Bassey Udo, a veteran oil writer for the Daily Independent, takes ExxonMobil to task for not being able to bear the shame of being second dog to other bidders. ExxonMobil didn't bid for any of the blocks but apparently wanted to be operator of two, according to Udo's report.
One offshoot of its publication is that a number of investors, writing on the Raging Bukll ERHE message board, have wondered aloud how ERHC Energy can win when its bids were often substantially lower than those of other bidders.
The answer is a little complicated, but here's my assessment: When ERHE formulates a bid, it takes into account the value their rights would have if they were paying for them. Thus it is a multiplier, in effect; if Vintage, for example, bids $135 million for a block where ERHC has 20 percent of the rights, then the value of ERHC's bid is "multiplied" by $27 million, or 20 percent of $135 million, so its $40 million bid is actually worth $67 million.
In blocks where ERHC must pay a signature bonus fee (there's just one of those, a 15-percenter in Block 5, in this round), that's real money. In blocks where it doesn't have to pay a percentage of the signature bonus, however, it helps the Joint Development Authority assess the true value of its bid in association with other things like technical competence, which is the strong suit of ERHC's partners, Noble Energy in Block 4 and Devon Energy and Pioneer Natural Resources in Blocks 2 and 3.
Those other factors perhaps have disproportionatel weight to the value of bids in the JDA's decision, as it is adamant that they will not get saddled with indigenous operators who will only sell out their share and have no capacity to develop deepwater wells themselves.
The story doesn't mention ERHC Energy, and mentioned instead some of the indigenous Nigerian firms that are expected to win 10 percent local-content allotments in several blocks of the five on offer.
Udo does offer several numbers for the "winning" bids, one of which is the same size as ERHC's bid with Devon and Pioneer in Block 3. We won't know until the JMC's announcement of awards whether this is correct or not, but it is a preliminary indication that ERHC has won operatorship of Block 3.
The downside of that math is that if a Nigerian indigenous firm were to win a block with a hugely inflated bid where ERHC has to pay a 15 percent signature bonus fee, that would mean we'd have to pony up tens of millions to work with a company incapable of exploiting the resources there, and would be junior partners. We don't know if Noble, Devon and Pioneer would stick around under those circumstances, and the Memorandum of Understanding between us probably doesn't require them to do so. Like so many things, it's one more remote possibility to worry about.
Here is the Independent's account of the XOM debacle:
JDZ: ExxonMobil paves way for deepwater minnows
by Bassey Udo
Energy Editor
The decision by American multi-national oil and gas giant and Nigeria’s second highest hydrocarbon producer, ExxonMobil to reserve its right in two of the five oil blocs on offer in the 2004 Nigeria-Sao Tome and Principe Joint Development Zone (JDZ) Licensing Round may have paved the way for little known international and indigenous exploration and production (E&P) companies to jostle for stakes in the deepwater region.
ExxonMobil, which was expected to have taken up 25 percent stakes in each of Blocs-2 and 4 in the zone by virtue of its existence in the region in years predating the establishment of the 2001 treaty between Nigeria and Sao Tome and Principe creating the JDZ, declined after weeks of anxious wait, citing business reasons.
Though the Chairman, Board of the Joint Development Authority (JDA), Carlos Gomes said in Abuja on Tuesday that ExxonMobil’s decision might not significantly affect the progress so far made in the development of the richly endowed region, analysts believe the development may have put a freeze on the initial frenzy and enthusiasm that heralded the scramble for acreages in the zone by prospective investors.
Though ExxonMobil is yet to say what really informed its decision to reserve its rights, a top official in one of the multi-national oil companies, who pleaded anonymity said in Lagos yesterday that the reason may not have been unconnected with its alleged discomfort over the seeming lack of technical capacity of its prospective indigenous partners to lead the challenge of operating in such a high risk terrain if it did otherwise.
It was gathered that because of its clout as one of the world’s leading oil industry operators, ExxonMobil felt uncomfortable exercising those rights, an action it considered would have placed it in a junior partner’s position behind any of the bidders for the two oil blocs.
“ExxonMobil would have wanted to emerge as the operator of the two oil blocs. But, since it did not bid for them, it felt uncomfortable working under any other capacity with the indigenous companies favoured to emerge as operators”, the official explained.
During the bidding exercise, seven companies staked a total of $588million for Bloc-2, while10 others jostling for Bloc-4 staked a total of $870.285.
The companies include a horde of largely unknown names in deepwater operations, led by Vintage Oil and Gas, which posted the highest bid of $135million for Bloc-2 and ECL International, which offered the highest bid of $175million for Bloc-4.
After months of deliberations by the JDA, preliminary results likely to be ratified by the Joint Ministerial Council (JMC) of the zone, made up of the Ministers of Petroleum of the two partnering companies, next week, according to Gomes, indicates a signature bonus of $71million for Bloc-2, $40million for Bloc-3, $90million for Bloc-4, $37million for Bloc-5 and $45million for Bloc-6.
The highest signature bonuses offered during the bidding round for the respective oil blocs were Bloc-2 ($135million) by Vintage Oil & Gas; Bloc-3 ($41million) by Energy Equity Resources (EER); Bloc-4 ($175million) by ECL International; Bloc-5 ($37million) by ICC-OEOC Consortium, as well as Bloc-6 ($45million) by Filtim Huzod Oil & gas Limited.
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