NNPC’s Needless Search for Funding Assistance on Oil Blocks

Without prejudice to its merits or demerits, one of the key issues that fueled allegations of corruption against the former Minister of Petroleum Resources, Mrs. Diezani AlisonMadueke was the Strategic Alliance Agreement (SAA) between Atlantic Energy and

The inability of the Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC to provide funding and technical expertise to support its 55 per cent stake in the oil blocks relinquished by the international oil companies (IOCs) had led the company to shop for third party contractors for assistance.

This led to the controversial Strategic Alliance Agreement (SAA) between NPDC and some indigenous firms.

SAA is an agreement for cooperation among two or more independent firms to work together towards common objectives.

Unlike in a joint venture, firms in a strategic alliance do not form a new entity to further their aims but collaborate while remaining apart and distinct.

With NPDC’s lack of technical and funding capacity to support its 55 per cent stake in the blocks relinquished by Shell, Chevron, Total and Agip, the SAA model was seen as alternative framework under which a third party would provide funding and technical services to NPDC for the development of both the oil and gas reserves in its licenses without transferring ownership of any interest on the company.

It was on that basis that the NPDC in 2010, entered into SAA with Septa Energy, a wholly-owned subsidiary of Seven Energy International.

The SAA was in respect of NPDC’s interests in Oil Mining Licenses (OMLs) 4, 38 and 41 onshore in the Niger Delta, which are operated by Seplat Petroleum Development Company Plc.

The alliance agreement on OMLs 4, 38 and 41 attracted public suspicion and allegations of corruption against the former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke because as the Minister of Power, Works and Housing, Mr. Babatunde Fashola rightly pointed out recently, “concessions, Public Private Partnerships (PPPs) and private ownership of public assets are complex, and sometimes misunderstood transactions that some people view with suspicion”.

However, SAA model did not start in Nigeria’s oil industry with the three leases.

Under the agreement, Atlantic Energy was expected to assist NPDC to fund its entire capital expenditure obligation, amounting to 55 per cent and receives a tiered share of production above the baseline amount, depending on how well the two companies are able to increase production and develop the assets.

Atlantic Energy also seconds technical, managerial and project management personnel to NPDC as required through the partnership.

Like the SAA on OMLs 4, 38 and 41, the new SAA on OMLs 26, 30, 34 and 42 is meant to provide financial services for the operatorship of the oil blocks.

The agreement does not vest ownership interest of any kind on Atlantic Energy in the four oil blocks, contrary to public perception.

The SAA merely confers on Atlantic Energy the entitlements to receive allocation of a portion of NPDC’s share of profit oil from the relevant OML areas.

The company is also entitled to independently lift, dispose of and retain proceeds of crude oil it receives from the NPDC as remuneration-in-kind, according to the terms of the SAA.

The SAA was viewed with suspicion, resulting in widespread criticisms and allegations of corruption against the former minister of petroleum.

The SAA model was also at various times, subject of legislative probes, which produced damning reports against the former minister and NPDC’s partners.

NNPC’s needless search for new funding partners

With its anti-corruption posturing, the NNPC under the present administration has since cancelled the SAA model with Atlantic Energy.

However, the decision of the NNPC to shop for fresh funding and technical partners for NPDC’s 55 per cent equity on OMLs 30, 34, 40 and 42 has raised fresh concern, given the fact that the owners of the 45 per cent equity have insisted that they have the funding and technical know-how to operate the acreages, without third party funding.

NNPC was reportedly mulling a proposal backed by Vitol to buy $2 billion debt owed to NPDC for the sale of the company’s crude in the last three years.

The debt reportedly resulted from Atlantic Energy’s lifting of NPDC’s 55 per cent in the affected acreages.

Under the cancelled SAA, Atlantic Energy was supposed to fund NPDC’s operations on those acreages; sell the lifted crude and pay NPDC’s its share.

But the allegation that large proceeds from the sale of the lifted crude was not paid to NPDC has become a subject of investigation by the Economic and Financial Crimes Commission (EFCC).

Industry experts are however concerned that NNPC was said to have opened talks with unnamed Nigerian independent to buy the debt from Atlantic Energy and continue with the controversial contract for which the former minister of petroleum was vilified and heavily accused of corruption.

The then opposition All Progressives Congress (APC) and the former Governor of the Central Bank of Nigeria (CBN), the then Mallam Sanusi Lamido Sanusi had alleged that the SAA deals were used to siphon multi-billion dollars from the federal government’s treasury.

According to the reports of past legislative probes, the extant contract allegedly gave away so much to Atlantic Energy.

It is therefore strange that after so much noise about the SAA being ridden with corruption, NPDC is still insisting on getting third party contractor to fund its share in these productive acreages.

After vilifying the former minister for petroleum for entering into SAA with indigenous companies on some national assets while it was the opposition party, it is inexplicable for the new government to adopt the same model, when the new owners of the 45 per cent stake has demonstrated the capacity to provide the necessary funding and technical expertise for the operatorship of those assets.

The Minister of State for Petroleum, Dr. Emmanuel Kachikwu was quoted as saying that the NNPC would restructure the SAAs held by Atlantic Energy to raise funds for oil blocks sold to indigenous companies by the IOCs.

Kachikwu said the state-oil firm would conclude the deal within two months for a new partner to pay up $1.3 billion to take over Atlantic Energy’s SAA.

“I am saying to Atlantic Energy, sorry; you are out because there has been a breach,” Kachikwu reportedly said.

“Whoever comes in has to give a signin fee almost equivalent to what I have lost..we will have a massive increase in volume of those fields; we are going to have 150,000 to 200,000 barrels per day from the current 40,000 to 50,000 barrels per day,” Kachikwu added.

But the mood of the industry does not favour NPDC’s search for third party to fund its 55 per cent since the partners who already acquired 45 per cent stake from Shell divestment have demonstrated the capacity to raise funding to grow the assets. Industry experts are wondering aloud why government keeps going round to entangle itself in complex and complicated third party deals where it gets shortchanged all the time instead of a simple straightforward path that will ultimately ensure maximum return on investment. Why is it so difficult to invite those partners and negotiate a financing arrangement with them? Why is government always going round in circles and complicating things for itself and others? This are the questions on the lips of watchers of events in Nigeria’s trouble oil industry.