Tempest In A Teapot Obscures Great News: ERHC Won JDZ Blocks 2 And 4

A report dated April but released tonight by Menas Associates, an energy consulting firm with a keen interest in Africa, concurs with other sources of ERHC On The Move that Blocks 2 and 4 of the Niogeria-Sao Tome and Principe Joint Development Zone have been awarded to ERHC Energy and its partners Pioneer Natural Resources and Devon Energy in Block 2 and ERGC and Noble Energy in Block 4, with the much sought-after Block 3 going to Anadarko Petroleum Corp. of Oklahoma City.

That news may counteract the selloff momentum of yesterday afternoon. Between 3:57:02 and 16:01:20, 129,350 shares were sold in 33 trades against 17,000 buys in just eight trades in the same period, dropping the price two cents to a recent low of $0.65. Some 45,000 of those shares were traded after-hours in Form T sales.

However, indicating that despite the $0.065 drop that buyers still have momentum, at the end of the day in 313 trades there were 662,654 shares purchased and 625,648 sold, with 27,700 unidentified. The sharp drop came on low volume and a small number of trades, many of which were Form T sales that must be explained to the SEC.

The sales accompanied the release on the ERHE Raging Bull message board of two poorly-translated and controversial Portuguese-language articles in which opposition members of an ad hoc committee of the Sao Tome and Principe parliament vowed to delay the awards for a technical review. Neither of these Websites have been friendly to the de Menezes government of late, so while the committee was identified in the headline as "Parliament," in fact it was a one-sided committee of opposition party members who took no binding vote on any of the issues, and did not have the authority to do so.

Here is the key article from Tela Non, a Sao Tome Website, with the headline and three relevant paragraphs (in boldface) translated by me:

Parlamento conclui que há erros graves no processo petrolífero

Parliament finds grave errors in petroleum process

Agudiza-se a polémica à volta da última reunião do conselho ministerial conjunto nigeriano-são-tomense. Depois de confrontar o ministro dos Recursos Naturais que presidiu a delegação nas negociações com a parte são-tomense na Autoridade Conjunta (JDA), o Parlamento concluiu estarem a haver erros graves de procedimento.

A comissão especializada da Assembleia Nacional para Assuntos do Petróleo reuniu as duas partes para clarificar alguns aspectos sobre como decorreram as negociações em Abuja, Nigéria, relativamente a adjudicação de blocos petrolíferos, uma vez que já ontem, os representantes do arquipélago na JDA, afirmaram perante os deputados que o país engajou-se nesta última reunião ao assinar um termo de compromisso.

Após três horas de confrontação, o Parlamento concluiu que ainda não há um acordo definitivo entre os dois países, mas que estão a haver erros graves de procedimento.

After more than three hours of discussion, the Parliament concluded that there is as yet no definitive agreement between the two countries, especially that has so many grave procedural errors.

“É que tem havido erros graves de procedimento que de alguma forma afectam os interesses de São Tomé e Príncipe. Nós não estamos a dirigir este dossier com o rigor necessário para defender os nossos interesses”, afirmou Carlos Neves, Presidente da Comissão do Parlamento para Assuntos do Petróleo.

Uma das questões que mais preocupa o Parlamento é o facto de a empresa nigeriana ERHC possuir direitos de preferência sobre alguns blocos petrolíferos.

One of the questions that most worries Parliament is the fact that the Nigerian firm ERHC possesses preferential rights over some oil blocks.

“Os blocos variam em termos de valor monetário, ao deixar a ERHC poder escolher os blocos sem que nós próprios conheçamos o valor dos blocos podemos ser afectados nessa escolha”, referiu Carlos Neves.

The blocks vary in terms of monetary value; ERHC had the power to choose those that are known to be of the most value to us without giving us any choice in the matter," Carlos Neves said.

E porque existem pessoas que são sócias de companhias petrolíferas ao mesmo tempo que em nome do estado são-tomense negoceiam a adjudicação de blocos, contrariamente ao disposto na lei quadro das receitas do petróleo, o parlamento apela aos órgãos competentes para afastarem essas figuras das negociações.

And because there are persons who are trusted associates of the oil companies and at the same time in the name of Sao Tome are negotiating the allotment of the blocks, contrary to the image created by the recent [transparency] law on petroleum, the Parliament appeals to competent agencies to get away from these dollar figures they have negotiated.

Após ter ouvido todas as partes implicadas, o parlamento pediu um parecer técnico à Agência Nacional do Petróleo para saber se os interesses são-tomense estão ou não a ser lesados antes de tomar uma posição definita.

Here is the second article (I've translated four of the paragraphs, in boldface) from Vitrina, which offered more of the same:

COMISSÃO PARLAMENTAR DETECTA ERROS NO SEGUNDO LEILÃO

PARLIAMENT FINDS ERRORS IN SECOND AUCTION ROUND
by José Bouças
05.05.2005-J.Vitrina

SAO TOME - O processo do segundo leilão na zona de exploração conjunta entre S.Tomé e Príncipe e a Nigéria está a ser pouco transparente segundo a comissão parlamentar para os assuntos petrolíferos. A comissão reuniu-se hoje com os representantes da autoridade conjunta e o governo e chegou a conclusão que existem erros graves no processo.

The process of the second auction of the Joint Development Zone between Sao Tome and Principe and Nigeria was less than transparent, according to a parliamentary committee on petroleum affairs. The committee met [Wednesday] with the representatives of the Joint Development Authority and the government and came to the conclusion that grave errors existed in the process.

Por isso Carlos Neves presidente da comissão disse que recomendou o governo a não assumir nenhuma decisão sem que antes a agência nacional do petróleo apresente o seu relatório sobre a matéria.

Based on that, Carlos Neves, president of the commision, offered a recommendation that the government not make any decision before the national petroleum agency hears issues related to the matter.

A audição surge um dia depois do MLSTP/PSD reagir através de um comunicado as alegadas violações as regras do jogo em vigor para a atribuição de interesses participativos a empresas petrolíferas no segundo leilão realizado na zona de exploração conjunta com a Nigéria.

Para os sociais democratas essas violações a confirmarem-se ferem o princípio da transparência tão necessário para uma correcta gestão dos recurso petrolíferos.

O MLSTP/PSD diz existir provas claras de que algumas individualidades nacionais e estrangeiras com interesses evidentes em algumas empresas que saíram claramente beneficiadas neste leilão, ocupam cargos de importância de estado, ou têm ligações com pessoas do estado que participam em processo de decisão em matéria de petróleo, nomeadamente no conselho nacional de petróleo e comité ministerial conjunto.

The Movement for the Liberation of Sao Tome and Principe and the Social Democratic parties said that there exists clear proof that some Sao Tomese nationals and foreigners that benefited from the auction have roles of importance to the state, or legal ties to important persons in government who participated in the decisions on petroleum matters as members of the national petroleum council and the Joint Ministerial Council.

Por isso os sociais democratas exigem que nenhuma decisão seja aprovada sem que haja um parecer independente de técnicos nacionais ou de uma empresa de reputação internacional que confirme que as decisões propostas pelo conselho ministerial conjunto S.Tomé e Príncipe – Nigéria estão conforme os regulamentos e regras estabelecidas para a correcta organização do segundo leilão.

For that reason, the Social Democrats demanded that no decision be approved until an independent technical advisor or a firm of international reputation has confirmed that the proposed decisions of the Sao Tome and Principe Joint Ministerial Council
are in conformance with the rules and regulations established for the proper organization of the second auction.

Exige ainda o MLSTP/PSD a imediata reposição da legalidade mediante o afastamento das suas actuais funções de todos aqueles indivíduos que comprovadamente possuem interesses directos ou indirectos nas referidas actividades.

O Partido alerta ainda o povo para as tentativas em curso no sentido de um pequeno grupo aproveitar-se indevidamente dos recursos do petróleo em benefício pessoal e em prejuízo do interesse geral dos santomenses.

However, the tide of political power seemed to be against the Sao Tome opposition, as they failed to muster a bipartisan quorum for one critical meeting last Friday, and the current article bears no indication "Parliament" - the ad hoc committee - voted on any finding.

Former U.S. Ambassador to Nigeria Howard Jeter told ERHC On The Move after the close that the articles could not be relied upon without other information. Jeter said it was mentioned to him that awards would be next week, but he cautioned that his information was not at all definitive.

The Menas Associates report, meanwhile, said the proposed allocation of block awards by the Joint Ministerial Council was "delicate and vulnerable" but could well hold fast through the announcement of the block awards next week.

A key to the result was the delicate balance of interests between competing poltical shareholders in Sao Tome, Menas Asociates said. It indicated that shareholders of a number of smaller Nigerian independent firms that had vied for smaller portions of several blocks may have influenced the outcome of the second licensing round, a contention raised by parties out of power in the Parliament of Sao Tome and Principe whose officials are themselves shareholders, the report indicated.

It is the opinion of ERHC On The Move that ExxonMobil is at the root of much of the controversy after having lost its rights by inaction on Blocks 2 and 4 and then reportedly choosing to withdraw from participation in Block 1, which is permitted under the Production Sharing Contract it signed.

The company may get its money back from another bidder frustrated in other blocks, but we believe that in the meantime it has recruited political figures in Sao Tome's parliament - ironically, in the former Communist Party - to act as outraged activists for the benefit of the press that results.

Those activists have largely relied on the participation of Mateus Rita, a former Sao Tomese Secretary of State and foreign minister who resigned last year. Some of the same parliamentary figures raised precisely the same issue when awards seemed imminent in 2003, but at that time a letter acknowledhing Rita's ownership of some ERHC shares was presented by President Fradique de Menezes which met the terms of the treaty of 2003 that had enabled the Joint Development Zone's activation.

That treaty and subsidiary documents prohibit shareholders from participation in some activities without express permission from the government, which Rita had received. Rita resigned from the government last year, making the whole matter moot.

Here is the Menas Associates article, dated April but released late on May 4:

JDZ awards edge towards controversial compromise

Intense negotiations have been taking place in a bid to reach consensus between Nigeria and São Tomé e Principe over the award of five blocks in the Joint Development Zone along their common maritime boundary.

The Joint Ministerial Council, made up of senior officials from the two countries, began meeting to approve the awards on 26 April. The meeting broke up two days later without any formal announcement, amid indications of a complex and potentially controversial compromise.

Some São Tomé officials are understood vigorously to have opposed the proposed allocation of up to 20% in awarded blocks to several indigenous Nigerian companies which either have no experience in oil and gas or were registered at the last moment to participate in the round. These include Momo and Equinox, both believed to be controlled by the same Abuja-based businessman, and Godsonic and Hatman, both linked to a controversial confidant of President Olusegun Obasanjo, ruling People’s Democratic Party heavyweight and former works and housing minister Tony Anenih.

Nigeria is understood to have opposed counter-proposals to award operating rights in block 4 to Anadarko over Noble, its preferred choice. Nigeria was also lukewarm over pressure to increase significantly the stake offered to Indian firm ONGC and its partner Equator. Equator’s chief executive Wade Cherwayko, is associated by some officials in Nigeria with one of his previous companies, Abacan, which collapsed spectacularly and at some cost to its local partner in 1997, after banks lost confidence in much repeated promises of huge returns from investment in the Niger Delta.

It is understood Nigeria and São Tomé reached a compromise on 28 April after three days of talks in Abuja in a deal that allows for the award of all five blocks but includes the participation of new players. The proposed deal requires the approval of the National Petroleum Commission in São Tomé, before formally being signed off by a reconvened meeting of the JMC.

Officials hope to conclude the round and announce awards in time for a visit to Nigeria on 4 May by São Tomé’s President Fradique de Menezes.

Provisionally, it appears operating rights may be awarded as follows:
- block 2: Devon, Pioneer and US-listed, Nigerian-controlled ERHC;
- block 3: Anadarko;
- block 4: Noble, ERHC and an as yet undisclosed party;
- block 5: Iran’s ICC/OEOC;
- block 6: Filtim Huzod, a Nigerian independent with no previous experience in the sector, which has partnered with China’s Sinopec. (Emphasis added.)

Some São Tomé officials are understood to maintain profound reservations about the proposed deal. They have threatened to disclose details of the ownership of some of the indigenous companies with more limited capacity. They have also hinted at disclosure over the methods employed to lobby members of the National Oil Commission in São Tomé, which they say would provoke a profound political crisis in the country.

However, there are counter-allegations that elements of this constituency are also vulnerable to charges of potential conflict of interest, which could prove equally damaging politically, a year ahead of presidential elections in São Tomé. Officials close to the process appear confident that the prospect of any damaging disclosures provoking an equally damaging response is likely to facilitate an uncontentious move towards awards in early May, although the process remains delicate and vulnerable.