When Oil Workers Hold the Nation Hostage
In a move seen by oil industry stakeholders as similar to the protest used to blackmail the federal government to reverse the sale of the refineries, thus plunging the downstream sector into a perennial crisis, the workers of the Nigerian National Petrole
The Decree No. 33 of 1977, which established the Nigerian National Petroleum Corporation (NNPC), empowers the corporation to engage in “exploitation, production, transportation, processing of oil, refining, and marketing of crude oil and its refined derivatives.” By this provision, the National Oil Company (NOC) is supposed to operate like other National Oil Companies (NOCs) such as Saudi Arabia’s Aramco; Malaysia’s Petronas and Brazil’s Petrobras, which compete with Shell and other International Oil Companies (IOCs) for operatorship of oil blocks.
But the NNPC has over the years abandoned its core mandate in the upstream sector and in the words of the late President Umaru Yar’Adua, “the corporation is believed to have lost focus over the years as it assumed multiple and sometimes conflicting roles,” without making progress in crude oil exploration and production.
Before President Goodluck Jonathan assumed office, the Nigerian Petroleum Development Company (NPDC), which is the producing arm of the NNPC, was still producing less than 100,000 barrels of oil per day, after over 50 years of crude oil production in Nigeria.
With Nigeria’s over 50 years experience as an exporter of crude oil, the NNPC, which has a majority stake of 55-60 per cent in the joint ventures cannot operate any of the joint ventures with the IOCs as the JVs with Shell, Mobil, Chevron, Total and Agip are still being operated by these multinational partners.
NNPC established the NPDC as its crude oil production arm to implement its core mandate in the upstream sector but out of Nigeria’s daily output of 2.4 million barrels of crude oil, actual production by this company was about 80,000 barrels per day before this present administration came on board.
Divestment of Oil Blocks by IOCs
When Shell Petroleum Development Company (SPDC), Total and Nigerian Agip Oil Company (NAOC) unveiled plans to divest their 45 per cent stakes in some oil blocks in 2009, their objective was to boost indigenous production capacity, which was below 10 per cent of Nigeria’s daily production.
In other words, both the NNPC and all the Nigerian independent companies, including marginal field operators were producing less than 10 per cent of Nigeria’s daily output before the IOCs started selling oil blocks to indigenous operators.
Shell and its JV partners – Total and Agip to date have divested a total of about 12 oil blocks, out of which only three- Oil Mining Leases (OMLs) 4, 38 and 41 are operated by the farmee, Seplat Petroleum Development Company Plc, while the rest are operated by NPDC.
Before it recently concluded the sale of their 45 per cent stakes in OMLs 18, 24, 25 and 29, the Anglo Dutch major and its partners had earlier sold OMLs 4, 38, 41, 26, 30, 34, 40 and 42 to local investors and their international partners.
Several other divestments are in the offing, including five from Chevron, out of which three have been subject of litigation between Brittania-U Nigeria Limited and Chevron/Seplat Petroleum Development Company Plc.
Controversy over Operatorship
The first divestment came in January 2010, when SPDC said it had sealed a deal to transfer, within six months, its interest in the three production licences – OMLs 4, 38 and 41 and other related equipment in the Niger Delta to a consortium led by two Nigerian companies and a French firm.
The Anglo Dutch company was then the operator of the licenses under a joint venture between the NNPC, 55 per cent; Royal Dutch Shell, 30 per cent; Total Exploration & Production Nigeria Limited, 10 per cent; and NAOC, five per cent.
SPDC had identified the buyer as Seplat Petroleum Company Limited, an indigenous consortium jointly formed by two Nigerian firms – Platform Petroleum Limited and Shebah Petroleum Development Company Ltd – along with Maurel & Prom of France.
However, controversy had initially trailed the transaction following the decision of the NNPC to exercise its rights by taking over the operatorship of the blocks, in accordance with the provisions of the joint operating agreement (JOA) between Shell, NNPC, Total and NAOC.
NNPC, which clearly has no technical and financial capacity to operate the acreages relinquished by Shell had initially capitalised on the JOA, which provides that SPDC, as the operator of SPDC/NNPC Joint Venture, has no powers to transfer its operatorship to a third party without the written consent of the NNPC.
According to the JOA, Shell can only transfer operatorship to its affiliate or affiliated company and Article 1.1.2 (i) of the JOA defines Shell’s affiliates as: Shell in the Netherlands; Shell Transport and Trading Company Plc in the United Kingdom or any other company that is being controlled directly or indirectly by any of these two companies.
Unfortunately, Seplat Petroleum, the new buyers of the asset is not either Shell’s affiliate or an affiliate company of Shell, hence the agitation by the NNPC to take over the operatorship of the three assets.
THISDAY gathered that it was the Minister of Petroleum Resources, Mrs. Diezani AlisonMadueke, who resolved the dispute in favour of Seplat, thus the company became the only buyer of the oil blocks sold by the IOCs that also assumed the operatorship.
Seplat inherited Shell staff in the assets and raised the production from the three acreages to about 74,000 barrels of oil equivalent per day, surpassing 30 years performance of NNPC in operatorship.
Unfortunately, other indigenous investors that bought OMLs 18, 24, 25, 29, 26, 30, 34, 40 and 42 in subsequent divestments were not allowed to operate the assets as the NNPC had transferred the operatorship to NPDC citing its powers under the JOA, despite its obvious lack of financial and technical capacity.
To boost NPDC’s production capacity, the company had in 2010 entered into Strategic Alliance Agreement (SAA) with Septa Energy Nigeria Limited, a wholly owned subsidiary of Seven Energy International Limited, an indigenous Nigerian oil and gas development company.
The initial SAA was in respect of NPDC’s interests in OMLs 4, 38 and 41 onshore in the Niger Delta.
The SAA, which became a subject of several probes by the National Assembly, provides the framework under which Septa will provide funding and technical services to NPDC for the development of both oil and gas reserves.
Under the SAA, Septa funds capital and operational expenditure of the fields, as well