The much-touted marginal field licensing round is to take place before the end of the year according to the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke. She said this during the Nigerian Economic Summit, which took place in Abuja earlier this week.  

According to her, "We sincerely hope to have a new round this year for marginal fields." She however declined to give further details of the formalities or a date for the bid round.  

The bid round has been in the offing for over 18 months and as recently as October, the Minister reiterated her determination to hold the bid round before the end of the year.  

It had been largely expected to take place earlier this year but the fuel subsidy probe seemed to take the focus off the bid round and it appears to have been shelved till things simmered down in relation to the fuel subsidy probe. It is, however, difficult to see how this can be achieved before the end of the year with barely three weeks to go to go.  

Analysts are surprised that there are plans to hold the bid round before any certainty of when the Petroleum Industry Bill (PIB) will be passed into law or whether it will even be passed at all. Without the PIB, investors have no clarity about the fiscal terms that will apply. It is not even certain that the fiscal terms in the PIB will remain if, or when it is passed.  

Major International Oil Companies (IOCs) are lobbying the government heavily to make the fiscal terms more attractive. They say that improving the fiscal terms is the key to unlocking billions of dollars worth of investment waiting to be pour into the industry. 

If the bidding round goes ahead it will be the first bidding round in 5 years. A list of the potential fields of the proposed marginal field bid rounds can be found on the NOGintelligence website by clicking here.

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Sogenal Oil and Gas Limited, the operator of Oil Mining Lease (90) has had to put its first oil projections back to February 2013. A source close to the Akepo field told NOGintelligence that the project was behind schedule by more than one year because issues with one of the indigenous contractors. The Nigerian Content Act of 2010 as being implemented by the Nigerian Content Development and Monitoring Board (NCDMB), requires that certain categories of contracts in the oil and gas industry be set aside for indigenous contractors.

According to the source, "Even though the project is a sole risk, about 98 per cent of our contractors are indigenous. But the biggest challenge we have is from one of these contractors, who has delayed our first oil from May 2011 to May 2012; to November 2012 and now to February  2013." The project is apparently behind by more than one year.

Sogenal's new target to commence commercial production of oil in the field is February next year, at an initial output of 2,000barrels per day now appears on target as the date approaches. The company expects to ramp up to 10,000 barrels per day within three years of commencing production.

Akepo Filed was originally awarded to Chevron Nigeria Limited under the Chevron/NNPC joint venture before it was awarded to Sogenal under the Federal Government marginal field programme. It is one of only 6 of of over 30 awardees of marginal fields under that licensing round that are now producing.

Sogenal had initially farmed out 30 per cent of the field to Oando Plc and 10 per cent to Exile Resources Limited of Canada.  However, with the recent acquisition of Exile Resources Limited by Oando Plc on the Canadan Stock Exchange, Oando's participating interest increased to 40 per cent, while Sogenal retains 60 per cent and operatorship of the field.

The company has now begun negotiations with the Nigerian Agip Oil Company ("Agip") to evacuate the oil to Agip's Benigboye facility through a 5 kilometre onshore and 10 kilometre offshore pipeline that is to be constructed. NOGintelligence also gathered that ENI, the trading arm of Agip will be the offtaker of the crude oil.

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A Federal High Court has appointed Mr Tamuno Nathan George of Tanumo George Chambers as the liquidator of Peak Petroleum Industries Nigeria Limited. All debtors are directed to pay directly to the Liquidator, while creditors are directed to send their proof of claims to the Liquidator within 30 days of the public notice issued on the 3rd of December. Directors, officers, employees, agents and service provides have been directed to surrender all assets in their custody to the Liquidator. Peak is heavily indebted to its partners, Equator Exploration Limited, and some contractors including Baker Hughes which was engaged to provide services to the operator.

The company was awarded an Oil Prospecting Licence (OPL 93) in 1993.  It was converted into an Oil Mining Lease (OML 122) in 2001. The OML has a 20-year lease expiring in 2021.  

Under the softly spoken Managing Director of Peak, Dr Adedeji Oluokun, a lot of money had been spent on the block with 2D and 3D sesimics acquired over the whole block which covers an area of 1,250 sq km. in shallow waters. A source close to the company told NOGintelligence that the company is said to have expended over $260 million on exploration, appraisal and development activities in the field since 2005.

The appointment of a Liquidator is an unfortunate end to the ambitious plans of Oluokun, a move which industry watchers say was not unexpected. The company was at one time involved in 4 law-suits and two arbitrations. One analyst described the situation as "very messy indeed."

The legal wrangles over the block include one with Shell, which begin negotiations with Peak due to acquire an interest in the block. Heads of Agreement (HOA) were reached between the two companies in 1998 for the acquisition of a 40% working interest in the company by Shell. Shell claims that it has acquired an interest, having fulfilled the terms of the HOA. Peak, meanwhile claimed that Shell had failed to acquire a vested interest, as they had not fully performed their obligations under the agreement. After protracted negotiations, the dutch giant and the indigenous company were unable to reach agreement and so Peak took the matter to the Federal High Court in Lagos to ask the court to interpret the HOA. That litigation remains unresolved. 

Baker Hughes is also suing Peak for sums owed to it, which a source close to the company said is as much as $12 million.

Another complication is the deal with Oando Energy Resources majority-owned (81.5%) Equator Exploration Limited. The background to that case is that Equator signed a Finance and Service Agreement (FSA) with Peak under which Equator would provide funding and supply technical services for the appraisal of one well on each of the two discoveries in return for which Equator would be entitled to a share of any oil and gas produced.

Equator says it has funded 100% of the cost of developing the Bilabri field on the block with an expenditure of $263 million after Peak defaulted on its cash calls. The ill-fated project encountered a number of problems culminating in invasions and kidnapping of members of the crew by militants in 2007, which shut down drilling operations. As a result, the drilling rig contracted was terminated, as was the Floating Production and Storage and Offtake (FPSO) vessel, both of which triggered early termination penalties.

In September 2007, Equator entered into a settlement with Peak (the Bilabri Settlement) under which Peak would take responsibility for the operations and for the funding of the remaining Bilabri field development, as well as existing and future project liabilities and an upfront payment to Equator. In return, Equator's interest in Bilabri and Owanare was reduced to a carried interest of 5% in the oil project and a paying interest of 12.5% in any gas development.

Peak was unable to meet its obligations under the Bilabri Settlement. Consequently, Equator began arbitration proceedings in England, but Peak was able to obtain an injunction in the Nigerian courts to prohibit the continuation of the English arbitration proceedings. Nevertheless, Equator continued its arbitration proceedings in England and won an award of $123 million, which the Nigerian courts refused to register.

In 2010, Equator started proceedings afresh to overturn the previous decisions of the Nigerian courts and was granted a winding up order. Although Peak appealed the winding up order it has now been made final and a liquidator appointed.

The Bilabri field is the most developed on the block, with volumetric original oil in place reserves of 31.5 million barrels and 457 million cubic feet of contingent gas resources, while the Owanare field has contingent gas resources of 172 million cubic feet.

Peak had, in the last two years or more been shopping around directly and through advisory companies, for finance of $200 million to complete the development work and bring Bilabri to first oil. It was also trying to secure $1.6 billion funding for a floating LNG project to capture gas production from both Bilabri and Owanere. Meanwhile the Equator made another settlement offer which Peak did not accept and as a result Equator sent in the Liquidator. 

The contact number for the :Liquidator is +2341 882 1015, +2341 461 1226 and +234 8067 131 606.

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It is usual in commercial transactions for companies to acquire or purchase all or majority of the shares in another company or to offer their shares for sale to other companies or individuals. This could result in a change in control of the acquired entity. However, where the commercial transaction is for the acquisition of an interest in a company that owns an interest in an oil licence or lease, the question is whether such an acquisition automatically gives the acquiring company an interest in the licence or lease in question.

In this regard the Petroleum Act provides that the holder of an oil prospecting lease or an oil mining lease shall not assign his licence or lease, or any right, power or interest therein without the prior consent of the Minister for Petroleum Resources (the Minister). In addition to this, the Petroleum (Drilling and Production) Regulations (the Regulations) provide the procedure to be adopted for the application to the Minister for the assignment or takeover of an oil prospecting licence (OPL) or an oil mining lease (OML) or of an interest in either.

The issue of whether a valid assignment or takeover of an interest in an OPL or OML occurs where a sale and/or transfer of the entire or majority shares in a company, which is the holder of OPL or OML, is effected without the prior consent of the Minister, was recently decided by the Federal High Court in Nigeria.

In the case, Adepetun Caxton-Martins Agbor& Segun, represented the plaintiff who contended that the take over or acquisition of the first defendant's 40% interest in an oil mining lease by third parties by way of a share acquisition through other counterparties, without the prior consent of the Minister, violated the provisions of the PA and the Regulations which require such consent.

Facts:

Moni Pulo Limited (Moni Pulo) and Brass Exploration Unlimited (Brass) were both counterparties to a joint operating agreement on Oil Mining Lease 114.

In February 2011, all of Brass' shares - as then owned by the PetroSA group - were transferred to Camac Energy Services Ltd and Camac Energy Resources Ltd, both owned by Camac International Corporation. As a result of the share transfer, the Camac group became Brass' parent company. The Minister's consent was neither properly sought nor obtained for this subsequent transfer to the Camac group.

Dissatisfied with the manner of the transfer and unwilling to partner with the Camac group, Moni Pulo approached the Federal High Court of Nigeriato seek a determination of whether the Minister's consent was required for the valid transfer of Brass' 40% participating interest in OML 114 by way of a transfer of 100% of the shares of Brass from the PetroSA group to the Camac group.

Brass, PetroSA, PetroSA Nigeria, PetroSA Brass, Camac Energy Services, Camac Energy Resources, Camac International Corporation and the Minister were sued as the first to eighth defendants respectively.

Decision:

The Federal High Court held that the Minister's consent was required before the Camac group could exercise any right or interest in Brass' ownership/control of a 40% participating interest in Oil Mining Lease 114, irrespective of the share transfer concluded between the PetroSA group and Camac group. The Court thereby restrained all of the Camac group and their representatives from exercising any rights in or taking any benefits from OML 114 until the Minister's consent to the change in corporate control of Brass.

According to the Court:

"The words used in paragraph 14 ... are simple and clear that no transfer, assignment, sale and/or takeover of an oil mining lease or any right, power or any interest therein or thereunder can be validly effected without the consent of the Minister of Petroleum Resources."

Comments:

The issue of whether the Minister's consent is required for the valid transfer of the controlling shares of oil and gas asset-owning companies in Nigeria has been the subject of intense debate within the legal community. Prior to this judgment, the Department of Petroleum Resources customarily insisted on the consent requirement of the PA being adhered to, but this was at best implemented under the practice directives of the regulator.

While the Federal High Court's judgment may not have finally laid to rest the issue of the consent requirement, particularly in light of the pending appeals, it would be prudent for oil and gas industry participants to note the thrust of the judgement and err on the side of caution by adhering to what is now the current position of the law.

It must also be noted that the decision would appear to reflect the government's current policy thinking in the light of Clauses 194(1) and (2) of the Petroleum Industry Bill recently submitted to the National Assembly by the executive, which states:

"(1)    Where a licensee, lessee or production sharing or service contractor is taken over by another company or merges, or is acquired by another company either by acquisition or exchange of shares, including a change of control of a parent company outside Nigeria, it shall be deemed to be and treated as an assignment within Nigeria and shall be subject to the terms and conditions of this Act and any regulations made under it.

(2)      A licensee, lessee or contractor shall not assign his licence, lease or contract, or any part thereof, or any right, power or interest therein without the prior written consent of the Minister."

Pending the passing of the PIB into law, this landmark decision has unequivocally settled for the time being, the question of whether the Minister's consent is required where the transfer of interests in an oil mining lease is indirectly effected by way of the transfer of shares.  

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As the debate over the Petroleum Industry Bill (PIB) rages on, the Shell Petroleum Development Company (SPDC) has reiterated its opposition to the reform bill, insisting that the Federal Government earned N7trillion from deep-water operations in the last six years under the current fiscal regime.

Speaking at a recent economic summit in Abuja, the Managing Director of SPDC, Mr. Mutiu Sunmonu, stated that the perception that the Federal Government was not making enough money under the current fiscal regime was wrong.

"There is a perception out there that government is not making money from deep water operations; that the multinationals are raking it in from the deep-water."

"Up to 2011 government had made about $46 billion from deep-water. The multinationals spent $46 billion, because in deep-water, the multinationals put up all the investment; government does not put up any investment. So the multinationals put up the $46 billion and they have also realised about $11 billion but government has realised about $46 billion, so it is not true that government is not making any money from deep water operations," he continued.

He said there was the need to strike a balance between the government and the industry take to enhance investment.

Reacting on behalf of the Nigerian National Petroleum Corporation (NNPC), the Group Executive Director, Exploration and Production, NNPC, Mr. Abiye Membere said for the International Oil Companies (IOCs) to regard the $46 billion expenditure in the deep-water concessions as revenue that was realised by the Federal Government, while the IOCs realised $11 billion, was grossly misleading.

"There is no way somebody who takes 80 per cent profit share will get $11 billion out of a $46 billion business," he said.

Shell which operates the joint venture had earlier said it paid about $38 billion, about N5.92 trillion, to the Federal  Government  between 2007 and 2011. The joint venture comprises the NNPC, 55 per cent; Royal Dutch Shell, 30 per cent; Elf Petroleum Nigeria Limited - a subsidiary of Total, 10 per cent, and Agip, 5 per cent.

SPDC said in a recent report posted on its website that the Federal Government receives about 95 per cent of the revenue, after costs from the SPDC operated joint venture.  Shell also said that the Shell Nigeria Exploration and Production Company, (SNEPCo) - which operates its offshore business in deepwater in Nigeria - had paid $6billion, about N936 billion, in taxes and royalties over the last five years.

The report stated that in 2011, Shell-operated ventures in Nigeria produced an average of 974,000 barrels of oil equivalent per day - about 25 per cent of Nigeria's estimated total oil and gas production.  It stated that about 811,000 barrels of the volume came from the SPDC-operated joint venture, while SNEPCo accounted for the balance.

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