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Addax Goes to the Belly of the Beast

By Fred Akanni, Editor-in-Chief

With $1.6 billion in the bag, Addax is transiting from a production company to an Exploration and Production company. The Swiss operator is expanding its focus from the Gulf of Guinea to the Caspian Sea. Now it describes itself in literatures and documentations as an international oil and gas exploration and production (E&P) company focused on Africa and the Middle East.”

The mantra has been; first develop what assets you have, get a handle on the portfolio, build a war chest and then take more risk.

When Jim Pearce, the company’s Chief Operating Officer, addressed an audience of Nigerian petroleum geologists in Abuja, in November 2005, he came across as the spokesman of an operator which had built its portfolio by squeezing production from assets it acquired in 1998, from 8,000BOPD to 86,000BOPD, with every drop of oil produced in Nigeria.

When he returned to the country, to address a similar gathering three years later, production in Nigeria alone had reached 110,000BOPD.

The company had also added producing properties in Gabon, outputting 30,000BOPD by the end of 2007. Addax had become a deepwater exploration company by acquiring the Oil Prospecting Lease(OPL 291), considered a very prospective property in Nigeria, in 2006. By getting out of Nigeria into Gabon, Cameroon and SaoTome et Principe, Addax could by now claim it was not limited to one country, but was focused on Africa as a whole.

Mr. Pearce’s talk, delivered at a lunch hour session at the Nigerian Centre For Petroleum Information(CPI), indicated as follows: With fortune made on the continent via record oil prices and cash generated by massive sale of shares, (through which it amassed some $400Million), the Calgary listed operator has found the confidence to consider itself a global player. And it is not afraid to go to the belly of the beast: to the troubled, secessionist prone Kurdistan, in the north of war torn Iraq.

Addax formed a 45:55 joint venture with Genel Energie of Turkey to implement a 25-year production sharing agreement (PSA) it signed with the Kurdistan Regional Government in early 2004. The JV, called Taq Taq Operating Company (TTOPCO), expects to be the first international firm to produce crude oil in Kurdistan.

In the first quarter of 2008, Addax signed an agreement with the Kurdistan Regional Government (“KRG”) amending the production sharing contract to sychronize the government back-in rights at up to 20 per cent and reduce the maximum Cost Oil recoverable in a given year, which is partially offset by an effective increase through an interim period that accelerates the recovery of the initial capital investment by the Contractor. It’s worth noting that while there’s so much reference to Kurdistan as a region in Iraq, there’s no talk about any dealing with the state of Iraq itself.

In the same week that Mr. Pearce gave his talk in Lagos, Addax announced the broadening of its imprint in Kurdistan; it had acquired a 33.33 per cent interest in the  Sangaw North Production Sharing Contract (“PSC”), operated by Sterling Energy.  The licence area is located approximately 80 kilometers southeast of the Corporation’s Taq Taq field.

This clearly is empire building of sorts, and it reminds commodity market watchers of a

certain period in the life of Jean Claude Gandur, Addax’s enterprising founder, President

and CEO. In the late 1990s, just as he was taking his company to Nigeria, Gandur was

fighting a bruising battle to gain control of Ashanti Goldfields, the gold mining company that was Ghana’s prime asset.  He lost to that company’s equally charismatic CEO, Sam Jonah.  Ashanti Goldfields has since been swallowed South Africa’s Anglogold, and Mr. Gandur has moved on to equally robust “mining” company.

Addax’s decision to go further in Kurdistan can be clearly seen from the perspective of the encouraging producibility of the wells it has tested in the Taq Taq field. In March 2007, the TT-05 in flow tested at an aggregate rate of 26,550 BOPD. Three months later, the TT-06 flow tested at an aggregate rate of 18,900 BOPD. But 2007 was not just about Taq Taq. The year may be recorded as the year of high risk, high reward. That was when Addax went on exploratory campaign in those assets in Nigeria that didn’t feature highly in its initial development campaign. It drilled a successful exploration well in each of the Udele West and Ofrima North fields in 0ML137 offshore Nigeria and booked its first reserves on the license area, which itself accounts for the largest surface area of any of Addax Petroleum’s Nigerian assets. As at December 31, 2007, estimated gross working interest proved plus probable reserves were 17.1 MMBBO.

With this string of discoveries in its portfolio, Addax, agreed to take over ExxonMobil’s 40% working interest in the Nigeria/STP Joint Development Zone (JDZ) Block 1. In that same third quarter of 2007, the company increased its Gabonese production more than three-fold to an excess of 30,000 BOPD, one year after acquisition of the operations of Pan-Ocean Energy Corporation Limited. By September 2007, the company exceeded 140,000 BOPD for the first time in its history.




Egypt Tackles The Subsidy In Natural Gas Pricing

 By ToyinAkinosho

IN THE WEEK OF THE WORLD ECONOMIC Forum (Middle East) in May 2008, the Egyptian government was in the throes of a major overhaul of its energy pricing policy. Gasoline prices had been raised, by 50%, in part to reduce subsidies to the minimum, and further hikes were on the horizon. But the most fundamental move, as far as international investors were concerned, was the pricing of natural gas.

“We are trying to embrace liberalisation up to the reasonable limits”, said a statement from the Egyptian government at the forum.

Egypt compels international companies to commit more gas to the domestic market, in spite of the pull of the export market, where prices have reached $11.6 per million British thermal units(btu), or $11.6 per thousand cubic feet (Mscf).

Then it sells its natural gas in the domestic market to Egypt based companies at a rate far cheaper than the international market determines. Thus, companies that utilise gas to produce cement, steel, aluminium, petrochemicals and other such products in the country, pay far less for natural gas than their competitors in Europe and the United States.

Now, such energy-intensive industries are to pay more for natural gas from July 2008. The prices would jump again in January, 2009, all as part of a plan to reduce subsidies.

Egypt will hike the price of natural gas to $2.22 per million British thermal units (or thousand cubic feet) in July from $1.85 and would increase the price of electricity by 20 per cent. Natural gas prices would eventually rise to $2.65 per million British thermal units. The price increases apply to Egypt’s steel, cement, and fertilizer industries.

The Egyptian government has been reviewing the prices under natural gas agreements in reaction to the rise of natural gas prices in international markets. A significant part of this price hike extends to the preferential price that the Egyptian government has offered to Jordan, its north eastern neighbour. Egypt will increase the price of gas it delivers to Jordan via pipeline under the Gulf of Aqaba by 200%, to $4.5 per million btu. The Jordanian government has agreed to the increase, which will be applicable only to additional supplies this year(2008) and not to the supplies, agreed upon in 2001 at a price of $1.5 per million btu. The new agreement is expected to take effect by the end of 2008. It gives Egypt the right to review the price every three years to reflect changes in international prices.

Egypt has also announced an end to the tax holidays granted to companies in the free zones. About 20-25 companies operating in the fields of oil and gas, petrochemicals and fertilizers which have long term contracts will be subject to the regular 20 percent tax. “Free zones will remain,” explained Rachid Mohammed Rachid,” the country’s minister of Trade and Industry. “We are only changing the tax status of those which use oil and gas as raw material. The remaining 2,000 companies in the free zone will continue operating as usual.”

Meanwhile, the country has agreed to increase natural gas prices to international oil companies operating in five separate concessions in the Mediterranean Sea. The new price of $ 3.95 per btu (from $ 2.65 per btu, the current price) is expected to boost the field development projects planned by BG, Eni, RWE Dea and Hess.

Egypt had brought forward the date of the subsidy cuts to July from September 2008, to help ease pressure on the budget. The Egypt’s Finance Ministry is worried that, without such a move, energy subsidies would rise to $11.13 billion (or 60 billion Egyptian pounds) in the 2008/9 fiscal year from $10.57 billion(or 57 billion Egyptian pounds). “Energy subsidies are a major contributor to the government’s budget deficit”, says Youssef Boutros-Ghali, the country’s Minister of Finance. “They help to push up interest rates”.



Drilling Rates, Performance, Upset Nigerian Regulators

NIGERIA’s STATE HYDROCARBON company and its petroleum regulatory department are worried about the increasing cost of drilling in the country. They are also concerned about aspects of compliance with performance regarding budget, as well as local content in areas of reservoir studies. These issues, in addition to the usual sloppiness from government quarters have ensured that the round of budget discussion for the year 2008 have dragged into the second month of the budget year. “ExxonMobil used to be a major example of low cost and high efficiency in drilling, but now their costs have gone through the roof’, officials of the Department of Petroleum Resources complain.

Industry sources argue that drilling rates for shallow offshore wells drilled by jack up rigs have increased by 45% on average. Drilling rates for Jack Up rig have shot up from between $130- 150,000 a day to $180,000 to 200,000 per day within the last one year.

Deepwater rates for a 9,000 feet well have shot from $400,000 a day to $600,000 a day.

But government officials counter that these sort of figures don’t cut it, especially because drilling contracts are usually long term. “We’d prefer they give us item by item”, they say. “But operators flinch when you say: let us have your details”, argues a DPR  official.

Nigeria is one of the few countries in the world running Joint Venture operations, where government partners actually put money into operations.

The Nigerian regulatory authorities are also concerned that TOTAL, the French major, has not domesticated its reservoir management studies as stipulated by the local content regulations. Chevron is seen to fulfill local content regulations in reservoir management studies, but the DPR and NNPC are worried that the company is running all its key projects out of sight of the authorities. “They are not communicating adequately on South Offshore Water Injection project, North Offshore Water Injection Project, nor are we getting much details on Tubu field project.” Of all the companies, Shell has had the best rapport with the upper levels of the Nigerian government, especially the President, in the last six years, but working level government officials are wary of this relationship. And the dissonance has led to spats between these officers and the company. “They (Shell), spent money on shelf (onshore and shallow water) projects way above agreed budget last year”, grumble petroleum engineers in government, “because they had the sympathies of the last civilian administration, who approved a supplementary budget”. The officials say that the incumbent government has insisted that any detailed budget discussion has to be directly with the regulatory units, below the Minister’s level.

Nigeria Helps Chad With Fuel

NIGERIA HAS DONATED 40 TRUCKS OF petroleum products and $2 million to its northern neighbour, Chad, which is recovering from a rebel attack aimed at toppling the incumbent President Idris Deby.  Nigeria’s President Umaru Yar’Adua announced the donation in the capital city of Abuja in late February 2008, saying it was aimed at helping to restore normalcy to Chad.

Birthday Bash At The 19th World Petroleum Congress

THE WORLD’S, PETROLEUM Congress, coming up in late June 2008 in Spain, marks the 75th Anniversary of the World Petroleum Council. Thomas Dewhurst urged his fellow members of the Institution of Petroleum Technologists to create a world-wide forum of thought between oil men of various nations. This resulted in the call for the first World Petroleum Congress held in July 1933 in London. Their first and foremost purpose was to discuss the scientific issues of the petroleum industry, in particular the challenges of production, of refining, and especially of consumption of oil as questions affecting the well-being of not one but of all nations.

From June 29 to July 3 2008, about 75 years to the day, over 4,000 participants from more than 40 countries will be in Spain for the 19th edition of the Congress. The event, as in the last 18, is expected to provide an excellent overview of a cross section of the key issues in the petroleum sector, both in the areas of expertise of the industry and its demographics. From its early audience of learned academics and experts with decades of industry experience a younger group of delegates has evolved with many leaders of the future from around the world now participating in the Congress. In honour of Thomas Dewhurst, the World Petroleum Council recognizes one of the outstanding individuals of the industry with the Dewhurst Award. Ali AlNaimi, Saudi Arabia’s Minister of Petroleum and Mineral Resources, has been selected to receive this Award in WPC’s anniversary year and will deliver the Dewhurst Lecture at the 19th WPC. The Spanish Committee is hosting a special event in Madrid to celebrate the 75th anniversary which will take place on Saturday the 28th of June, in Retiro Park. Other National Committees from around the world will join them to commemorate the previous 75 years and 18 Congresses.

HHI To Build Usan FPSO

HYUNDAI  HEAVY INDUSTRIES (HHI) has received a Letter of Award (LOA) from Elf Petroleum Nigeria, Ltd. (EPNL), a Nigerian subsidiary of French oil company TOTAL S.A., to build a super-large Floating, Production, Storage, and Offloading unit (FPSO). The FPSO contract is worth $1.6 billion. The facility will measure 32Dm in length, 61m in width, 32m in depth, and weigh 114,000 tons. It will be able to produce 160,000 barrels of oil and five (5) million cubic meters of natural gas per day. and will be able to store two (2) million barrels of oil. The FPSO will be completed by the end of 2011. It will be located in the Usan field, which is in water 750 meters deep, 100 km southeast of Bonny Island in Nigeria. HHI will carry out all phases of the project on a turnkey basis, from the engineering, procurement, and construction, to the test runs. HHI has successfully completed at least one super-large FPSO every year since 1997, including the Kizomba A and B FPSOs for ExxonMobil, the Plutonio FPSO for BP, and the Akpo FPSO for TOTAL. The Korean builder has received five consecutive orders from TOTAL since 2005, when it won the first Akpo FPSO order. HHI’s Offshore & Engineering Division is now in negotiations for further projects in West Africa and the North Sea.

Expro Wins $60MM contracts in Western, Southern Africa

EXPRO, THE OIL SERVICE FIRM, HAS won contracts valued at over $60 million in the last six months in West and South African regions. The contracts cover a range of offshore deepwater projects and services and would be delivered on phases over the next three years. The work involved include provision of offshore deepwater technology for Chevron, Agip, Shell in Nigeria as well as increased scope of work from BP deepwater in Angola, as well as for TOTALl and Noble Energy in Cameroon. Another set of contracts were secured in North Africa, including BP and BG in Algeria and Libya together with multiple well- testing contracts in Egypt.

Oando Shells Out $0.625 Billion On A Huge Bet

After  a bid in which two of China’s largest oil firms participated and failed, a small, ambitious Nigerian independent won Shell Nigeria’s 49.8%stake in two deepwater leases.

For the Anglo Dutch oil major, who had been forced by militants to shut in close to 500,000barrels of oil (gross production) every day for much of the last two years, it was money sorely needed.

What was not immediately clear was whether the minnow who paid the cheque was getting a good deal for the investment. PetroChina aborted its bid for the two acreages: Oil Mining Leases (OMLs) 125 and 134, a few months after offshore specialist CNOOC withdrew its bid for the blocks. Both companies were told that their offers, at around $300 million to $400 million, were too low. Then Oando, a Nigerian energy company, stepped up to the plate, offering $625Million. There was jubilation on national television as the company, a ranking member of the Nigerian Stock Exchange, announced its winning. With a net ownership of 9,000 barrels of oil per day (BOPD) of Agip operated Abo field in OML 125, it is clear that this acquisition marks a significant entry into the Upstream sector for Oando, which has succeeded in venturing into almost everything except crude oil production, in the last five years. Oando has run a petroleum marketing enterprise, acquired rigs, distributed natural gas, won a non producing prospecting lease, holds a partnership in an undeveloped discovery and gotten a foothold in oilfield services, but all of these pale into insignificance, in the minds of its management, if the company doesn’t have a drop of oil to its name. The question is: Is a 9,000BOPD from a declining oil field and a mining lease with no established oil production enough value for $625 million? Part of the answer came by way of Anne Pickard, Shell’s Executive Vice-President, Africa, commenting on the divestment on the week of the sale “We have a maturing asset, which is operated by Eni (Agip), which is offshore. When things get mature, we tend to sell them.” But the answer only breeds more questions. Such as: Is Oando shelling out money far in excess of half a billion dollars to buy an asset that Shell considers maturing? Does the word “maturing” merely refer to the Abo field, or does it also refer to the so called upside potentials in OML 125 and the undeveloped prospects in OML 134? The answer lies in looking at the portfolio. The leases OML 125 and 134 were carved out from OPLs 316 and 211, which Agip won in the 1993 bid round. The company established production in 2003, a clear seven years after discovering Abo (1996) in OPL 316 and converted the producing half of the lease into OML 125.  Abo production peaked at 30,000BOPD and started falling, reaching 19,000 BOPD last year.  Initial drilling in OPL 211 (Udoro, Engule) were unsuccessfiul. In 2003 however, Agip drilled a well in a prospect located in the south east of the lease. Uberan- 1 encountered commercial footage of oil. In anticipation of development of this field, Agip sought permission to convert half of the oil prospecting lease (OPL) 211 into a mining lease OML and got the name OML 134. Geoscientists in Shell and Agip are both excited about the potentials of Uberan, which they consider the real juice in the two blocks. Even though the discovery well was not tested, company sources say the field could be at least 200MMBO. An $80million appraisal well, to be drilled (tested, cored, etc) later in 2008, will confirm the field potentials.

Nor is Abo field a low vaklue asset. Agip plans to increase production here to 25,000BOPD by drilling and hooking up two wells later in 2008. These wells are targeting deeper reservoirs. There are some other prospects around Abo, which are quite small, but can be hooked up relatively cheaply. One of these prospects will be probed by a well later this year. While the divestment of Shell interests in OMLs 125 and 134 is clearly for reasons of cash flow, Oando’s enthusiastic buying may be justified in the near term. But the real challenge is not in the finances. It is how Oando utilizes this entry to build capacity. Oando already has a corps of technically honed petroleum engineers and earth scientists, who develop its burgeoning oil services business, manage its upstream joint ventures and help to evaluate assets. But with the cash it is able to play with it can afford to build a sizeable pool of technical professionals, paid competitive wages, who take on projects from geologic leads through prospects to drilling and production. Nigerian companies don’t get the opportunity to be equal partners with experienced majors in acreages. When they hold the assets, they rarely have the cash and more often, a technical operator is also the financier. Oando is an equal partner with Agip. It must get everything it can from this partnership.


Gazprom, the Russian state gas company, has signed a Memorandum of Understanding with Equatorial Guinea’s state gas company Sonagas. The deal also involves privately owned Suntera. It is for the development of future gas projects in the country. A Gazprom delegation, in Equatorial Guinea, met with Teodoro Obiang Nguema Mbasogo, President of Equatorial Guinea, Atanasio Ela Ntugu, Minister of Mines, Industry and Energy, Gabriel Nguema Lima, Vice Minister of Mines, Industry and Energy, and Juan Antonio Ndong Ondo, Director General of Sonagas. Discussions focused on potential joint involvement of Gazprom and Suntera in gas infrastructure, power generation and LNG projects. Suntera is half owned by Russian gas producer Itera.

BG Sells Mauritanian Property

BG Group has completed the sale of Mauritania Holdings BV to Kuwait Foreign Exploration Company (KUFPEC) for a total consideration of $128 million. The agreement marks the disposal of all BG Group’s current interests in Mauritania. The company has increased its worldwide exploration acreage significantly in the last 18 months and believes that its Mauritanian assets no longer fit strategically within its exploration portfolio. BG Group purchased Mauritania Holdings BV from Hardman Resources Limited in 2004 for an aggregate cash consideration of $132 million. Mauritania Holdings BV operated as a wholly-owned subsidiary ofBG Group managing its interests in Production Sharing Contracts (PSCs) A and B covering blocks 3,4 and 5 offshore Mauritania, West Africa. These interests were – 13.084% equity in PSCA, 11.630% equity in PSC B and 10.234% equity in the Chinguetti Exclusive Exploitation Authorisation (EEA). PSC A covers Block 3 and shallow waterBlocks 4 and 5. A gas field (Banda) has been discovered in PSC A. PSC B covers deep water Blocks 4 and 5. Five oil discoveries have been made in PSC B (Chinguetti, Tiof, Tevet, Tevet Deep and Labeidna). The Chinguetti field commenced production in February 2006. Development studies on the Tiof field are ongoing.

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