Now, in a follow-up report, Indian officials speaking off the record said they decided not to approve the deal because of "political instability" in Nigeria.
But other than the gathering momentum of the presidential elections next year and the normal strife, what "political instability" is there?
The answer may lie in the Nigeria-Sao Tome and Principe Joint Development Zone, which was rocked last week by a report, ostensibly from the Sao Tome attorney general but paid for by Pioneer Natural Resources investor George Soros, in which AG Arlindo Pereira said he would call on the United States to investigate whether the awards of five blocks in May broke any U.S. laws. Pioneer is ERHC Energy's partner in Blocks 2 and 3 of the JDZ, which were awarded to the consortium on May 31.
A resume submitted by Columbia University Prof. Jeffrey Sachs named Soros as the source of funds for studies of the awards process, and Soros' Earth Institute paid for the International Senior Lawyers; Project probe coordinator, R. Dobie Langenkamp of the Tulsa University School of Law, according to published reports.
The probe was aimed at learning whether any violations of the new Sao Tome "transparency" law had taken place during the awards process. The law was enacted in January 2005 and delayed implementation of the awards by about six months. Now it threatens to delay the signing of Production Sharing Contracts for at least that long.
Nigeria's response to the request that the U.S. Securities Exchange Commission and Justice Dept. investigate the awards was met with blistering commentary by the normally reserved Dr. Edmund Daukoru, who will become Chairman of the oil cartel OPEC on Jan. 1. Daukoru said the awards cast doubt on the viability of the JDZ regime itself, and that Sao Tome was free to buy or expropriate ERHC's rights after the awards process and the PSCs are done.
While it appeared to be an offhand comment, it may have driven fear into the hearts of the fearless operators who run the risks of deepwater drilling in West Africa. In neighboring Equatorial Guinea, a bribery probe into ExxonMobil, Chevron, Amerada Hess, Devon Energy, Marathon Oil and others is already the subject of hearings by the U.S. Senate Commerce Committee under the Foreign Corrupt Practices Act and remains unresolved.
Meanwhile, India's Essar Oil is a member of the consortium with the Chinese National Petroleum Corp., and ERHC Energy's parent, Chrome Energy Services, in the purchase of Nigeria's largest refinery, the Port Harcourt Refining Company. A U.S.-based criminal probe of ERHC Energy would quickly become political fodder for Nigeria's elections, as was Chrome's earlier work on the Warri refinery, the nation's second largest.
The close ties of Chrome Energy's chairman, Sir Emeka Offor to President Olusegun Obasanjo of Nigeria, as well as former President Patrice Trovoada of Sao Tome and current President Fradique de Menezes, provide plenty of fuel for a crisis that could quickly lead to bloodshed.
That is because on the Nigerian side there is a strong ethnic identification with Offor on the part of the Igbo people, for whom he is a shining example of success said to be worth as much as US$3 billion. Offor was the political godfather - a Nigerian system of candidate sponsorship - of the governor of Anambra State, a relationship that ended when the governor defied him and was thrown out of office and accused of murdering a prominent lawyer who headed the Nigerian Bar Assn.
In that incident, Offor allegedly took over the statehouse and threw out the governor with a troop of 200 heavily armed soldiers in a caravan of Humnmers,; he has gotten out of the "godfather" business since then. He is popular at the state and national level for activities as varied as sponsoring a major youth soccer tournament and contributing $150,000 to Obasanjo's re-election campaign. He is also said to have close ties to Nigeria's Vice President Atiku Abubakar, a possible presidential candidate, and to many elected state officials.
More importantly, he may represent Nigeria's best hope of producing a major multinational oil company of its own. His stakes in the JDZ and the Sao Tome and Principe Exclusive Economic Zone are potentially so great that the entire West African region could be reshaped by his successful exploration of those waters. That would mean that the hegemony now enjoyed by American and European multinationals over world energy markets - and the political authority that comes with it - would move to a region that has never had such influence.
On a more practical level, a U.S. probe of ERHC Energy - whether guilty or not - might mean the collapse of First Inland Bank, an institution formed in the past few months by several banks including First Atlantic Bank of Nigeria, which was granted 63 million shares of ERHC Energy by Offor in settlement of a Houston lawsuit over repayment of a loan.
Given how difficult it was for the country Central Nigerian Bank to organize the massive industry-wide consolidation of dozens of banks into a handful with solid foundations, the problems of ERHC Energy could trigger a major bank failure. First Inland Bank loses $630,000 every time the share price falls $0.1 from the $0.41 level at which the settlement stock was acquired.
However, the bank can sell the stock freely now, as a year-long restriction on its sale has ended. Until last Monday's nearly 13-million-share meltdown on the Sao Tome news drove the price to $0.30 at the close (it has since recovered to $0.35), the shares had been $2.4 million in the black for First Inland.
Indeed, when ERHC Energy's attorney in Nigeria called the Sao Tome report "a direct attack on Nigeria," he was clearly speaking of the Nigerian political establishment -former Offor aide is head of the Nigerian National Petroleum Company, the all-powerful NNPC.
Thus, to deliberately taunt this powerful man - as the author of the probe report, R. Dobie Langenkamp, is doing - with ancient allegations that remain unproven after numerous investigations (and are probably untrue) is to risk nationwide instability and the evaporation of the very new and fragile relationship between Nigeria and Sao Tome, as well as between Nigeria and those multinational firms most officials believe are behind the probe - Anadarko Petroleum and ExxonMobil.
In turn, as those companies fight back through both overt and clandestine means, and Nigeria's critical supply of 2.3 million barrels of crude per day to world markets is subjected to potential disruption, India's fear of political instability would be more than justified.
There are indications - very tenuous ones, admittedly - that both the Justice Dept. and Commerce Dept. are looking at the probe report. Meanwhile, some very substantial companies cannot help but look at ERHC Energy's rights and wonder what will become of them if the company goes on the auction block.
While it is not clear that selling his 42 percent share would "straighten things out," the equity rights are protected by the Treaty of Abuja and have been reinforced by two International Chamber of Commerce arbitration judgments, it is likely that the rights would not "just go away," as Langenkamp's report seems to hope.
Nigeria may have felt the first costly fallout of the assault on ERHC Energy when India's government blocked the multibillion-dollar Akpo deal, but it probably has not felt the last. The CNPC has even stronger governmental ties, and so do a number of other players in the JDZ. They would not ignore the Indian concerns and plunge forward themselves.
Taking rights that are protected by treaty, by international agreements and by the pride of the Igbo people, particularly so that U.S. firms who could not win equity in a bidding round can acquire those rights, is a dangerous matter. The United States would be well-served if it chose not to involve itself and left it to the Joint Development Authority legal framework to resolve.
Here is a related story:
No Approval from India for ONGC Nigeria Play
The government of India squashed ONGCs hopes of scoring a 45% interest in Nigeria’s Akpo field. According to India’s Finance Minister, P. Chidambaram, the company failed to get the government's permission to buy the stake in the Nigerian oil field. Chidambaram didn't say why the government rejected the plan at the Cabinet meeting, but did say that the reason the government ‘may’ have rejected the plan was because the political instability in Nigeria may jeopardize the investment.
ONGC was in the midst of buying a stake in the Akpo deepwater oil project from South Atlantic Petroleum Ltd. for $2 billion, but without state backing the company’s plans may be hampered. The company is trying to bulk up its reserves overseas as its domestic fields age, investors such as R.K. Gupta said. ``The political situation in countries that ONGC is investing in is a concern,'' Gupta said. ``If there is political imbalance then there will be a serious concern over the company's investments. There is a limit to which government-to- government ties help in sorting out a crisis.''
South Atlantic is owned by Nigeria's former defense minister Theophilus Danjuma. The field will pump 225,000 barrels a day after 2008, equal to 9% of Nigeria's current production.
In the interest of balance, however, let's note that other coverage of the Akpo deal collapse made no mention of political instability. Even if I feel it is delusionary to think the Daukoru comments and Sao Tome developments made no difference, here it is:
dia Rejects ONGC Plan to Buy Stake in Akpo Oil Field
by Himendra Kumar
FWN Financial News
Friday, December 16, 2005
NEW DELHI, Dec 16, 2005 (Dow Jones Commodities News via Comtex)
A risk-averse Indian government panel that met late Thursday rejected petroleum exploration company ONGC Videsh Ltd.'s plan to acquire a 45% stake in an offshore oil and gas field in Nigeria for around $2 billion because it wasn't commercially viable.
"It was a very large investment to commit for the project and the government felt it fell short on viability parameters," a senior Indian Petroleum Ministry official familiar with the developments told Dow Jones Newswires Friday.
"The rate of return on the investment also didn't seem to be very comfortable," he added.
ONGC Videsh wanted to buy the stake of Nigeria's South Atlantic Petroleum Ltd. in Akpo. South Atlantic Petroleum is owned by a former Nigerian minister.
ONGC Videsh is a wholly-owned overseas exploration unit of Oil & Natural Gas Corp. (500312.BY), the country's flagship petroleum producer.
Indian Finance Minister P. Chidambaram, who briefed reporters earlier Friday on the Cabinet Committee on Economic Affairs meeting, said the panel didn't approve an ONGC Videsh proposal to bid for a Nigerian oil field. He didn't elaborate.
Wood Mackenzie, an energy consultant based in Edinburgh, Scotland, estimated Akpo's recoverable reserves of light oil condensate at 620 million barrels, and natural gas at 2.5 trillion cubic feet.
ONGC Videsh currently has stakes in exploration ventures in 17 oil and gas properties in 13 countries - Vietnam, Russia, Sudan, Iran, Iraq, Libya, Myanmar, Syria, Ivory Coast, Australia, Qatar, Cuba and Egypt - to supplement India's locally-produced oil and gas amid rising demand.
India's overall crude oil output has stagnated around 33.3 million metric tons a year, or 668,700 barrels a day, over the past three years, while its gas output of about 83 million cubic meters a day meets only around 60% of domestic demand.
No comments:
Post a Comment