Thursday, February 09, 2006

Upstream's Barry Morgan: Sinopec Needs O.K. From Beijing; Beware The 'Shanghai Shuffle'; The JMC Urges Speedy PSCs

A potential wrinkle has been introduced into the new pairing of Addax Petroleum and Sinopec in the operat=ing consortium for Block 2 of the Nigeria-Sao Tome and Principe Joint Development Zone: Politicians in Beijing will have to approve the arrangement.

Given China's stated need to nail down new sources of energy around the globe, the approval may come sooner than usual for one of the nation's most important free-market assets. Sinopec is the seventh-largest oil company in the world and last year had revenues of $75 billion.

This reporter recalls, though, that politics in Beijing left investors in Ivanhoe Energy hanging on a costly, dangerous limb for months and months after a scheduled payment was not made due to an unrelated incident in the same industry involving CNOOC, Sinopec's corporate boss.

After six months had passed, the company had to borrow extensively to stay afloat and investors lost a large part of their investment when they sold. The money finally came, but by then the stock had been so badly damaged that it never again climbed to the heights it enjoyed before it hooked up with the Chinese.

In China, there is no one to whom one might appeal such an issue. Moreover, once payments bound for ERHC Energy have begun to pass through Sinopec's treasury, they will be difficult to trace, and if fraud occurs, it will be extremely difficult to prosecute.

While suing ExxonMobil or ChevronTexaco, too, is a difficult and time-consuming proposition of uncertain prospect, suits in Chinese courts or in international courts that would then order Chinese institutions to act are unlikely to prosper.

The simple matter of cracking down on Chinese DVD piracy cost Hollywood studios tens of millions of dollars to fight, and it was years before the government ever acknowledged either the piracy or the liability of Chinese companies in the matter.

Elephants - or giant dragons, if you will - tend to move, as Bob Dylan sang, at their "own chosen speed." ERHC Energy would be wise to require its prospective partner to get approval before a certain date or risk substantial penalties, as the company will be paying interest on borrowed money or selling shares that dilute its holdings if the Shanghai Shuffle starts to play. But who can tell an elephant what to do?
Here is Barry Morgan's piece:

JDZ Blocks Lure Sinopec

By Upstream staff

CHINA'S Sinopec has agreed in principle to be operator of Block 2 in Nigeria and Sao Tome's Joint Development Zone (JDZ), writes Barry Morgan.

Sinopec's partners in the block will be ERHC Energy and Addax petroleum.

Pioneer Natural Resources had been offered operatorship of the block, but later withdrew.

In addition to the Block 2 deal, ERHC has signed a memorandum of understanding with Addax covering Block 3, from which Pioneer also withdrew.

It is understood the Nigerian authorities knew of Pioneer's pull out late last year, but gave ERHC time to find a new partner.

Production sharing contracts for most of the JDZ blocks on offer will be signed on 28 February, sources have said.

Negotiations for Block 2 may take longer as Sinopec's plan to join forces with ERHC and Addax Petroleum will need approval from Beijing.

10 February 2006 00:02 GMT | last updated: 10 February 2006 00:02 GMT

The "need for speed" is also a them of Energy Editor Bassey Udo's article in tomorrow's Nigerian Daily Independent:

JMC Demands Speedy Award Of PSCs Licenses

By Bassey Udo
Energy Editor

The Joint Ministerial Council (JMC) has directed the Joint Development Authority (JDA) of the Nigeria-Sao Tome Joint Development Zone (JDZ) to speed up negotiations on all Production Sharing Contracts (PSCs) to ensure that all agreements in respect of oil blocs awarded in the 2004 licensing round are signed before the end of the month.

Rising from its 11th meeting held in Abuja, the JMC, which supervises the JDA, reiterated its commitment and determination to pursue the rapid development of the petroleum and other natural resources in the JDZ.

The JMC is made up of the Ministers of Petroleum Resources and other representatives of the two countries involved in the management and development of natural resources at the JDZ, while the JDA is responsible for the administration of the affairs of the JDZ.

It considered other technical and administrative issues crucial to the development of the JDZ and rejected the report of investigation on the JDZ's second bid round conducted by an American-based law firm on behalf of the Attorney General of Sao Tome and Principe and expressed reservations over insinuations of impropriety leveled against Nigeria and Federal Government officials.

The Office of the Sao Tome and Principe Attorney General in an independent inquiry report had condemned the process of award of the oil blocs and called for the United States probe of the 2004 licensing round alleging "serious flaws" in the awards, particularly improper payments to officials and their families in contravention of country’s law.

In the report released late last year, the Attorney-General also observed that several of the companies chosen to explore the JDZ blocs lacked the requisite technical know-how and financial capacity to carry out the development of the acreages, while the procedures adopted in selecting the companies that won concessions did not meet the minimum standards required for the award of such licenses.

Noting the various stages of progress achieved in the negotiations on the Production Sharing Contracts (PSCs) for Blocs 2-6, the JMC ratified Addax Petroleum as operator for Bloc-4 as well as for it to replace Pioneer in Bloc-3.

Expressing satisfaction over the progress on the drilling of the first exploratory well OBO-1 in Block One without pollution incident or accident, the council acknowledged the urgent need for the Non-Hydrocarbon Resources Department of the JDA to commission a survey with a view to determining the inventory and commercial value of the non-hydrocarbon resources in the JDZ.

And a third story from The Punch of Nigeria concludes with a well-aimed swipe at the Sao Tiome Attorney General's report on the 2004 Licnesing Round:

JDZ plans commission on non-hydrocarbon resources

Clara Nwachukwu

Plans have been concluded to set up a commission to survey the non-hydro-carbon resources under the Joint Development Zone in the Gulf of Guinea.

This was one of the resolutions arrived at on Wednesday in Abuja, during the 11th meeting of the Joint Ministerial Council of the Zone operated by the governments of Nigeria and Sao Tome and Principe.

In a statement issued on Thursday, by the Joint Development Authority, on the outcome of the meeting, the JMC said the decision was in line with its resolve “to pursue the rapid development of the petroleum and other natural resources in the JDZ.”

The council, which is the highest decision-making organ of the JDA, said there was “the urgent need for the Non-Hydrocarbon Resources Department of the JDA to commission a survey with a view to determining the inventory and commercial value of the non-hydrocarbon resources in the JDZ and directed speedy action in this regard.”

The council said it arrived at the decision after it had among other things, “considered technical and administrative issues crucial to the development of the JDZ.”

In its consideration of other issues affecting the JDA, the council urged the JDA to fast-track negotiations on all the Production Sharing Contracts for blocks 2 to 6, awarded during the second Bid Round, with a view to signing the PSCs during its next scheduled meeting by the end of February, 2006.

While noting the progress achieved in the negotiations on the (PSCs) for Blocks 2-6, the council ratified Addax Petroleum as operator for Block 4 and also approved Addax as replacement for Pioneer in Block 3.

Furthermore, the council noted that drilling of the JDZ 1 Exploratory Well (OBO 1) was progressing satisfactorily without any pollution incident.

With regards to the Report of Investigation on JDZ second bid round conducted by an American-based non-govenmental organisation, (International Senior Practicing Lawyers) at the instance of the Attorney-General of Sao Tome and Principe, the council rejected the report and expressed displeasure at the insinuations of impropriety levelled against Nigeria and Nigerian Government officials in the report.

The PUNCH, Friday, February 10, 2006

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