A Treasure Trove Of JDZ News From Menas Associates

In a new article in their Focus: Nigeria newsletter series, the respected Menas Associates, strategic communications experts and oil consultants, have drilled down into the delays by ExxonMobil that have held up the 2004 second licensing round of the Nigeria-Sao Tome Joint Development Zone and frustrated both countries and investors alike.

The best news is that the consultants believe ERHC Energy and its partners Devon Energy and Pioneer Natural Resources are winners in Block 2 of the JDZ. And they are downbeat about the likelihood of XOM and Anadarko getting operatorship of Block 4, where the Noble Energy-ERHC Energy bid has been widely touted as a possible winner.

The consultant group also says the delays were due to "at least partly because of its concerns at having to work with Emeka Offor, the controversial but well-connected Nigerian chairman of US-listed ERHC, which also has options in the JDZ."

Here is the report:

ExxonMobil keeps JDZ bidders on tenterhooks

The saga of the Nigeria–São Tomé Joint Development Zone (JDZ) 2004 licensing round, originally scheduled to conclude last December, now appears set to continue well into April. According to regional sources, a meeting of the Joint Ministerial Council to approve awards has been arranged for the third week of April.

The Joint Development Authority says it is ready to announce the award of up to six blocks. Officials insist they are waiting only on a decision by ExxonMobil as to whether or not the company intends to exercise its options of up to 25% in two blocks. ExxonMobil secured the options in return for relinquishing rights agreed with São Tomé before the establishment of the JDZ in 2002. In the past, ExxonMobil has expressed reservations about exercising the options, at least partly because of its concerns at having to work with Emeka Offor, the controversial but well-connected Nigerian chairman of US-listed ERHC, which also has options in the JDZ.

The JDA notified ExxonMobil in writing on 18 February of the bona fide highest bidders for each block. The JDA believed the delivery of the letter marked the beginning of the contractually agreed 30-day period for ExxonMobil to exercise.

However, it was only at a meeting with the JDA in Abuja on 9 March that Exxon officials received full disclosure and clarification of data. At a subsequent meeting in Abuja on 21 March, Exxon argued successfully that the 30-day period should begin from 9 March. The two sides have agreed that the company has until 9 April to decide its position.

ExxonMobil is understood to have indicated verbally that it is interested in exercising one option of 25% in block 2, where it believes seismic data is more promising. Devon/Pioneer/ERHC are understood to be the most likely operators of the block. ExxonMobil is also interested in exercising its 25% option in block 4 – but only as a farm-out. Speculation in the industry has linked any farm-out to Anadarko, the designated highest bidder for the block, and Occidental, which has yet to establish a presence in the region.

Anadarko has pitched strongly for operatorship of block 4. However, rival US independent Noble is also well placed and has a much better relationship with the JDA. The company has an agreement with ERHC, which has already exercised its own preferential rights, also secured for relinquishing earlier terms agreed with São Tomé. These give ERHC 30% of block 4 and 25% of the equally prospective block 2.

Centurion is understood also to have worked hard to impress its credentials as operator on the JDA, and may benefit in the Nigeria licensing round as a result. By way of contrast, Equator Energy, run by controversial Canadian businessman Wade Cherwayko, appears unlikely to receive any significant interest, despite its partnership with major Indian player ONGC. Officials are understood to have concerns over Cherwayko’s previous record with companies operating in the region, notably Abacan, which collapsed spectacularly in 1997.

Nigeria Focus understands that the substance of the 9 March meeting between ExxonMobil and the JDA centred on whether or not ExxonMobil and a partner, to which it would farm out, could be guaranteed operating rights for block 4 if the company exercised its 25% option. It is understood that the JDA could provide no such guarantee.

The picture is further complicated by uncertainty over which Nigerian company is likely to receive the 10% stake informally reserved for indigenous operators. ConOil chairman Mike Adenuga has lobbied hard, and was a guest at President Olusegun Obasanjo’s private birthday party in mid-March. Equinox is also understood to harbour hopes of winning.

One thing about the report bothered me a bit, and that is the comment about EEL and ONGC. I noticed a pretty healthy jump in EEL's share price - from .77 to .90 - on London's AIM exchange Tuesday, and am wondering what those investors know that we don't about Wade Cherwayko's company. I think they have an important role yet to play.