Thursday, February 09, 2006

ThisDay Online Reports Approval Of Addax In Block 4

An article in ThisDay Online Wednesday left little doubt that the Joint Ministerial Council as well as the Joint Development Authority, the two key entities that oversee the Nigeria-Sao Tome and Principe Joint Development Zone in the oil-rich Gulf of Guinea, have both approved the substitution of Addax Petroleum for Noble Energy in the ERHC Energy consortium that will serve as operators in Block 4.

Oddly, however, the JMC's action on the issue was not reported but a JDA spokesman - albeit an unnamed one - did confirm the action was taken by ministers from both countries on the JMC.

There had been an apparent conflict between the the JDA and the JMC after the former published a press release on its Website ( last December saying the JDA had approved the Addax substitution, and the JDA then removed the statement and an accompanying timeline for PSC signings.
While the article gives the very strong impression the substitution is wholly approved, again, only JDA approval is mentioned. It may just be a case of poor reporting.

The article also talks about the Nigerian EEZ 2005 Licensing Round, but almost all of it is about the JDZ. Here are the relevant excerpts:

2005 Bid Round: FG Nets $1bn Revenue
Nigeria, Sao Tome approve Addax operator of JDZ oil block

By Collins Edomaruse in Abuja and Mike Oduniyi in Lagos, 02.08.2006

The Federal Government yesterday said it realized about $1 billion (N130 billion) from the auction of oil acreages at the 2005 Bid Round conducted by the Department of Petroleum Resources (DPR) last August.

Also, the Joint Development Authority (JDA), the body administering hydrocarbon resources in the Joint Development Zone, has approved a Swiss oil firm, Addax Petroleum, as the operator of oil block 4 in the Gulf of Guinea.
Meanwhile, the Joint Development Authority (JDA) has approved Addax Petroleum, as the operator of oil block 4 in the Gulf of Guinea. Addax replaces US independent oil firm, Pioneer Natural Resources which pulled out from the consortium with ERHC Energy, the US-based company in which Nigerian indigenous oil firm, Chrome Energy, has a majority stake.

President and Chief Executive Officer of ERHC Energy, Mr. Walter Brandhuber told newsmen yesterday that Addax would be bringing to bear on the consortium, its wealth of experience in oil exploration and production particularly in Nigeria’s offshore area.

"The JDA has approved Addax as the operator for block 4. The approval was given last week," Brandhuber said, adding that ERHC has already communicated to the JDA its readiness to sign the Joint Operating agreement (JOA) and Production Sharing Contract (PSC) for block 4.

According to the ERHC chief executive, the consortium is now ready to sign the Joint Operating Agreement (JOA) and the Production Sharing Contract (PSC) agreement on block 4. “If the JDA calls for the signing now, we are optimistic that we are prepared to sign the PSC," he said.

A spokesman for the JDA also confirmed the approval for Addax saying "I can confirm that both parties (Nigeria and Sao Tome) represented in the Joint Ministerial Council have now approved the Addax operatorship of block 4.”

By the JDA approval, Addax has now replaced all the major American oil firms in the consortia with ERHC Energy in exercising all the rights granted it by the JDA in the five oil blocks awarded last May. The consortia included the ERHC/Devon/Pioneer in Blocks 2 and 3.

Meanwhile, the Joint Ministerial Council (JMC) of the JDA yesterday, agreed to convene a meeting on February 28, 2006 in Abuja, to consider and approve the Production Sharing Contract (PSC) guiding operations in the five oil blocks awarded last year.

The JMC, which consists of representatives from Nigeria and Republic of Sao Tome and Principe, which began meeting on Tuesday, also rejected the judicial report purportedly issued by the Office of the Attorney General of Sao Tome and Principe, condemning the process of award of the blocks.

The Sao Tomean Attorney General late last year, released a report alleging "serious flaws" in the way the blocks were awarded. The said several of the companies chosen to explore the JDZ blocks, lacked the technical know-how and the financial muscle necessary to carry out the work, and that the procedures used to select the companies which received concessions contained serious flaws and did not satisfy the minimum standards required for the award of such licenses.

The tiny archipelago island also picked holes in the preferential rights granted ERCH Energy, in many of the blocks. ERCH Energy is a quoted company on the New York [Over-The-0Counter Bulletin Board] in which a Nigerian indigenous oil company, Chrome, has major equity interest. The country said it would lose about $58 million in expected income if the award to ERHC was allowed to stay.

The Joint Ministerial Council has the overall responsibility for all matters relating to the exploitation and exploration of hydrocarbon resources in the JDZ. It has the final say on all matters bordering on the treaty.

At stake is the princely sum of $283 million to be earned from the award, based on the signature bonuses offered by the winners of the blocks. The amount is made up $71 million for Block 2, $40 million on Block 3, while partners in Block 4 including Conoil, will pay $90 million signature bonus. The signature bonus on block 5 fetched $37 million while Block 6 fetched $45 million.

According to the treaty, Nigeria will get 60 percent of the revenue and Sao Tome, 40 percent.

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