African Energy: ERHC Victory In Blocks 2 And 4 Stirred Protest

A report from the subscription-only African Energy, one of the better sources for news about the awards process that is underway in the Nigeria-Sao Tome and Principe Joint Development Zone, provides some additional background on the turmoil and possible resolution of the issues that have caused endless delays.

There are several key errors in the story, which conflates the bid from Noble Energy and ERHC in Block 4 with the separate bids from ERHC Energy and Pioneer Natural Resources with Devon Energy in Blocks 2 and 3. The article also leaves one with the feeling that ERHC has also won Block 3, which most other reporting would discount. Most of the other information seems fairly reliable, however vague and heavy on academic content.

Meanwhile, a post from SwingingK, a poster on Raging Bull's ERHE message board who is almost always wrong but got his most recent previous update right, says that he has been verbally assured by JDA officials in Abuja by telephone that awards will be announced Wednesday, possibly forestalling a collapse of the current round.

The ersatz news has propelled the price slightly higher, to $0.725, the Ask to $0.73, and the Bid to $0.72, as lunch is served on Wall Street boardrooms where, when you mention ERHE, they cluck, "I told you so... ."

Here is the African Energy post from RB's kobiashi:

Murky end to a messy game in Nigeria/São Tomé JDZ

Despite much anticipation, the final award of five Joint Development Zone blocks offered at end-2004 was still awaited as African Energy went to press. For all the hype about the zone’s offshore prospects and the partners’ stated commitment to transparency, the licensing round’s tortured progress points to continued difficulties in turning paper promises into a transparent economic reality.

The experiment in co-operation and compromise as represented by Nigeria and São Tomé e Principe (STP) is unique in Africa, as diplomats from the two countries never tire of explaining. Their four-year old Joint Development Zone (JDZ) stands in marked contrast to the tense stand-off between Gabon and Equatorial Guinea over a disputed island, the unimplemented International Court of Justice ruling between Nigeria and Cameroon on Bakassi and Cameroon’s unresolved boundary issues with Equatorial Guinea.

But the JDZ was designed to be an effective oil management mechanism, rather than an innovative departure in preventive regional diplomacy.

On paper things are moving well here, too. São Tomé and its Nigerian partners’ commitment to transparency – enshrined in the Abuja Joint Declaration of July 2004 – has been helped by pro bono assistance from such luminaries as Jeffrey Sachs’ Earth Institute at Columbia University (its work part-funded by George Soros’ Open Society Institute) and law firm Hogan & Hartson to draw up an innovative new oil payments law for STP.

However, the tortured progression towards the award of the JDZ’s first nine blocks, marked by two licensing rounds, a failed coup and myriad allegations of sharp practice culminating in a stormy meeting to announce final awards, is an indication of the difficulties in turning diplomatic promise into a transparent economic reality.

On 26 April, representatives of the two countries’ Joint Ministerial Council (JMC), which has oversight on the key strategic decisions affecting the JDZ, gathered in Abuja apparently to sign off on deals to award five blocks offered in a one-month licensing round at the end of 2004. The process followed an earlier licensing round in 2003, which produced only a single award, amid allegations of impropriety that ultimately cost the jobs of three executives from the Joint Development Authority (JDA), established in 2002 to manage the zone’s resources.

The round which closed in mid-December produced substantially increased bids for the five blocks on offer (AE 82/10). However, preparatory work for the April meeting still failed to bridge sharp divisions between the recommendations of the Abuja-based JDA and some São Tomé officials.

Some in STP complained that UK Alternative Investment Market-listed Equator Exploration – a shell company managed by Wade Cherwayko – and Indian partner ONGC Videsh were unfairly excluded from the operatorship of Block 2. However, they ultimately accepted JDA recommendations to award operating rights to a consortium of US independents Noble Energy and Pioneer Natural Resources, allied with ERHC Energy, the US-listed firm formerly known as Environmental Remediation Holding Corporation, then Chrome Energy, chaired by Nigerian businessman Emeka Offor.

There were clashes also over operatorship of Block 4. One senior São Tomé official said US independent Anadarko Petroleum Corporation had offered a bona fide high bid of $91m for the block, and maintained that there was no justification for the proposal to award operatorship to Noble, also in partnership with ERHC, which had submitted a more modest signature bonus and is a smaller company.

JDA officials maintain that Noble offered a more aggressive work programme and appeared the more reliable partner.

There were differences also on Block 3, which the same constituency argued should be awarded to Energy Equity Resources (EER), a Norwegian-Nigerian shell established to bid for acreage in the JDZ, and Oslo Stock Exchange-listed partner DNO ahead of Anadarko and a grouping of Devon Energy Corporation and Pioneer.

http://www.africa-energy.com/