Friday, March 03, 2006

Addax, ERHC Transferring 9% Of Block 4 Equity to Godsonic? Tensons High In Sao Tome, Energy Compass Says

Energy Intelligence, a costly newsletter, has a startling take on the problems between Nigeria and Sao Tome and Principe with respect to negotiations over oil believed to lie in the Nigeria-DRSTP Joint Development Zone bloks awarded last year.

The newsletter is frequently critical of ERHC Energy and seems to take the part of other critics whenever it has the chance.

If the article is correct, the bad blood engendered by Nigerian Oil Minister and OPEC President Dr. Edmund Daukoru's acusal that Sao Tome is a "bad business partner" has not been cured by his withdrawal of a demand for a Sao Tome apology for not signing a Block 4 Production Sharing Contract after their Joint Ministerial Council meetng suffered a meltdown on Feb. 24.

While some insight into the affair was provided by an article by UpstreamOnline's Barry Morgan, the Energy Intelligence piece goes further into the details, and reveals that Addax Petroleum and ERHC Energy were planning to transfer 9 percent of their equity in Block 4 to Godsonic, a little-known oil company that is being sought as a merger partner in an unfinished deal with Block 4's Conoil, which has a 20 percent stake there.
Godsonic had a 5 percent stake after the May 31, 2005 awards, and now if the Conoil deal goes through, Chevron would apparently acquire some of it. But why is Addax and ERHC Energy transferring anything to Godsonic, if not to mask a deal with Chevron from shareholders?

Here is the Energy Intelliegence article:

Sao Tome: Nigeria stokes up the tension

Tensions with Nigeria over oil contracts in their Joint Development Zone (JDZ) are running high in Sao Tome and Principe (STP) where Energy Minister Deolindo Costa last week refused to sign a production sharing contract (PSC) for Block 4. The refusal, which embarrassed Abuja -- not to mention directors from Swiss company Addax flown in for the Feb. 24 signing ceremony -- turned into a diplomatic incident when Nigerian Energy Minister Edmund Daukoru let off steam at STP.

Daukoru's outburst, which Nigeria's press reported as "a call for a public apology," caused major offence in Sao Tome, where officials are weary of being bossed about by their big neighbor. Nigeria denied the reports, but stoked the fires further in a statement advising STP to explain the postponement and provide reassurances that there are no fundamental differences between the JDZ parties. It also challenged STP to prove its credibility with investors.

Costa's oil team refused to sign because it had not read the final draft of the PSC, well-placed officials tell Energy Compass in Sao Tome. When it did it found a notation to transfer a 9% equity stake from Addax and Nigerian-owned, US-listed ERHC to an obscure Nigerian company, Godsonic. The transfer had not been finalized, and the partners have still not produced a joint operating agreement (JOA), which is necessary before signing a PSC.

The first draft gave Addax and ERHC a joint 60% stake including ERHC's 25% option through a controversial agreement it negotiated with STP in 2003. But the draft that appeared on the signing day had 51% pencilled in against Addax's share, boosting Godsonic's to 14%. The block's other stakeholders include Nigeria's Conoil (20%), Canada-listed Centurion and Nigeria's Hercules, and Nigeria's Overt Ventures.

The amendment struck a raw nerve with STP officials, resentful at the large buildup of stakes in JDZ blocks by Nigerian companies. The most ubiquitous player is ERHC, controlled by Nigerian businessman Emeka Offor, whose agreement confers rights to stakes of 15%-25% in several JDZ bocks, with signature bonus exemptions on four. Others include A and Hatman, Momo, Foby Engineering, Equinox, Broadlink, Sahara, Denham and Wood Group, and Filtim Huzod.

The second licensing round was held in December but no PSCs have yet been signed because of extended wrangling over JOAs and cost sharing between companies. Three US independents -- Devon Energy, Noble Energy and Pioneer Natural Resources -- have exited Blocks 2, 3 and 4 after failing to reach agreement with the Nigerian stakeholders. The only big international independent left is Anadarko, which was awarded 51% of Block 3. The US company has agreed to carry most of the Nigerian partners and is ready to sign.

STP has been waiting patiently, hoping such stalemates would force the Joint Development Authority, which administers the JDZ, to convene a new licensing round and attract more interest from majors. A recent report by STP's attorney general calculates that the agreement with ERHC -- signed under an Nigerian ultimatum -- would force it to forgo $60 million in signature bonuses from ERHC, while deterring blue chip investors who don't want to work with ERHC. This partly explains why Exxon Mobil and Chevron have confined themselves to Block 1, where ERHC has no stake, and where Nigerian interests were kept to under 10%.

However, what ERHC lacks in cash, it makes up for in tenacity, having roped in Addax, a regional integrated independent with plenty of cash after a recent initial public offering and strong Nigerian connections. STP, which is keen to see European and US companies counterbalance the Nigerians, lacks enthusiasm for Addax because it did not bid for an operating stake in the original licensing round.

ERHC is also courting Chinese giant Sinopec for Block 2, and is hoping that any discovery on Block 1, where Exxon and Chevron are drilling, will give a boost to its share price.

The US duo is watching closely from the sidelines, anxious not to do anything that might strengthen ERHC and the Nigerian independents. Exxon and Chevron have declined to comment on reports of an oil discovery on Block 1, and might well take a long time to make any announcement that could enhance the attractions of neighboring blocks.

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