secure funding from financial institutions and deploy its own internal technical and managerial personnel to work up those assets. In the event, it fails to build the managerial and technical capacity of its workforce, as it outsources core technical services to contractors.
But again, going by the historic mandate of the NPDC and the histories of these OMLs, these awards could do with a bit of scrutiny.
The NPDC was created in 1988, out of the Exploration and Production division of the parent company, to build technical and managerial capacity of the Nigerian workforce to operate upstream oil and gas assets. As of the time, 32 years ago, there were just a handful of Nigerian owned E&P companies, and even the few, struggled. Only one of them was producing hydrocarbons, And it wasn’t ding up to 500Barrels of oil per day!!!
NPDC was going to be the exemplar; the model of what a homegrwn E&P company should be.
In 2016, NPDC already had a hundred percent ownership in five (5) blocks: OMLs 64, 65, 66, 111 & 119; 60% participatory interest in (4) blocks: OMLs 60, 61, 62 & 63 and 55% equity in nine (9) blocks: OMLs 4, 26, 30, 34, 38, 40, 41, 42 & 55. All these were prior to its grabbing of OML 13 from three companies which rightfully held them.
In early 2017, it was awarded the OML 13 through an instruction signed by President Muhammadu Buhari, after a request by Maikanti Baru, then Group Managing Director of the NNPC.
The 1,923 sq km block used to be operated by Shell, but was revoked along with a number of other blocks in 2005. Shell went to court, but ultimately gave up the asset.
In the 2007 bid round, the block was cut into three acreages: Oil Prospecting Leases (OPLs) 2001, 2002 and 2003, each of which was awarded to three different companies; Jacon, Hi-Ref and Industrial Oil, respectively. Two of them, Jacon (OPL 2001) and Industrial Oil (OPL 2003) had paid 50% of the signature bonus they were expected to pay to government and were waiting to get to the stage of signing the Production Sharing Contract (PSC) and pay the remaining 50%, when the President decided to merge the three acreages again into OML 13 and award it to NPDC. So, at the time that President Buhari granted the block to NPDC, it was being held by other companies!
Indeed, in the 2007 bid round, NPDC bid for OPL 2001. That It lost the bid and then turned around to ask the Presidency for the entire OML 13, was a back door way to get an asset it failed to win in a competitive bidding.
In any case, as the President had singularly awarded the OML 13 to NPDC, it would be expected that the spirit behind the award was in line with the creation of the NPDC: to build technical and managerial capacity of the Nigerian workforce, within the NPDC. But almost as soon as the licence was finalised, the NPDC turned around to sign a funding and technical services agreement with SEEPCO.
It isn’t altogether helpful, then, for the reputation of the Nigerian state hydrocarbon company, that SEEPCO is a subsidiary of an entity- the Sandesara group of companies- whose promoters, Chetan Sandesara and Nitin Sandesara, are fugitives from the law in their own country.
India’s anti-graft agency, the Enforcement Directorate (ED) had registered a case under the Prevention of Money Laundering Act PMLA against Sterling Biotech, a subsidiary of the Sandesara group, in 2017 on the basis of a CBI case of bank loan fraud of $834Million or Rs 53.83Billion. The ED attached oil rigs and other oil installations outside India after issuing a provisional attachment order against Sandesara group of companies in June 2019. The agency attached the group’s assets worth over $1.375Billion or Rs97Billion in Nigeria, including four oil rigs, an oil field, ships and aircraft. With this order, the total attachment against Sandesara group has exceeded $2Billion, or Rs 145Billion . Last year, the ED had attached over $666Million, or Rs 47Billion in Nigeria, including four oil rigs, an oil field, ships and aircraft. “The promoters have not only siphoned off bank loans to finance their Nigerian oil business but also for their personal purposes,” the ED claimed. The probe found that the group was engaged in round tripping of standby letters of credit (SBLCs) funds worth $638Million or Rs 45Billion
UNLIKE OML 13, NPDC HAS ALWAYS OWNED OML 65, an asset it has produced for 41 years, from a single field, Abura, now doing about 900Barrels of oil per day. There had always been upside prospects to this field, but NPDC is a poor investor if it was one at all. Now, to drain the recoverable reserves of 244Million barrels of oil equivalent that NPDC’s reserves consultants believe are in this asset, the company closed a Funding and Technical Services agreement with a company that has never been known to engage in drilling a well, let alone produce a field. The parent companies of CMES-OMS JV are engaged in EPC and oil field security solutions. They are neither proven explorers nor experienced oilfield producers. The explanation that CMES-OMS would source money (based on the asset pool) and hire technical workforce to do the job throws up the question: Why will a 31 year old state funded E&P company, which boasts of managing several assets over the years, hand over an asset to an inexperienced company to manage on its behalf?
The third asset that NPDC is handing out to a technical operator is OML 119. This is the best performing acreage of all the assets wholly owned by NPDC (without a JV partner). And that’s because the asset was put in production for the company by Agip Energy and Natural Resources (AENR), a Nigerian subsidiary of the Italian giant ENI and handed back to NPDC after a specified period of time.
Here is the story. OML 119 is a shallow water asset which hosts two producing fields, Okpoho and Okono, discovered by NPDC in 1978 and 1983 respectively.
With no capacity to develop either of the two fields 18 -23 years after discovery, NPDC, in 2001, signed a modified service contract with AENR, to technically operate the two fields for five years, after which it would hand over the operatorship back to NPDC. The idea was that AENR would, in the course of those five years, help to high-grade NPDC’s technical ability to operate the fields.
AENR put the fields on production in record time; by 2002, it had installed a floating production, storage, and offloading vessels on the Okono field. The Okono field produces oil from subsea wells tied-back to the leased vessel Mystras FPSO located at the field. Oil from Okpoho is produced via a platform linked to the FPSO by pipeline. Oil is exported from the FPSO by shuttle tanker. Operatorship of the two fields reverted fully to NPDC in 2006, and as of 2009 the fields were delivering 65,000 Barrels of Oil Per Day (BOPD). In 2008, six years after first oil, the partners purchased the FPSO Mystras.
Ten years after the handover of operatorship to NPDC, the production has plunged to a third of what it was at the time of the handover, despite the fact that NPDC geoscientists have encountered new oil at much deeper levels than AENR.
The call for bids for Financial and Technical services is an admission by NPDC that it cannot, on its own operate these assets.
So much for NNPC’s claim, since 2015, that a key corporate project was to re-kit the NPDC and make it bloom in terms of technical and personnel resources.