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Nigerian Oil in a Post- Diezani Trauma

Section: Kickstarter · May 19, 2022 · 1 comment |

By Toyin Akinosho,

A fuller sketch of events

In the Christmas of 2014, Nigeria had three months to go for elections.

I was living in Lagos, the country’s commercial hub, and frantically calling for the removal of Diezani Allison-Madueke as the petroleum minister.

There were numerous reasons I thought it’d be a value destroying proposition to keep Mrs. Allison-Madueke in the role, if (the incumbent President) Goodluck Jonathan won the elections. I enumerated them in this column at the time.

But close to eight years after the electoral sack of Goodluck Jonathan and the accompanying exit of Allison-Madueke, the Nigerian petroleum industry is in a far sorrier state than it was. President Muhammadu Buhari and his team have not only wasted the Nigerian energy crisis, they have encouraged the ungovernability of the space that the petroleum sector occupies, even with their much-celebrated success with the passage of the Petroleum Industry Act (PIA).

For context, I’d briefly summarise why I had forcefully called for Diezani’s ouster and then return to Buhari’s dismal performance.

The darkest spot on Diezani’s tenure was the signing and implementation of the Strategic Alliance Agreement (SAA).

She was settling down as minister in 2011 when Shell, TOTAL and ENI were rounding up the sale of their 45% in five assets onshore Niger Delta to Nigerian companies. Her ministry decided that the NNPC would be more active in management of the assets. This is fine. What’s lamentable is the way in which the country’s share of the proceeds got diluted in such a way that the net return to the national coffers was significantly diminished, in favour of the private interests that was allegedly investing in production capacity on behalf of the NNPC.

The NNPC, at the minister’s instance, nominated its operating subsidiary, Nigeria Petroleum Development Company NPDC, to manage the acreages. The NPDC in turn invited a financing partner to fund its share of the operations. The contract with Atlantic Energy (SAA) entitled it to 30% of NNPC’s share even after the cost oil had been recovered.

In order to recover its cost in funding the NPDC part of the operations, the terms called for Atlantic Energy Drilling to receive, at the beginning of production, 60% of the volume of crude oil to which NPDC (NNPC) was entitled. This is cost oil. When that cost was fully recovered, Atlantic’s share would drop to 30% of the crude oil to which NPDC was entitled. Please read this carefully; in the post-Shell operatorship phase, after the NNPC equity had been transferred to its subsidiary NPDC, to become the “operator”, with so much fanfare, NPDC had gone into an agreement with a company unknown to the industry and registered just months before the deal. The company was charged with the responsibility to fund NNPC share of the cash call for operations in return for 60% (in the first instance) and later 30% (after cost recovery) of the crude oil that should accrue to NPDC (NNPC) and by extension, the teeming Nigerian population! In effect, the rightful share of the proceeds from these assets that should flow to the National Treasury drops by at least 30%, all through the duration of the agreement.

I have gone into this simple explanation to show how inequitable the Strategic Alliance Agreement had been. What’s worse, much of the entitlement to the nation from this much reduced take never made it to the national treasury.

This brazen way of spitting in the nation’s face was the signature conduct of Diezani Allison Madueke’s tenure.

In four years on the job, she saw out three successive heads of Department of Petroleum Resources (DPR), the industry’s regulatory agency and fired four Group Managing Directors of NNPC, the state hydrocarbon company. The most important criterion for keeping any of those jobs was an undivided commitment to doing Diezani’s bidding. She had a huge appetite for pursuing vendettas, even after dismissing the non-compliant heads. Of all the acreages divested by Shell during her tenure the only one for which she got NNPC to call up its pre-emption rights was motivated by pure anger.

IOCs conducted divestments from 21 acreages under her watch, a sign of inclement investment climate more than anything else, but the minister didn’t regard it as a blot. Instead, she saw opportunities to influence the sale and purchase in her personal favour. The companies often had to watch her body language to determine who to sell to.

Diezani superintended the highest crude oil prices in history (2011 to 2014) but the Nigerian rig count trended south. The cash call issue (which is what Nigerians call the IOCs’ receivables from NNPC for joint venture operations), became more intractable than ever during her tenure. As work programmes shrank in that era of high of prices, the major companies accelerated the frequency of severance packages for their staff.

So much for memories of the Diezani era.

Buhari removed NPDC’s chokehold on Nigerian independents with assets in the Western Niger Delta, and allowed the CEO of NNPC a free hand. Key upstream operators cheered when his government proposed to pay the cash call arrears in tranches that were transparently measurable. But knowing what we know now, the gesture had come too late. Buhari himself has witnessed the divestment of seven oil mining leases by two majors and I have to quickly say this before anything else about his administration’s seven years; the impunity in acreage licencing and administration has become more rampant. The 2020 Marginal Fields Bid round was the country’s least transparent and possibly most corrupt hydrocarbon lease sale in the last 20 years. The round, superintended by the (now defunct) DPR, was so riddled with malfeasance that the newly created Nigerian Upstream Petroleum Regulatory Commission (NUPRC) cannot publish the list of awardees.

Yes, petroleum rights are where the Buhari team got it most wrong. In one case that could have been laughable if it was not so tragic, the DPR revoked the four Production Sharing Contracts operated by Sinopec-owned Addax Petroleum and, in the course of three days, re-awarded the PSCs to two Nigerian companies, one of them owned by a highly politically exposed individual. Of course, there was a lot of kicking and screaming by the state firm NNPC, the concessionaire of the PSCs and the Nigerian president instructed a return of the rights to Addax, after the Chinese government had complained, but the episode fit a pattern. In the last 18 months the Buhari administration has re-awarded at least four licences it had revoked from some companies, to other companies, all outside the process of a bid round or any form of open, transparent contest. A sense of arbitrariness is highlighted by the decision to suspend sections of the Petroleum Industry Act, because the government could not dare to remove subsidies on gasoline importation, which costs the treasury over $4Billion a year. The sense-in the air- of deepening entropy in the conduct of the affairs of the Nigerian petroleum industry has not abated.

The old habits of sitting on proposals and approvals for pecuniary gains, either at the Ministry, at the regulatory agency, or in the NNPC towers, haven’t gone away and it is largely because, despite legislated structured reforms, individuals still see themselves as the processes!

President Buhari is credited with the passage of the Petroleum Industry Act, but we must not forget that his presidency spent the longest time (six years) to work on it. Project delivery timelines haven’t improved. It is looking like none of the gas pipelines under construction by NNPC, before Buhari came in, will be completed before his eight-year term of his Presidency ends. My key worry is the unwillingness of the man once described as “ascetic, sandal-wearing general”, to tackle the glaring graft in the sector. It is why I think the country is living in the post-Diezani trauma.

This article, earlier published in the Kickstarter column of the March 2022 edition of the monthly Africa Oil+Gas Report, is republished here on this website for the larger public because of its significance in terms of public-service.

Nigerian Oil in a Post- Diezani Trauma

Section: Kickstarter · April 19, 2022 · No comments |

By Toyin Akinosho,

In the Christmas of 2014, Nigeria had three months to go for elections.

I was living in Lagos, the country’s commercial hub, and frantically calling for the removal of Diezani Allison-Madueke as the petroleum minister.

For context, I’d briefly summarise why I had forcefully called for Diezani’s ouster before I go to discuss aspects of Buhari’s dismal performance.

The darkest spot on Diezani’s tenure was…

Read More

I Disliked Tullow, Then I Loved Tullow, and Now What?

Section: Kickstarter · October 21, 2020 · 2 comments |

By Toyin Akinosho

I was extremely upset when I learned that Tullow Oil, the Irish independent, had delisted Energy Africa from the Johannesburg Stock Exchange.

The year was 2004. Tullow was on acquisition spree in Africa.

Tullow acquired the Cape Town based company for $500Million.

I was upset because Energy Africa was the one homegrown African independent with an active producing asset inventory around the continent.

It was based in Africa, listed on the continent’s most prosperous bourse and had interests in Equatorial Guinea, Congo, Gabon, Cote d’Ivoire, Ghana, Uganda, Egypt and Namibia. Its producing acreages (in Equatorial Guinea, Gabon, Congo) averaged over 20,000 Barrels of Oil Per Day (BOPD) in net output at the time.

I did not know it then, but I was beginning to nurse the sentiment that Africa needed local E&P companies to access acreage licences, operate and extract mineral resources on their own land and build technical and financial capacity on the back of the adventure.

150 years after the first Western mining companies took over vast stretches of continental land and introduced a concept of property rights that favoured them and disadvantaged the natives, they had built fortunes with those assets in their own countries. The best that African companies had become, as of 2004, was to be competent contractors.

At the time, only Nigeria’s Conoil, with about 30,000BOPD in output, operated any producing property with sizable hydrocarbon volume. The other Nigerian owned producing independents, seven of them then, had combined production less than 15,000BOPD.

In South Africa, the only homegrown E&P players were SPI, the Sasol subsidiary, and the state hydrocarbon company, PetroSA. As to why I don’t consider Sasol’s SPI as an African independent, you have to google the company’s history.

There were no comparable homegrown independents in Egypt, Algeria or Angola.

So, Tullow Oil had come from the Western Hemisphere, to shoot down such a stellar African star from the sky. It was pretty depressing.

And this Irish company with a very Irish name, started going about calling itself an African independent.

Tullow claimed it had a reason for the entitlement. It was founded in 1986, primarily to look for and work up small oil fields, which had been left behind by the majors in Africa, with no-one to work them. Its first work programme was to develop some small gas fields in Senegal.

Fast forward 18 years later, the Energy Africa acquisition bolstered this relatively small company.

In 2006, Tullow found oil in Uganda, after Hardman Resources had made the country’s first discovery. The same year, it signed a Petroleum Sharing Contract with the Ghanaian Government for Deepwater Tano Block in 2006. It was a transformative move.

At a conference in Cotonou, Benin Republic, in 2007, I sat through a presentation by Tim O’ Hanlon, then director of Tullow’ Oil’s business development activities in Africa. It was an impassioned speech, brimming with promises of genuine love for the land of my birth. I became a Fan.

Kosmos Energy’s discovery of the Mahogany field, the first sizable find in Ghana, de-risked Heydua-1, the prospect that Tullow had lined up for drilling in Deepwater Tano. In the event, Heydua turned out to be a straddle play with Mahogany. The unitized field was christened Jubilee and Tullow was appointed operator. In the space of three years, Tullow took Jubilee from discovery to market. By 2010, “Africa’s Leading Independent” had taken off.

Meanwhile, Tullow’s Irish charm was failing to work the magic in Uganda. The Government and a host of civil society groups were demanding more upfront benefits before first oil than the Ghanaians did. There was a part of the Ugandan demand that I lined up behind: would Tullow agree to converting a quarter, even a fifth, of the crude production (after first oil), to petroleum products through a refinery? Tullow demurred, citing bankability issues. The thought came back to me: Africa certainly needs brave local businessmen with industrial scale mindset who, with Government support, would take the risks.

Tullow Oil has never been the largest Western independent operating in Africa. That credit goes to Apache Corp (which also has a higher net hydrocarbon output on the continent, even if the only African country in its portfolio is Egypt), and the defunct Anadarko. Tullow was also never the lead exploration company. In the years that independents were actively foraging in frontier basins that the majors were allegedly not keen on, it was Australia’s Woodside who opened up the Northwest African margin; Anadarko funded Kosmos Energy’s Ghanaian discovery, and discovered Mozambique and, following the Rovuma basin fairway that Anadarko had proven, BG opened the neighbouring Tanzanian deepwater.

Tullow bore no shame in arriving late and buying entry into the game. But the Irish company was a fast follower.

Then came the company’s 26^th year on the continent. In February 2012, Tullow went into a drilling location in Kenya like any other wildcatter, acting on gut feeling and shooting from the hip, bearing the risk of failure.

Tullow struck oil at a depth shallower than 1,200metres, less than mid-way to the planned 2,700metre depth, in Ngamia 1, in the Turkana County, one of seven sub basins outlined on the Kenyan/Ethiopian concession map.

That discovery conferred even more respect on a company that had benefitted from a carefully deployed publicity machine.

Kenya rolled out the carpet that Uganda didn’t for Tullow. And at some point, it was being suggested that it would take Final Investment Decision on the much smaller Kenyan cluster of fields (about 100,000BOPD at peak) earlier than it would take for Ugandan development (230,000BOPD) peak production.

But who was to know that everything would go downhill from here?

After a number of challenges in East Africa, including the decision by Uganda (prompted by French major TOTAL) to abandon the Kenya route, as well as a considerably drawn out negotiation concerning Tullow’s farm down on its assets in Uganda, Tullow’s shareholders were no longer seeing a clear line of sight to new, significant hydrocarbon production, the type of which happened in Ghana between 2010 (Jubilee) and 2016 (TEN). It portended something about a company that was atrophying, rather growing.

I am running out of space here. Tullow is out of Uganda and it has signaled it was leaving Kenya sooner than later. Production in Ghana will be flat, at best, for a few years and then will start plunging. There is no major new heartland for the company on the continent. Tullow has, in the past six months, ceased calling itself Africa’s Leading Independent. Its reports now bear the title An independent oil and gas company focused on Africa and South America.

This piece was originally published, for the benefit of paying subscribers, in the June 2020 edition of Africa Oil+Gas Report. Sometimes an essay like this is republished in the newsletter; but most times it’s not.

In Uganda, The Winner Takes All

Section: Kickstarter · June 17, 2020 · No comments |

By Toyin Akinosho

TOTAL’s announcement of a half-a-billion-dollar purchase of Tullow’s entire equity in a Ugandan oilfield development, last April, sounded like a loud, symbolic statement of optimism.

In a dry white season, during which over four billion people were in lockdowns across the globe, the statement seemed to assert: “Uganda, we got you”.

At the heart of the transaction is the 230,000BOPD (Barrels of Oil Per Day) Lake Albert upstream and midstream project.

Tullow will receive $575Million, with an initial payment of $500Million for its 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System. It will pick up the remaining $75Million cheque when the partners take the Final Investment Decision to launch the project. In addition, the Irish independent will receive conditional payments linked to production and oil price, which will be triggered when Brent prices are above $62/bbl.

Tullow got to reduce its debt and command an immediate surge in its share price. TOTAL secured such a prize for less than $2 a barrel and for Uganda, finally, a clear line of sight to Final Investment Decision for a development that had been on the drawing board for over a decade.

As I see it, TOTAL has prevailed in Uganda in the eight years since it first entered the country’s E&P sector, via the acquisition of 33.3% of what was then Tullow’s Blocks 1, 2 and 3A for $1.45Billion. It had gradually stamped its authority, muscled out Tullow and raced past the sure footed, hard-tackling energy bureaucrats at the country’s Petroleum Authority and Minerals and Energy Ministry.

The French major is the decisive winner.

Tullow, which helped to nurture East Africa’s potential as a prolific oil producing region, and proudly displayed a badge describing itself as “Africa’s leading Independent”, now had to pack its bags.

I started having the nagging suspicion that TOTAL had taken charge in late 2015, when I witnessed, first hand, a very public argument between two ranking Ugandan and Kenyan civil servants regarding which was the optimal route to lay the EACOP, the pipeline that will ferry the crude oil produced in landlocked Uganda to the Indian Ocean for export.

“The route through Kenya is the one we have always known,” Hudson K. Andambi, (then) senior principal superintendent geologist at the Kenyan Ministry of Energy and Petroleum, said at the Africa Oil Week in Cape Town.

“We are still evaluating the routes and the least cost route is what we will consider”, declared Fred Kabagambe-Kaliisa, (then) Permanent Secretary at the Uganda’s Ministry of Energy and Mineral Development, at the same conference, minutes after the Kenyan had spoken.

It was the second public hint that the Ugandans might jettison the long- anticipated, widely expected pipeline route from Hoima, in Uganda’s oil rich province, to the Kenyan coastal town of Lamu.

I walked up to Mr. Kabagambe-Kaliisa after his presentation and asked him, pointedly, if TOTAL was behind the change. “We will take on board any concerns by our partners,” he responded, carefully weighing his words.

With crude oil found in commercial quantities in the Kenyan hinterland, over a thousand kilometres from the coast, operator Tullow had looked forward to an evacuation pipeline, originating from Uganda, that would link up with one that collects Kenyan crude, with both crudes heading for a Kenyan coastal port. The agreement signed by Presidents Uhuru Kenyatta and Yoweri Museveni in August 2015, three months before that public contestation between the Kenyan and Ugandan officials, was anchored on a 1,500 kilometre pipeline from Hoima through Lokichar in Kenya’s border region, and required guarantees from the Kenyan government regarding security, route optimization and financing.

But two months after that Kenyatta-Museveni agreement and a month before the subject spat at Africa Oil Week, Ugandan and Tanzanian officials, as well as staff from TOTAL, signed a separate agreement, creating “a working framework for the potential development of a crude export pipeline from Hoima to Tanga Port of Tanzania,” the Ugandan Ministry of Energy said in a statement, which raised some concern in Nairobi.

And now we were at this conference, I knew that Tullow should be worried, very worried.

The decision to pump the Ugandan crude through a separate pipeline from that with which it planned to pump the Kenyan crude to market, meant that Tullow would be investing in two expensive pipeline projects, each costing no less than $3.5Billion. This, at a time of plunging crude oil price, should unnerve the company, a midsized independent struggling with losses.

It might not be surprising to some, then, that in January 2017, Tullow announced that, for a sum of $900Million, it had agreed to sell, to TOTAL, two thirds of its entire stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System. It came to 21.5% of the project’s entire stake. CNOOC invoked its right- of-first -refusal and asked for half of the 21.5%. But Kampala, never in a hurry to close any deal, dragged the timing of grant of the official consent for the sale, which itself impacted the Final Investment Decision.

The sticky point was the Tax that the government would receive from the sale and purchase.

Tullow’s inability to consummate the sale signaled to its shareholders that it wasn’t creating value. Share prices kept falling. Tullow was hemorrhaging worth.

With government still playing hard ball, two and half years after the intent for the 21.5% sale was announced, TOTAL pulled rank and announced the suspension of all activities, including tenders, on the EACOP. The Chinese, not known to express anger in public, decided that this was time to talk. “It is now very difficult to negotiate with government”, Gao Guangcai, CNOOC’s Vice Project Manager, told a conference in Kampala. The implication of TOTAL’s action was that the project could not continue.

The authorities got the message and the parties went back to the table.

By April ending 2020, the global economy had seized up; the Ugandan authorities had come around and Tullow was going to make a distress sale: accept $425Million less for a much larger stake than it had negotiated it would take three years and three months earlier. TOTAL, the European supermajor with piles of cash, is the winner that takes all.

In His First Term, Buhari Wasted the Energy Crisis

Section: Kickstarter · March 4, 2019 · No comments |

By Toyin Akinosho, Publisher

President Muhammadu Buhari inherited an energy crisis in Nigeria when he took charge of the country in May 2015.

Now elected for a second term of four years, it is safe to assume that the policies he worked with wouldn’t change significantly.

Buhari took over an upstream sector gasping for breath: even as crude oil prices were crashing down as he took the oath of office, there were problems that were self-inflicted by the previous administration, which were wrestling with the sector’s legacy challenges.

Operations in the oil fields of the Niger Delta had not entirely recovered from the historic MEND attack of February 2006, which had reset the dynamics in the region around the distinctions between licence to-and freedom to– operate.

The state hydrocarbon company NNPC was owing cash calls in a way that effectively disabled work programmes of operating companies. And by insisting on operatorship without the wherewithal to do so (competencies, governance, processes and funding), the NPDC, the operating E&P arm of the NNPC, had strangled investment in assets that Shell & Co. had sold to five Nigerian independents since 2012. At the time Buhari came in, those companies had lost three years’ worth of aggressive investment to boost production.

Midstream, the President met proposals to diversify the gas market from export led to an inclusive, part export, part domestic beneficiation, which could establish an industrial economy with huge absorptive capacity. A crucial part of the challenge here was that a disproportionate percentage of construction of the midstream infrastructure was financed by the state. And Project delivery had been consistently suboptimal.

Downstream, Buhari met a huge refining gap that ensured that over 90% of petroleum products in demand were imported, and a commercial model that entitled NNPC to taking 445,000Barrels of Crude Oil Per Day of oil, while it was expected to beneficiate no more than 20% of it. Millions of litres of Gasoline were being imported at a cost significantly higher than what the government instructed the retailers to sell and as such the state was saddled with billions of dollars in subsidy claims by importers.

In the power sector, Buhari met rolling blackouts, with power generation averaging 4,000MW, mostly controlled by private actors; transmission averaging 5,000MW, still run by the state and distribution averaging 3,000MW, in the hands of the private sector.

On the new President’s table were frames of ideas around the Petroleum Industry Bill, which was first presented in Parliament in 2008. This set of laws has benefited from a robust national debate over the years; in its current form it engages every opportunity and threat in the hydrocarbon value chain, from state ownership and dispensing of oil and gas acreages, through community entitlements and responsibilities, to downstream streamlining of sales, distribution and proceeds of petroleum products.

Efforts and Results. Mr. Buhari’s government deserves credit for easing the bottlenecks in the cash calls for upstream work programmes and removing NPDC’s chokehold on Nigerian independents, allowing a more vibrant upstream segment. Investments have streamed into many Brownfield projects. There’s an uptick in drilling activity, a marker of the health of the industry, even if several actors remain cautious. The CEO of NNPC has been allowed a free hand, even though the President himself was the minister of petroleum throughout the tenure. Discussions have picked up around Financial Investment Decisions for new field projects, especially in deep-water, but while the momentum is higher with this administration than the former government, the old habits of sitting on proposals and approvals for pecuniary gains haven’t gone away and it is largely because, in the absence of structured, legislated reforms, individuals still see themselves as the processes!

A significant let down of Buhari’s administration is the cold shoulder the President gave the passage of the Petroleum Industry Governance Bill, the first of the four Petroleum Industry Bills.

Buhari’s Ministry of Petroleum Resources has crafted National Oil and Gas Policy documents, but in the absence of an act of parliament reforming extant hydrocarbon laws and operational norms, with these policies at its heart, the documents have gone nowhere. In Buhari’s first term, there was private sector equity investment in LESS THAN 250Million standard cubic feet per day capacity new gas processing plant for the domestic market. Project delivery timelines haven’t improved. None of the gas pipelines under construction by NNPC, before Buhari came in, will be completed before this current term of his Presidency ends. The private sector is not keen on midstream infrastructure, and has not been sufficiently incentivised to change its mind.

The President has not been able to work the downstream sector anywhere close to the little he has achieved upstream. The revamp programme for the refineries was a spectacular failure. It has been a hard sell to convince investors to put money in the revamp without getting equity, then allow NNPC (which ran down the facilities in the first place) to operate the refineries after the revamp, and then hope they could make their returns from the sale of the products. Mr. President’s idea of reducing the billions of dollars lost to subsidising the cost of gasoline import has been to appoint NNPC as the sole importer of the fuel. The state hydrocarbon firm itself admitted it had incurred some $2Billion in “under-recovery”, the Buhari administration’s code name for subsidy, in the 11 months between January and November 2018. The Government has now set aside $1 Billion for under-recovery in the 2019 budget, a lame, wooden, uninspiring document that is filled with less hope than apologia.

Buhari’s Ministry of Power has worked to untangle some of the knots created by the incoherent running of the industry by the previous administration. The messy regulatory issues around Aba Power Plant, the access to meters, the retrieval of power equipment lying at the ports for several years. Still, it’s incredible that the President was not in a hurry to appoint commissioners to run the National Electricity Regulatory Commission, the sector’s regulator. The NERC Chairman was appointed only last April.

But the big ticket item remains adequate power supply. The Transmission Company is owned and operated by government. At the end of Buhari’s four years, the volume that can be transmitted on the Nigerian power grid reliably and safely is 5,500MW. More than this the grid collapses. Unlike Petroleum, Mr. Buhari has a minister in charge of the Power sector, who has been pushing the principle of “incremental power”, as a bold overhaul of the sector appears elusive. A key part of the problem here is that the regulators are challenged by what they interpret as the President’s body language; NO tariff increase. The minister has chosen a bully pulpit approach to engage investors, in the absence of a fully constituted Regulatory commission. To Buhari, a cost reflective tariff means higher payment for the poor and so for four years, the several segments of the electricity value chain have been underfunded. A crisis always presents an opportunity for transformation. In his first term as President, Mr. Buhari will be remembered as wasting Nigeria’s energy crisis.

The original version of this piece was published in the January 2019 edition of the Africa Oil+Gas Report, released January 24, 2019 at the West Africa International Petroleum Exhibition and Conference.

Activating the Roadmap for Angola

Section: Kickstarter · February 14, 2019 · No comments |

By Gerard Kreeft

What can we anticipate in Angola for 2019 and beyond?

While optimism is in the air there is also a high degree of impatience. The strategy for determining the direction of Angola’s oil and gas industry—which is the piggy bank for economic diversification be that for basic education, housing, drink water and santitation, and stimulating the agricultural sector—must still be taken and implemented.

Oil and Gas Authority

Amadeu Correia de Azevedo, the Director of the Oil and Gas Authority, is quickly moving to assert it’s authority: originally the handover of Sonangol’s concessionaire role was scheduled to start in 2020; now that has moved up to January 2019 to ensure a timely handover.

The Authority is expected to be very busy from the outset:

Overseeing and Implementing the Gas Legislation
Monitoring and reviewing exploration plans and development plans
Encouraging new companies to participate in Angola’s oil and gas industry.

Certainly a key sign to watch are Angola’s production figures. The Authority’s immediate goal is to ensure that oil and gas production does not stagnate at the current level of 1.4MMBOPD, but increase to at least 1.5MMBOPD as quickly as possible in order to send a positive signal to the international investment community.

Less positive has been the news that Shell did not submit a bid for the former Cobalt Blocks. The reasoning: a difficult project and the company has better opportunities elsewhere. This highlights two major problems which the industry in Angola must face and solve:

Developing value propositions for current and new potential assets in Angola that will help stimulate production;
International companies face internally a strong debate where they will invest their exploration and development monies…and Angola is part of this competition.

Overseeing and Implementing the Gas Legislation

At the recent Africa Energy Summit organized by EnergyWise, Maria Figueiredo, Partner (Miranda Law Firm) explained the basis of the new gas legislation:

Oil companies are entitled to prospect, explore for, appraise, develop, produce, and sell natural gas either domestically or on the international market. Originally this was the monopoly of Sonangol.

Contractual terms and conditions can be agreed upon on a case by case basis.

Concessions and contracts may set periods and terms longer than those set typically for exploration of oil.

Deductible: costs incurred with development and production of associated gas and construction of relevant pipelines.

Present concession contracts for crude oil are subject to 70% Petroleum Transaction Tax (PTT), but gas projects are exempted.

Present concession contract costs not linked with exploration, development and production of crude oil not eligible for deduction for Petroleum Income Tax (PIT); for gas contracts costs linked with associated gas and non-associated gas in the context of a crude oil project become tax deductible for PIT.

For oil concessions the Petroleum Production Tax (PPT) is 20%, possibly reduced to 10%; PIT is 65.75% and for PSCs the PIT is 50%.

For gas projects the PTT is 5%; PIT is 25%, and possibly reduced to 15% for projects with certified with reserves greater than 2Tcf.

The gas legislation has been welcomed by the industry as a good start to incentivize a potential gas energy. As the industry moves forward it is anticipated that the necessary amendments and challenges will be addressed. Will the incentives extended to explore for natural gas be done at the expense of oil projects? Can the industry also anticipate that current and future oil agreements will also possibly be amended?

Nonetheless, as Qi Chen of Chiron AlkaTrans Technology outlined at Africa Energy, a gas roadmap should entail:

Long-term planning for gas development and Monetization
Guiding strategy document for national development in the gas sector
Well to wheel: reservoir to end users
Gas production, infrastructure, movement, and Monetization plants
Fit into the national energy development strategy

Monitoring and reviewing exploration and development plans

Speaking at the Energy Africa Summit, Ken Seymour, of African Oilfield Solutions(AOS) stated that if project development was to move forward it is paramount that the following criteria be addressed:

Opening licencing systems with rapid churn of acreage;
Making data freely available;
All stakeholders must be aligned to solely profit from production of hydocarbons.

While exploration has been done in the pre-salt basins, the results to date have been left wanting…yet there is optimism that with additional geological modeling and exploration, hydrocarbons can be found. For example, Sebastian Kroczka, Industry Solutions Advisor, Halliburton, visualized the following:

Application of smart connectivity between subsurface and surface data from field/FPSO to the office with automated and optimized workflows;
Faster data visualization, data analytics, machine learning, pre-processing and data integration.

Angola’s largest cash cows, the offshore Blocks 15 and 17, are fast becoming mature and innovation is needed to ensure that the life cycle of these projects can be extended. The majors involved here—BP, Chevron, ENI, ExxonMobil, Statoil and TOTAL, are interested in further developing their businesses and open to innovative ideas and business propositions, varying from enhanced oil recovery to natural gas production.

Encouraging new companies to participate in Angola’s oil and gas industry

More regional international co-operation can lead to more increased activity. For example at Energy Africa, Namcor presented its Kudu Gas to Power Project. An example of how a small dedicated gas project can be developed and monetized. A precedent for Angola and also a stimulus to establish more regional co-operation.

With the majors taking up more stakes in Nambia, additional co-operation will be sought. For example rig-sharing. A major exploration cost. With increased exploration in both Angola and Nambia time-sharing of rigs is one example of co-operation.

Certainly it should not be ruled out that new players will start to look at the regional developments in South-West Africa. New players can be engines of change and can help speed along new business developments.

Gerard Kreeft, MA (Carleton University, Ottawa, Ontario, Canada) is founder and owner of EnergyWise. The company has since 2001 managed and implemented oil and gas conferences, seminars and master classes in Angola on an annual basis.

Mr. Kreeft wrote this specifically for Africa Oil+Gas Report and the piece was earlier published in the November 2019 edition of the magazine.

If You are in Oil and Gas, You Should Be Worried

Section: Kickstarter · April 26, 2018 · 1 comment |

The world of fossil fuel is about to change. It is changing uniquely. The world will demand far more energy than it is currently doing, while the energy mix changes.

There are people who don’t believe that the transition is happening.Concerns have risen around prospects of global warming. The Paris Climate Agreement aims to keep global average temperatures from rising by two degrees Celsius.

Flooding, melting ice….the ecosystem is changing and clean air that we take for granted in many places is now coming under very severe challenges in some areas.

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Why Ghana Fawns Over ExxonMobil

Section: Kickstarter · April 18, 2018 · No comments |

By Toyin Akinosho

Pamela Darwin, ExxonMobil’s Vice President for Africa, could not have hired a savvier manager for her company’s reputation in Ghana than Boakye Agyarko, the country’s Minister of Energy.

“We couldn’t have found a better partner”, he told President Nana Akufo- Addo, at a state house reception for the supermajor’s representatives, after a Petroleum Agreement had been inked with the Ghana National Petroleum Corporation (GNPC), for the Deepwater Tano Cape Three Points Block(DWT/CTP), last January.

The event was aired on prime time National Television.

“ExxonMobil is the largest, publicly listed oil company, with deep pockets, technical know-how, both of equipment and people”, Agyarko gushed. “It’s our good fortune that we found them as partners to work with”.
Ms. Darwin gaped all the while at the minister. “As you said, we…” she commented, when it was time to respond. She had so little else to say.

Ghana is clearly excited to have a major oil company join the race to find hydrocarbons in the country.
It is 11 years since the first sizeable commercial find was made in the waters offshore the old Gold Coast, West Africa’s second largest economy.

There have been three field development sanctions, and commissioning, since that discovery; a feat for both country and continent.

But the roaster of international and local companies operating in Ghana has read like a list of the junior explorers on the oil patch.

Apart from Italian player, ENI, every other operator is a minnow. Anadarko, a senior American independent which has a position in the acreage hosting the Jubilee field, is content to be a passive participant. Russian giant Lukoil made a minor discovery, but considered itself so unlucky it handed back its stake. Weeks after the GNPC agreement with ExxonMobil, Hess Corp, a sizeable American independent, sold its Ghanaian assets to Aker Energy, a smaller Norwegian explorer.
Even small sized Eco Atlantic, known better for its enthusiastic press releases about its Namibian operations than any ambitious work programme, has walked out.

Tullow Oil and its partners have delivered so consistently on the Jubilee and TEN Fields, with their 2017 output in excess of 150,000BOPD, that they mask the country’s real challenges in attracting passionate, highly capitalised opcos.

In the last five years it had seemed like Ghana was destined to work with companies with shallow pockets. The GNPC signed agreements with ERIN, a cash strapped company struggling with debt in Nigeria, its heartland; Sahara, which has so much on its plate, from electricity generation and distribution through crude oil trading, to a string of exploratory and producing acreages, that it scarcely pays heed to its E&P operatorships; Springfield, a Ghanaian minor with large ambition but little money to realise it; Britannia U, which has produced off and on from its small marginal field in Nigeria, a hardly applaud able performance. Meanwhile AGM, linked to AGM Gilbraltar, reportedly includes AGR, said to be one of the world’s most experienced deep-water drilling companies, as well as Minexco and MED Songhai Developers Limited. So the consortium’s main claim to a pedigree is AGR. But, look carefully, AGR has never been an operator. It’s a service company. The Group was renamed Petroleum Services Group and delisted from the Oslo Stock Exchange in 2014.

One company which could run ahead with the ball is Amni Petroleum. The Nigerian producer operates a string of oilfields in its home country, is involved in current drilling campaigns, and is activating a field development plan for a newly acquired acreage. But that said, can Amni drop all the $50Million required to drill a well to prove the highly prospective plays it claims it has in the Central Tano Block? Not at all. Amni is in the market for a well -heeled partner to deliver a work programme in Ghana.

All of which explain Mr. Agyarko’s excitement about having the world’s largest, publicly listed company showing up to take a position, especially in ultradeepwater, between 2,000 and 4000 metre water depth, of that country’s segment of the south Atlantic.

The story is that the discussions go back to April 30, 2015, when the former Minister of Petroleum and the Ghana National Petroleum Corporation (GNPC) entered into a Memorandum of Understanding (MoU) with the oil giant.
ExxonMobil’s January 18, 2018 signature with Ghana is certainly in sync with the current trend of Big Oil swooping on frontier acreages in Africa and taking exploration acreages, especially as certain smaller Western independents, who have dominated the frontier, have gone on the retreat.

But if we recall that ExxonMobil has been keen on getting into Ghana for close to a decade now, we realise that the story is far more complicated than a simple ‘Junior versus Big Oil’ issue.
Back in 2010, Ghanaian authorities were averse to negotiations between ExxonMobil and Kosmos Energy, involving the former’s proposed acquisition of Kosmos Energy’s stake in the Jubilee and nearby fields, for a reported value of $4Billion.
I recall attending sessions of the Offshore West Africa conference, back in 2009/2010, when ranking ExxonMobil managers from Nigeria, took advantage of the conference location in Accra, Ghana’s capital city, to push the case for their wish to win a tract in the country.

The negotiations failed under the weight of mistrust between the Ghanaian state and Kosmos Energy, over the relationship between EO, the local content partner in Jubilee and Kosmos.

But that was then; as the junior versus Big Oil theory goes, the majors, in those days, 2005-2014, generally moved in after the minnows had made the discoveries in the African frontier. (People cite TOTAL’s entry into Uganda and Kenya, as example of that tendency, but again, the matter is not as straightforward).

Nowadays, the majors go everywhere in the frontier: BP in Mauritania and Senegal; TOTAL in Uganda, Kenya, Cote d’Ivoire; ENI in Morocco, ExxonMobil in (both proven and unproven tracts) in Mozambique.

They are developing the biggest fields, charting the riskiest undrilled acreages.

Yes, this part of the story is not complicated. The majors are taking newer, larger swaths of African territory than they’ve done in a while.

However you look at it, Ghana considers itself fortunate to be part of this evolving story.

Aliko and the 40 Indians

Section: Kickstarter · December 21, 2017 · No comments |

By Toyin Akinosho

The welding shop on the refinery construction site is not local content compliant

I was allowed to gate crash into a party meant exclusively for CNN in the middle of May 2016.
It was a conducted tour of the site of the Dangote refinery, part of a quartet of industrial projects under construction on over 5,000 acres of reclaimed land, in the eastern flank of Lagos.

Our convoy drove on a recently piled sand filled road for over 90 minutes, stopping at points to take in the geography of what place had been earmarked for the Petrochemical complex, the Fertiliser plant, the receptor terminal of the gas pipeline from the Niger Delta fields; the jetty to which crude oil arrives the refinery and from which petroleum products leave it.

I should be grateful to my hosts, who filled in my name and my colleague’s at terribly short notice. The Dangote Industries management gave me as much access to market intelligence about the $12Billion project as they gave CNN. If there was any information that I missed, and the CNN gained, it was more to do with journalistic enterprise than opportunity.

I say this because, ordinarily, Dangote Industries doesn’t routinely respond to queries from local journalists. The big stories about the company’s projects are those that filter in from the multinational news organisations: Financial Times, Bloomberg and the likes of CNN.

As we were ushered into the welding shop on the fertiliser grounds that Saturday afternoon, I noticed that only two of the over 50 welders in that shop were Nigerians. This minority looked awkward to me and I could sense their anxiety.

One had an air about him that suggested he was probably a supervisor but lacking authority. The other stood in the far corner of the shop, his two hands loosely hanging by his sides. He couldn’t join the buzz of conversation around him because he evidently didn’t belong.
Every welder in that vast room, apart from these two, was clearly an expatriate from the Indian sub- continent. I had to take photographs.

“I thought that this was an operation to benefit the Nigerian workforce, among other things”, I said to Tony Chiejina, Dangote’s Public Affairs manager, who I had known for over 30 years. “How come that in the first place that we are encountering a large workforce on this tour, there are hardly any Nigerians?”

“The type of welding we’re doing here is rather far advanced”, Chiejina replied. “We had to look outwards”.

Chiejina’s response was clearly off the mark. The Nigerian hydrocarbon industry teems with skilled welding talent, at every stage of the welding hierarchy. I should know. I have reported, elsewhere in this medium, a quote by a facilities engineer who used to be my colleague at Chevron, the American oil major: “The guys who worked as welders on the Agbami (a $10Billiondeepwater field development project), are riding Okada (Motorcycle Taxis) in Port Harcourt now”, he had said. “There are just not enough projects to keep people employed”.

In the midst of this absence of projects, a huge construction site like Dangote’s will have just about any homegrown welder it wants. And yet it has chosen to go abroad to source this mostly rudimentary skill set.

Unsatisfied with the response of the company’s official spokesperson, I took my query to his boss. Mansur Ahmed is the Dangote Group’s director in charge of stakeholder relations and corporate communications. When I asked him about the overwhelming number of Indian welders and the clear negligible number of their Nigerian counterparts, he admitted he had noticed. He didn’t attempt to bullshit. He merely shook his head to my query. I understood.

The Dangote Group has been accused of not involving Nigerian owned engineering service companies in the construction of its mammoth industrial complex. Such charges have been dismissed by company consultants who argue that the country lacks enough capacity in the requisite areas.

“Refinery construction is based on licensed patented technology”, said Jide Soyode, technical advisor to Aliko Dangote, founder and proprietor of the Dangote Group. He was re-affirming the statement already attributed to him elsewhere in the Nigerian business media. “So, how much of this technology exists in Nigeria? The last time such was done in Nigeria was 30 years ago and it was not done by any Nigerian company,” he told me, repeating what he said in Vanguard, a local newspaper.

In late October 2017, I ran into Simbi Wabote, executive secretary of the Nigerian Content Development Monitoring Board, NCDMB, the regulatory agency set up to monitor compliance of local content in the oil industry.

I knew that he and members of his board had been conducted on a tour of the Dangote Industrial complex, as recently as August 2017, so I asked him if he saw what I saw at the welding shop. He responded in the affirmative.
Wasn’t he distressed? I pressed.

“The complex is situated in a Free Trade Zone”, Wabote told me, so the NCDMB can’t act on that clear case of poor compliance with the National Content legislation. The NCDMB board discovered on the tour that Dangote Industries was ignorant of the availability of certain technologies that have been domiciled in the country. “We told them there were at least four coating plants”, Wabote said. “They didn’t know about that”.

Was Dangote feigning ignorance of some of the engineering capacity domiciled in-country?
PETAN, an umbrella group of Nigerian oil service engineering contractors, continuously campaigns against being shut out of the jobs in the Dangote industrial complex. “There are many components of a refinery”, Bank Anthony Okoroafor, PETAN chairman, has been quoted as saying. “There is a tank farm that would have several storage tanks; we have storage tanks for crude, and storage tanks for finished products. They would have pipelines. There are pipelines instrumentations, civil engineering works, metering, and all these components can be done by PETAN companies”.

I try to separate the claims and counter-claims between Mr. Soyode and PETAN regarding services available in country,from the symbolism of what I witnessed in the welding shop that afternoon in May 2016. The point is, whether or not you engage Nigerian service providers, it is not the most optimal thing to do, in a third world country of 180Million people with over 40% unemployment, to import welders from Asia for a job as basic as welding.

Dangote Industries has talked up its commitment to building technically honed Nigerian workforce.It has made noises about sending Nigerian engineers to India for training in batches of 50. For these engineers, it says there will be classroom training for one month, and on the job training for one year, which involves working with real time experts in the industry everyday. In a presentation to the Nigerian Vice President months before my visit, the company said it was engaging 7,500 people in direct and indirect jobs and will have 60,000 contractors and 10,000 service providers on site during the project stage of the refinery construction.
Given what I saw, I wonder what to believe.

This article was first published in the November/December 2017 edition of the Africa Oil+Gas Report, and launched at the 35th conference of the Nigerian Association of Petroleum Explorationists (NAPE).

Africa: The Liberal Electricity Market Is In Tatters

Section: Kickstarter · July 29, 2017 · No comments |

By Toyin Akinosho

..or perhaps it is struggling hard to take off

When Egypt signed a contract with Siemens, the German engineering firm, for delivery of 14,400MW capacity gas fired power plants in the space of four years, a putter of applause went up around the world.

One West African commentator noted that President Abdel Fattah El Sisi had tackled his country’s energy crisis with military fervour.
Siemens itself commended the head of state for choosing not to prolong Egyptians’ suffering by “starting a negotiation and tendering process that could have lasted for two or three years with nothing being developed.”

Within 12 months of the agreement, the first two of the 24 large gas turbines had been mounted on their bases in BeniSuef, a small town located some 115km south of Cairo. The rest of the project was rapidly on course for commissioning by 2019. This single but sizeable order will immediately increase Egypt’s power supply capacity by 50%, to 42,000MW.

4,000KM SOUTHWARDS IN GHANA, incidents of Dumsor (long period of darkness interspersed with short periods of light) ended and power cuts became less frequent when a 210MW diesel fired power barge arrived the country’s waters in November 2015. It was the first of two power ships ordered from Turkey. Ghanaians have been paying for slightly more stable electricity.

There are parallels between Egypt and Ghana’s ways of tackling the power outage challenge.
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