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Crestar's Bid for Shell's OML 25 Comes Unstuck As NNPC Exercises Pre-emption Right

 

News has reached NOGintelligence that the Nigerian National Petroleum Corporation (NNPC) has exercised its pre-emption rights over oil mining lease (OML) 25, which means that Shell will not be able to go ahead with the sale to Crestar unless there is a complete about turn by NNPC. The shock move by the state oil company is the first time that NNPC has exercised its right of pre-emption in the history of international oil company (IOC) divestments.

 

Crestar won the bid for OML 25 after reportedly bidding around $500 million. Adeniyi Olaniyan is the Chief Executive Officer of the special purpose vehicle (SPV). He leads a cast of oil and gas professionals, who own a 55 per cent interest in the SPV. Olaniyan's previous role was with Shell as Hydrocarbon Maturation Manager for near infrastructure exploration activities to deliver short-term oil along the Niger Delta Nembe Creek Trunk Line. Toronto Stock Exchange (TSX) listed James Bay Resources, has a 45 per cent interest in the SPV.

 

NNPC is a 55 per cent joint venture partner in the block. The joint operating agreement with Shell and its partners in the block, gives NNPC a right of pre-emption over the block in the event that the IOCs wish to divest. The right is exercisable within 30 days of the execution of the Sales Purchase Agreement (SPA) in respect of the block. What is surprising in this case is that the SPA was signed on the 3rd of July 2014 and yet the right of pre-emption was exercised some 100 days or so after the execution. The payment of the bid price has already been made and is in escrow. NNPC will have to match the bid price following the exercise of its right of pre-emption if it wishes to purchase the divested interests.

 

To cap it all, the original partner that brought James Bay Resources to Nigeria says it is entitled to shares in the Nigerian subsidiary and therefore to shares in Crestar, and has instituted proceedings against James Bay and Crestar in the High Court in Nigeria. They are seeking specific performance from James Bay Resources of the contract under which they say they are entitled to a shareholding in James Bay's Nigerian subsidiary. Shell has also been joined in the proceedings by the company, which is asking the court to grant an injunction preventing Shell from awarding the licence to Crestar unless they are made part of the deal. Shell went ahead with the SPA in spite of the proceedings in which it has been joined.

 

James Bay Resources initially listed on the TSX as a mining company. After developing an appetite for oil and gas, the company applied to the TSX for a change of business (COB) from a mining company to an oil and gas company. 

 

Meanwhile, James Bay's wholly owned subsidiary, James Bay Energy Nigeria, entered into a farm in agreement in 2012 to acquire a 47 per cent interest in Ogedeh marginal field, located on OML 90, from Bicta Energy.  Ogedeh was one of the 24 fields awarded in the marginal fields bid round of 2003. When Ministerial approval for the acquisition came in 2013 James Bay said it intended to immediately re-enter the existing well on the block and was hoping for commercial production by the middle of the year. Given that they already had 3D seismic over the block, that ambition did not seem misplaced. Unfortunately for Bicta, James Bay has so far not taken the project any further forward.

 

After waiting three years for the elusive COB from the TSX, James Bay has now chosen to voluntarily delist from the TSX. It has commenced trading on the rather easier Canadian Securities Exchange (CSE) after receiving conditional approval to list. In a statement, the James Bay said: "The Company will be listed on the CSE as an oil and gas issuer based on its previously disclosed interest in the Ogedeh Project."

 

As for OML 25, as the deal slips further away from Crestar's grasp, its shareholders, including James Bay, are enlisting all the help, diplomatic and otherwise, that they can muster to resolve the issue and reinstate the deal. No doubt, they remain hopeful of a successful conclusion.

 

Addax Extends $39 Million FPSO Contract

 

Addax Petroleum has extended its contract on the FPSO Knock Adoon at a cost of $39 million. The Knock Adoon, built in 1985, and converted from a trading tanker to an FPSO, replaced FPSO Knock Taggart on the Antan Field, offshore Nigeria, in October 2006. Knock Adoon operates under an 8-year contract, which was due to expire in October of this year. The parties have now agreed a further one year's extension on the contract. The original contract gives Addax another 8-year option. The extension, which will now expire on he 16th of October 2015 will cost Addax $39 million.

 

The Singapore flagged vessel is owned by Yinson Holdings though its subsidiary Adoon Pte Limited. The unit has a storage capacity of 1.7 million barrels and is able to process 60,000 barrels of oil per day.

 

The Executive Chairman of Yinson, Lim Han Weng said: "The extension is a sign of confidence in the company. We hope to continue our strong working relationship with all our clients and business partners."

 

Addax Petroleum began operations in Nigeria in 1998 with two Production Sharing Contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC). Since then, Addax Petroleum has made several acquisitions, deliberately targeting assets deemed to have limited remaining production potential and using its strong in-house technical and operational expertise to grow reserves and production in a cost effective manner.

 

 

 

In a boost to the Federal Government's gas to power plans, Shell Petroleum Development Company (SPDC) will soon be generating six megawatts of electricity daily from its gas plant at Otumara, after completing the fabrication and integration of the Central Processing Facilities (CPF) for the plant. The Otumara Associated Gas Solution Project will utilise 20 million standard cubic feet (20mmscf) of gas to generate of six megawatts electricity daily.

 

The Final Investment Decision on the project, in which Daewoo is contractor, was taken in 2009 in a bid to support the Federal Government's effort to minimise the volume of gas flared in Nigeria. Speaking at the Modules Completion of Ceremony, the managing director of SPDC and country chair of Shell Companies in Nigeria, Mutiu Sunmonu, who was represented by general manager Toyin Olagunju, said: "The Otumara AGS is one of such projects that tie into government's drive to grow Nigeria's domestic gas portfolio for industrialisation (power generation plus other consumption)."

 

Sunmonu also said: "A few weeks from now, these CPF components made up of the gas compression, gas conditioning/processing and the power generation modules will be transported to the project site for installation on specially constructed pile beam foundations."

 

Sunmonu reiterated that the CPF, which has been fully fabricated in Nigeria, should be celebrated in view of its support of the country's local content aspirations.

 

OPEC Daily Basket Price Stood at $83.24 a Barrel Wednesday, 29 October 2014

 

The price of OPEC basket of twelve crudes stood at $83.24 a barrel on Wednesday, compared with $82.44 the previous day, an increase of nearly $1, according to OPEC Secretariat calculations. Crude oil prices have improved marginally on last week's prices but experts predict that prices will fall further.

 

As oil prices fall dangerously close to below $80, the Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala has disclosed in an interview that Nigeria could have only a two or three-month cushion should oil prices continue to fall. She said the government was putting in place stricter measures that will soften the impact on the economy of the drop in prices. The level at which the government will have to raid its Excess Crude Account (ECA), its last resort, is $78. That stage is not far off, as prices look likely to

 

Speaking to the Financial Times, Okonjo-Iweala said that the intention is not to raid the ECA. The 2 or 3-month buffer, she said, will be enough to put contingency measures in place to avert a hard landing. The ECA is already depleted and at $4 billion is some $2 billion less than the amount recommended by the International Monetary Fund.

 

On another note, Okonjo-Iweala was hopeful that the tighter prices would encourage the government to get a grip on oil theft. In addition, she believes that now, more than ever, there is a strong incentive to pass the Petroleum Industry Bill, which could drive investment in the industry and increase production.

 

Nigeria, as with many OPEC nations, is sailing close to the wind, with its 2015 budget based on a price of $78 per barrel. Should prices fall much further this would be disastrous and coming just before the elections, could be politically painful for the government.

 

Okonjo-Iweala said the country would have to diversify and increase its non-oil revenue in the face of falling oil prices. Elaborating on the key non-oil revenues that the government would target, she said at a press briefing in Abuja that the government would increase revenue targets for the Federal Inland Revenue Service and the Nigeria Customs Service. This was part of the contingency plan that the government has come up with to help cushion the effects of falling prices.

 

The Minister said: "The global economy is volatile, oil prices are falling and as a matter of priority, we are developing a contingency plan to bring stability to the economy."

Falling oil prices have also put in question the projects the Sovereign Wealth Fund is funding. The Fund currently stands at $1.55 billion but its Chief Executive Officer, Uche Orji said the investment programme for the next six months would still go ahead. Only a few weeks ago, the Fund committed to an investment of $100 for gas to power projects.  

 

Speaking to Reuters, Orji said: "The oil price; yes, it has come down. But frankly, let's not forget why this fund was set up. It was to prepare us for days like this."  

 

"Obviously, we get funded from the oil price; so, if it's lower, it will affect us. But our plan in the next six months is to fully deploy what we've been given. We still haven't fully deployed our capital yet," he added.

 

The new OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

 

Oando to List Marketing Subsidiary

 

At a recent Annual General Meeting, shareholders of Oando approved plans to obtain a separate listing of its wholly owned marketing subsidiary, Oando Marketing Limited, on the Nigerian Stock Exchange (NSE). Shareholders had previously approved the plan in 2011 but the listing did not go ahead. Now, in the light of its recent acquisition of the ConocoPhillips upstream business, Oando's directors are keen to proceed with the listing. Oando Plc expects to hold 61 per cent whilst divesting 49 per cent of its holding when it lists its downstream business on the NSE.

 

Explaining the rationale behind the renewed plan for the listing of its marketing subsidiary, Group Chief Executive Officer of Oando Plc, Wale Tinubu said that listing will enable the company to move some cash from its downstream business to the midstream and upstream where it can expect better returns. Tinubu explained that their downstream business gives them a 2.5 per cent return on turnover whilst they can expect about 20 per cent return in their upstream business. Although cash driven, he described operating downstream as working for the banks as they pay up to N5 in interest on every N1 made in profit, making it very expensive to operate profitably. As a result, the company now wants to get some cash out of the downstream business and move it upstream where they can expect to generate higher profits.

 

Oando Marketing is a fully owned subsidiary of Oando Plc. As one of the nation's leading oil marketing retailers, Oando Marketing sells and distributes products through over 300 retail service stations and to over 500 industrial customers cutting across the different geographical zones in Nigeria. Oando Marketing also has 2 operational subsidiaries in Ghana and Togo with over 40 service stations.

 

Oando's downstream business is so vast that, according to the company, that one in every five litres of petroleum products sold or distributed is by Oando Marketing via its over 300 retail service stations and strategically located terminals.

 

Oando Marketing offers a wide range of products including Premium Motor Spirit (PMS), Automotive Gas Oil (AGO also known as Diesel), Dual Purpose Kerosene (DPK), Aviation Turbine Kerosene (ATK), Low Pour Fuel Oil (LPFO), Lubricating Oils and Greases, Insecticides, Bitumen, Liquefied Petroleum Gas (LPG, also known as Cooking gas) and Oando insecticide. The company has been at the forefront of the campaign to get Nigerians user cleaner LPG for cooking.

 

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