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Former Sonangol Chairperson Loses Court Case to the Angolan State, in France

Section: In the news · July 17, 2020 · No comments |

Isabel dos Santos has lost one of the several pitched battles she is waging against her country for going after her allegedly stolen wealth.

An arbitration tribunal in Paris, France, ruled itself incompetent to hear the charges that the former Chairperson of the Sonangol, the Angolan state hydrocarbon company, brought against the government of Angola.

This particular case involves the cancellation of the concessioning of the Barra do Dande port, located north of Luanda, to Atlantic Ventures, a company in which Ms. Dos Santos is a shareholder.

That concessioning, made through a presidential decree signed by (former) President José Eduardo dos Santos a few days before leaving power in September 2017, drew widespread public condemnation of cronyism and nepotism, as Ms. Dos Santos is President dos Santos’ daughter.

That decree was annulled by another presidential decree, signed by (current) President João Lourenço in 2018. And this is why Ms. Dos Santos is in court.

The arbitration tribunal’s decision effectively aligns with the position of the Angolan authorities, who are insisting that the dispute is an Angolan affair that should be settled by the Angolan judiciary system.

The tribunal ordered Atlantic Ventures to pay approximately $228,000 to the Angolan authorities, corresponding to the reimbursement of costs incurred in the proceedings.

The Angolan authorities had explained that, despite the discussions between the two parties on the concession, no contract or clause on the settlement of a possible dispute has been signed, making it impossible to exercise arbitration justice, an argument validated by the tribunal.

Nigeria: Petroleum Industry Legislation and the Urgent Need to Reform NNPC

Section: In the news · June 19, 2020 · 1 comment |

By Najim Animashaun

Two reports published shortly before the COVID-19 lockdown paint a stark picture of NNPC as a sub-optimally governed and remarkably inefficient commercial enterprise that is also neither transparent nor accountable.

The first report by the Nigeria Natural Resource Charter (NNRC) is the 2019 Benchmark Exercise Report (BER 2019), which assesses Nigeria against a set of 12 Precepts that benchmark performance in the stewardship of petroleum resources. Precept 6 benchmarks the performance of a national oil company. It simply says: Nationally owned companies should be accountable, with well-defined mandates and an objective of commercial efficiency. NNPC scored red, meaning it performed poorly, for the 4th consecutive report, against this Precept. Unlike NNPC’s Precept 6 performances under previous BERs, BER 2019 observed limited improvements in some areas such as greater autonomy from government for NNPC to meet some of its Joint Venture funding obligations.

Since BER 2019 was released, NNPC has published audited accounts of its Strategic Business Units (SBUs), including the loss making refineries for 2018, on its website (https://www.nnpcgroup.com/pages/afs.aspx). This is a significant positive milestone. However, there appear to be no audited accounts for the Central Headquarters (CHQ), where the Crude Oil Marketing Department (COMD) is located, which according to the NNPC Monthly Financial and Operational Report for December 2018 accounted for ₦158.64Billion or nearly 45% of the total losses of ₦355.62Billion incurred by all NNPC SBUs and CSUs. Moreover, the issue of sustainability identified in BER 2019 is still a live concern.

While the above are laudable improvements in reporting performance, a second publication, a policy brief titled “NNPC: The burden of Africa’s Oil and Gas Giant” by #FixOurOil and BUDGiT – a civil society organisation devoted to fiscal and budgetary transparency – gave a more blunt assessment of NNPC’s actual financial and operational performance: “NNPC has been overwhelmed by commercial inefficiencies, scandals and a reputational damage that has lingered for nearly four decades” from the 1980 Crude Oil Sales Tribunal (Irikefe Panel), that investigated some $2Billion worth of earned equity crude that Nigeria failed to lift, to the 2017 NEITI request to probe the $15.8Billion of NLNG dividends traced to NNPC’s accounts that weren’t remitted to the Federation. The report blames political interference, unreasonable demands of staff unions, a defective operating model, saboteurs and oil thieves thwarting the best efforts of some of “NNPC’s leadership… to improve the corporation’s commercial efficiency”

The net result is a heavily indebted NNPC that one former minister of state for finance said as far back as 2010 “is insolvent as current liabilities exceed current assets” by ₦745Billion. Six years later, as a leaked memo revealed, NNPC had total audited liabilities that stood at ₦7.5Trillion as of 31^st December 2016. While it demonstrates NNPC conducted audits, it sadly did not and has not published these audited reports that suggest a staggering 10-fold increase in the 6-year period of record oil prices. How NNPC racked up crippling debt during a time of plenty is beyond baffling. In that memo, NNPC sought permission to apply NLNG dividends to meet petrol import obligations, putting the government, as an IMF Publication warned, “on the hook for debts the NOC has incurred” because NNPC is too big to fail.

Beyond debts as a measure of NOC efficiency, other crude measures can be found in an NOC’s (a) revenues and profitability, (b) its Refineries capacity utilisation or how efficiently it runs its refineries. A third measure (c) reserves and reserve replacement ratios is not considered here. Measuring NNPC’s performance on revenues against Petrobras (of Brazil), and refinery capacity utilisation against Equinor, illustrates how inefficient NNPC is.

Comparing revenue and profit performance for the two years 2015 and 2018 makes for revealing contrasts between NNPC and Petrobras. Not least because Petrobras was in the throes of its most searing failure of governance as exposed by a bribery scandal dubbed “Operation Car Wash” during this period. A scandal that ultimately contributed to a Petrobras CEO going to jail, Brazil’s president Dilma Rousseff’s impeachment and removal, and Brazil’s former President Lula Da’Silva’s conviction and imprisonment.

For Petrobras itself, the consequences were severe. In 2018, it settled on a fine of $1.7Billion with American authorities for Foreign Corrupt Practices Act violations. In 2015 it was forced to publish an audit report declaring it paid $2.1Billion in bribes, and also had to set aside $17Billion in contingencies. Yet by 2018, it generated $95Billion in revenues and posted $7Billion in profit. NNPC by contrast generated, according to its Monthly Operational and Financial Performance Report, some $16Billion in revenues and posted profits, at prevailing exchange rates, of $0.27Billion ($270 Million). In the absence of consolidated audited accounts, it would be speculative to attempt to aggregate and harmonise the separate audited reports of SBUs and CSU. Especially, as they appear not to include audited reports of CHQ.

Comparing Equinor and NNPC’s Refinery Capacity utilisation shows that Equinor’s three refineries averaged 92.8% capacity utilisation in 2018, to NNPCs three refineries of 11.21%. A 2015 comparison of average refinery capacity utilisation in the USA of 90.98% and Nigeria of 4.88% is even worse. Unless NNPC’s refineries can operate at 90% capacity they will continue to lose money.

Unlike Equinor and Petrobras, which are mixed ownership NOCs with government and private shareholders, Petronas and (to all intents and purposes) Saudi Aramco are wholly government owned like NNPC. Private shareholders in both Petrobras and Equinor are entitled to nominate their own directors onto the board. In the case of Equinor, there is even a board member to represent staff. Petronas, Saudi Aramco and NNPC don’t have such constraints on board appointments. However, both Petronas and Saudi Aramco value diversity of expertise on their leadership teams or boards. In particular 5 of the current 11-member board of Saudi Aramco are independent directors. Two of the five are; Sir Mark Moody, a former CEO of Shell, and Mr Mark Weinberger, former chairman and CEO of EY the global accounting firm.

By contrast NNPC’s board has always been a bone of contention as can be seen from board tenure and GMD turnover. The average tenure of a Petronas CEO is 6 years. The average tenure of a Saudi Aramco CEO is 9 years. NNPC by contrast has had 20 GMDs in 42 years, an average tenure of 2 years. It is no wonder that in a study surveying over 2000 NNPC staff members, Dr. Olive Egbuta observed that staff viewed GMDs as political appointees. With staff viewing their chief executive as a politician they can hardly be faulted for not operating as if they worked in a commercial enterprise.

The GMD is one of three government officials mandated by law on NNPC’s nine-member board, including the minister, whom the law designates as chairman unless an Alternate Chairman is appointed. Neither Saudi Aramco nor Petronas have the minister as a board member. It is unclear from the announcement whether the Alternate Chairman appointed in 2019, Mr Thomas A. John, remains in that position with the Minister on the board making 10 members. Since the Board was tasked with reducing costs, it would pay handsomely to have the expertise Aramco has on its board in a time like this. Of a potential pool of 10 board members, only 2 appear to have 15 years or more management experience in petroleum operations or cost management expertise. None compare to the experience or expertise of Saudi Aramco’s board.

By publishing audited accounts of its subsidiaries for 2018, NNPC is laying a positive marker in the march for greater transparency and accountability. Hopefully, these practices will survive this GMD and this administration to become ingrained in NNPC’s culture. It is also hoped that the audit is expanded to include CHQ and the opaque practices of the Crude Oil Marketing Department. In light of the dire economic situation in Nigeria, we cannot be shy about bold new endeavours.

Reforming NNPC therefore requires new thinking and new strategies. It starts with the recognition that NNPC is not and was never designed, from the beginning, to be a commercially driven enterprise. Had it been so those 42 years ago, it would have been capitalised, granted more operational autonomy and burdened with fewer regulatory functions in the NNPC Act. Its board would reflect that of a commercial enterprise, even if government owned like Saudi Aramco, with fewer ‘political appointees’. This defect can only be remedied by passing a new law – the Petroleum Industry Bill, which goes to great lengths to separate commercial from regulatory, and asset management functions, leaving the national oil company to focus on what it does best, find and produce petroleum.

However, passing the PIB will never be enough on its own. Implementation requires ensuring that the habits and culture of the past do not infect the new organisation. This means putting in place a board of the most proficient hands with the skill sets needed to turn our strategic national assets into productive wealth to drive and diversify our economy. This also means keeping an eye on the future of energy by having effective energy transition strategies to make sure that we do not become prisoners to our past.

Najim Animashaun

Partner at Gulf of Guinea Consulting in Abuja

The Rise and Fall of an Oil Giant: How Canada’s Province of Alberta Gained its Oil Prominence and Lost its Lustre

Section: In the news · June 19, 2020 · No comments |

By Gerard Kreeft

Many Africans, who have worked in the oil and gas industry encountered Albertans, who inevitably have been sent abroad to work in Africa’s oil and gas industry, either in a technical, managerial or training capacity.

Many Africans also have been invited to the city of Calgary, Canada’s equivalent to Houston, Texas, the world’s oil capital, and participated in technical training sessions. In particular, learning to survive Alberta’s winter cold with temperatures sometimes plunging as low as -50C. Boot camp of a technical nature.

Province of Alberta

Canada is one of the world’s largest oil and gas producers averaging 4.7MMBOPD(millions of barrels oil per day) according to CAPP(Canadian Association of Petroleum Producers). Some 78% of this production comes from Alberta and additional smaller production comes from the neighbouring province of Saskatchewan and Offshore East Coast Canada.

To understand Alberta’s DNA it is necessary to go back in time and dust off our history books. In particular re-visiting Democracy in Alberta: Social Credit and the Party System(1953), the authoritative book by C. B. Macpherson, Professor of Political Science, University of Toronto.

Macpherson takes us back to the early formation of Alberta: an agrarian co-operative landscape. In 1900 Alberta’s population was 73,000 persons. The common theme was a one-staple economy, based on a homogeneous farming community with its key emphasis on wheat. The United Farmers of Alberta (UFA) came to power in 1921 and governed the province until 1935. The UFA’s sole goal was to promote the interests of Alberta farmers. Central Canada, its business and financial interests, and the Federal Government were seen as the ‘bad guys’.

By 1935 the Social Credit Party swept into power. The new norm had become ‘virtually a one-party system, cabinet rule, and a revised tradition of direct delegate democracy’.

Times have changed—the UFA and the Social Crediters have passed on but we also have had various Governments —but the common theme is that the province in the past had a one staple economy. The wheat and the farmer may have disappeared but the new commodity became oil and the farmer who Macpherson described as petit bourgeoisie has been superceded by a more urban set of elites- lawyers, engineers, geologists, oilmen, government bureaucrats, wheeler-dealers. Their class or status can also be described as ‘petit-bourgeoisie’…but urban as opposed to rural. As oil production increased oil prices surged. The money poured into Alberta. It was party time.

Now Alberta’s population is more than 4Million people. The Calgary- Edmonton corridor is Alberta’s most urbanized area and one of Canada’s four most urban areas.

Macpherson’s assertion that once a quasi-party state (Alberta) has been established in a quasi-colonial and predominantly petit-bourgeois society it may persist indefinitely if growth is assured. That growth is now not assured.

For the last 70+ years, since the founding of Alberta’s oil industry the province has achieved a level of unknown prosperity. Alberta’s per capita GDP, before COVID-19 struck was the highest in the country: C$ 80,000 (US$60,000) compared with C$60,000 (US$45,000) nationally. Yet the present signs are not encouraging:

Due to the impact of the Russia – Saudi Arabia oil price war and COVID-19, Western Canada Select (WCS) the price obtained for many Alberta oil and gas producers, averaged only US$3.50 per barrel in April 2020, more than 90% lower than it was a year earlier. West Texas Intermediate(WTI) averaged US$16.55, 74.1% lower than it was a year earlier. The differential of WTI over WCS was US$13.05 in April 2020.

Prices of WCS have improved somewhat, in mid-June WCS was up to US$24.60 per barrel but that is still painfully down from oil prices of a year ago.

Although the price of WTI and WCS are extremely low, what is really painful for Canadian producers is the discounted rate that Canadian producers receive. The reason? Alberta is landlocked. It sole access to overseas markets is via the TransMountain Pipeline to Vancouver, British Columbia which has a limited capacity of 300,000BOPD capacity. All other oil not consumed in Canada is shipped to the USA.

Now, the USA is awash in oil, due to the impact of fracking of shales in the Williston Basin, North Dakota as well as the Permian Basin of Texas and New Mexico.

The Americans really do not need Canadian oil. Accordingly, Canadian producers must accept huge discounts if their oil is indeed brought to market.

Despite the low oil price the Provincial Government is predicting in its 2020 April budget a WTI price of US$58 per barrel, increasing to US$63 per barrel by 2022/2023.

Alberta was scheduled to produce 3.81MMBOPD in 2020; based on OPEC’s intervention it is anticipated that Alberta will be forced to cut its production by 1MMBOPD.

Pipeline Politics

Much of Alberta’s oil production to date has been focused on oil sands production, located in Northern Alberta. These are also commonly called “the tar sands”. The crude bitumen is a thick, sticky form of crude oil so heavy and thick (viscous) that it will not flow unless heated or diluted with lighter hydrocarbons.

Alberta’s oil sand production in 2019 was 2.9MMBOPD. Alberta also produced 800,000BOPD of conventional crude. In the past, oil sands production predictions were as high as 5MMBOPD. CAPP (Canadian Association of Petroleum Producers) is still predicting oil sands production of 4.2MMBOPD by 2035. This, in my view, is excessively optimistic.

A false optimism also abounds on the pipeline front. The expansion plans for the TransMountain Pipeline, adding an additional capacity of 590,000BOPD has become stuck in regulatory and environmental haggling. The Federal Government chose to step in and purchased the TransMountain Pipeline for C$4.5Billion. The Federal Government now has to deal with judicial reviews and objections and consultations with various indigenous communities who vigorously object to this activity taking place on their ancestral lands.

Cynicism abounds concerning the purchase of the Trans Mountain Pipeline by the Federal Government. Was it to solely placate Alberta’s oil interests? So that the Federal Government could be seen to be in lockstep with the Alberta Government? Knowing full well that such a pipeline will likely never be built, given the regulatory clamour and environmental protests.

Plans for The Keystone Pipeline, which was to be used to transport oil sands crude to the USA, is also in limbo given that Joe Biden, Democrat Presidential Candidate has expressed his opposition to this project. Indeed, President Obama and his Secretary of State, John Kerry were much against the Keystone Pipeline with both declaring Alberta’s tar sands to be the world’s dirtiest oil.

Business as Usual?

Canada has pledged to respect and implement the Paris Climate Agreement. Yet all good intentions aside, the road ahead is an uncomfortable journey:

Any pipeline plans are unlikely to be implemented;
Oil sand projects are unlikely to be expanded and perhaps discontinued;
Discounted Western Canadian Select vs West Texas Intermediate Oil is a guarantee that oil prices will continue to bottom out, ensuring a virtual moratorium on oil production.
Are Alberta’s oil and gas resources fast becoming ‘stranded assets’?

Alberta’s Provincial Government has made some feeble efforts to move in the direction of an Energy Transition. For example its C$1.1Billion commitment to the ‘Petroleum Diversification Programme’, providing royalty credits to companies that build large-scale projects to turn ethane, methane and propane feedstocks into products such as plastics, fabrics and fertilizers.

The Government also mentions Canada LNG which will transport LNG to Pacific Rim countries. The Government claims that Alberta natural gas will be sourced; but the lion’s share of the project’s natural gas will come from Northern British Columbia!

Will there again be a populist revolt such as when the UFA were turfed out by the Social Credit Party in 1935, and the Social Crediters in 1971? The present Alberta Government is anxiously looking about in a hope of saving its oil economy. Can the one dimensional characterization of Macpherson’s petit-bourgeois class become more divergent?

Now that the oil has for all intents and purposes disappeared, what will be the driving force that Albertans will have to find? The great big party is over, the atmosphere in Alberta is like attending a funeral. Alberta’ Premier, Jason Kenney, announced that due to the impact of COVID-19 and the collapse in oil prices, Alberta may incur this year a deficit of C$20Billion.

For the last 75 years oil has literally been the fuel that has driven the economy. All the talk about diversifying the economy was pious nonsense. Instead it smothered innovation. Perhaps this type of crisis is necessary to stimulate a new generation. Getting back to basics. Perhaps something as basic as encouraging more tourism in the Rocky Mountains of Banff and Jasper and elsewhere in the province..

Question: How much oil money is beneficiai for an economy? What is the tipping point when a petro-economy fails to encourage innovation and diversification? In that sense can the lessons of Alberta also be useful to Africa, where oil in a number of countries, i.e Algeria, Angola, Congo Brazzaville, Egypt, Equatorial Guinea, Gabon, Ghana, Mozambique and Nigeria is a prominent factor of economic growth?

Macpherson has made a key assertion: once a quasi-party state has been established in a quasi-colonial and predominantly petit-bourgeoisie society, it may persist indefinitely, if growth is assured. This is not only a lesson directed to a developed economy such as Canada. His assertion could also provide valuable lessons to many of Africa’s emerging economies which are heavily oil dependent.

Gerard Kreeft, MA (Carleton University, Ottawa, Ontario, Canada) Energy Transition Advisor, has more than 30 years experience in the energy sector. He was the founder of EnergyWise. He has managed and implemented oil and gas conferences in Alaska, Angola, Brazil, Canada, Kazakhstan, Libya and Russia. He is a Canadian/Dutch citizen.