Including the state-owned Rivgas Petroleum and Energy Co. in the consortium led by Chrome may be a stroke of genius, because thorny relations with that state and its activist ethnic communities has led to huge costs for Shell, Chevron and other multinationals who need the state's ports, pipelines and processing facilities to maintain a steady flow of oil abroad.
Also included in the consortium according to the Guardian is an oil services company named Starcrest Energy, which is headquartered at a private residence (with a small swimming pool) in a Plano, TX, suburban tract home. Little is known about that firm.
Essar marketing XEO Raj K. Varma, and also Ndubuisi Nwan, a Rivers State official, both from the the so-called Asian Group of companies bidding with Chrome for the refinery, are quoted at length in the story. By quoting these two so extensively and others not at all, the newspaper may be hinting broadly that Nigeria is strongly leaning towards accepting its bid for the refinery, which is currently operating at 60 percent of capacity. Chrome Energy has done turnaround maintenance (TAM) at the facility for years.
It also suggests the possible emergence and shape of an eventual African giant of the oil industry, a unified and fully integrated company capable of drilling, piping, processing, refining and shipping crude to the oil-hungry markets of Asia, Europe and the United States. At this stage, the Asian Group consortium lacks only a Korean manufacturer of floating oil platforms.
Chrome Energy, as the parent of ERHC, is a substantial player in the five recently-awarded blocks of the Nigeria-Sao Tome and Principe Joint Development Zone and enjoys rights to about a quarter of the estimated 14 billion barrels of oil believed to lie in the Gulf Of Guinea's tranquil waters.
The move by Chrome Energy has spooked many ERHC investors because control of ERHC lies in the hands of Chrome Energy. ERHC Energy chaiman Sir Emeka Offor mformally transferred his personal holdings of 309 million, or about 43 percent, to Chrome Energy, a company he wholly owns and set up last year in the Cayman Islands, where tax and SEC-related reporting requirements are markedly less stringent.
At the same time, it has shown a notable reluctance to support the company in the form of positive publicity, or to inform stockholders about behind-the-scenes dealings that are widely reported in Nigeria.
While there are some long-term holders of small quantities of the stock, none are powerful institutions; most who hold it are speculators who dump it each time it rises towards a dollar. The pattern of benign neglect on the part of company officials has stirred speculation that Offor will abandon ERHC Energy and move forward with the Chrome Energy platform in control of it. The stock (OTCBB symbol: ERHE) has fallen sharply to historic lows as speculative oil stocks like IVAN, FEEC, HDY and TMY - and all well-estabilshed oil stocks - have risen sharply in the past year.
Even as many speculators are preparing for yet another seasonal dump when markets react to signings of Production Sharing Contracts with the Joint Development Authority this month or next (or later), with events moving away from ERHC Energy they may encounter little interest above the $0.40 level.
There are alternate possibilities, such as the wealthier partners in the Asian Group, CNPC and Essar, joining with Addax to buy out Chrome Energy's holdings of ERHC. It is uncertain how ERHC Energy stockholders would be compensated in that circumstance, if at all, and whether any regulatory framework would adequately support stockholder interests.
The most pleasing possibility rests on Offor's reputation as a straightforward businessman who has not heretofore been known to hurt his own investors. In that scenario, he would either sell the Chrome Energy holdings and control of the company outright to the highest bidders, enriching stockholders in the short term, or continue to develop its equity interests in the JDZ and STP EEZ with other partners, slowly raising the share price.
Here is the Guardian article from today's editions:
BPE lists condition for evaluation of Port-Harcourt refinery bids
By Yakubu Lawal
THE Bureau of Public Enterprises (BPE) has said that it had listed the condition for evaluating the technical bids submitted by prospective bidders for the Port-Harcourt refinery.
This development the Enterprise said followed the submission of bids for the sale of the Port Harcourt Refinery which closed last weekend with four consortia affirming their interest to buy the plant.
A statement issued by the Head of Public Communications, Mr. Chigbo Anichiebe, however, said this would be subject to satisfactory evaluation of the above developments. The BPE will proceed with the technical evaluation of these submissions to determine bidders who qualify to have their financial bids opened.
He stated that the technical evaluation would be carried out in accordance with the following broad criteria:
(1) Experience in the ownership, operation and management of a crude oil refining plant;
(2) quality and credibility of the bidder Post Acquisition Plan for the refinery;
(3) demonstrated financial capacity to finance up to US$200 million of capital expenditure by PHRC within the next three years; and
(4) adequate measures for addressing labour and other social considerations.
According to him, at the close of the deadline for submission, only four submissions were received from the following consortia: These are Chrome/Chinese Petroleum Corporation/Essar Oil Consortium, Oando Group, Refinee Petroplus Consortium and Transnational Corporation Consortium.
He stated that the bids were submitted in three offices contemporaneously namely, Director General, BPE, Director, Energy, BPE and Credit Suisse First Boston (CSFB), London (Transaction Advisers for PHRC privatisation) duplicate copy only of its technical bid.
Anichiebe explained while two prospective bidders issued with bid documents entered into an alliance and submitted a joint bid while two other prospective bidders wrote to request for an extension of the bid submission deadline. No response was received from the remaining three prospective bidders.
However, contrary to speculation that some companies who submitted their bids failed to do so within the stipulated time frame, Anichiebe said: "We understand from CSFB, London that one of the bidders who had in fact submitted to BPE, did not meet the deadline for submission of the duplicate copy of the technical bid. Also one of the bidders who met the deadline for submission of the duplicate copy of the technical bid to CSFB, London, did not meet the deadline for submission to the BPE. The BPE is presently evaluating the implication of these developments."
The Guardian gathered that at the close of the bid at the weekend, those companies who submitted their bids include, Essar Oil Limited, Starcrest Energy, Chrome Energy, Rivgas Petroleum and Energy Limited, and the China Petroleum Corporation (CPC) and Bauchi State government.
Others said to have submitted their bid include Oando/Shell Group. Of all the bidders, the Asian Group and the Oando/Shell consortium are said to have met the 5.00pm (Friday) deadline. The two others are said to have delivered their bids to the BPE much later.
The Asian Group is bidding on the strength of its expertise in all sectors of the oil and gas industry as well as an independent producer of power in India.
As an integrated oil and energy company, Essar is said to have competencies in various sectors of the oil industry from exploration, drilling to retailing. It has a 300,000 per barrel ultra-modern refinery, about 500 filling stations, and plans to increase the outlets to 5000 by 2008. The company is also operating in Myannar, (Burma), with a production-sharing contract signed for the operation of one onshore and one offshore bloc.
Mr. Raj K. Varma, the chief executive officer (Marketing Division) of Essar, who led the consortium to submit the bid for his company, which is believed to have competencies in exploration, production, refining and marketing, is using the refinery as a bridgehead to enter into the Nigerian oil and gas industry
"The first step that we have taken here is to bid for the Port Harcourt Refinery. Later, we will certainly go into the upstream and downstream sectors," he said.
He said his group is aware of the problems of the refinery, which he claimed the companies are competent to handle. "Our first priority as a consortium would be to rehabilitate all equipment that are not operating at the moment and ensure the certainty of the plant operating at between 80 and 90 per cent in the immediate future and peaking at 100 per cent or beyond."
The group, he said, does not foresee any difficulties in rehabilitating the refinery, which has hardly operated at 60 per cent capacity since it was built and managed by the Port Harcourt Refinery Company Limited, a subsidiary of the Nigerian National Petroleum Corporation (NNPC). "It is not very difficult, because all you need to do is refurbish the equipment, replace what cannot be repaired, put in money, allocate something like $230 million to be spent in the first couple of years on top of whatever we pay to buy the equity."
He said Essar, which has assets of about $4.4 billion, and has steel, telecommunication, oil and gas, shipping, and energy arms is shopping for land to an Independent Power Plant (IPP).
Varma said beside the availability of capital, the consortium has the technical expertise to operate the refinery. "We have a large number of very experienced people in the refinery, processing and maintenance and projects," he said. "The China Petroleum Corporation (CPC) has a large number of refineries in Taiwan."
Varma said the consortium took into consideration, the operating environment, by including the Rivgas Petroleum and Energy Company, owned by the Rivers State government. The idea is that "given the history of this refinery and the problems with the community, taking on the company owned by the state government will create a conducive operating environment." That synergy was conceived to give the host community a stake in the resources in its area, and also empower the people of the area, through local content packages, which the consortia have consciously conceived.
Mr. Ndubuisi Nwankwo, who is special adviser to the Rivers State governor on Energy and Natural Resources said his state was happy with the consortium, although he would not disclose how much the state is investing in the business. "When we win the bid, the partners will sit down and decide who brings what." He was confident that the bid would succeed. "We are most qualified. We are more experienced in refining business and we have a strong capital base."
BPE said only bidding consortia that score above the minimum technical score of 60 will be eligible to have their financial bids opened. In accordance with BPE procedures, public opening of financial bids will take place at a date, in the immediate future, to be announced shortly.
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