Brass LNG on Track as Shareholders Appoint New Pre-FEED Team

There is renewed hope for the Brass Liquefied Natural Gas (LNG) project after news that shareholders of the project have constituted a new pre-Front End Engineering Design (FEED) team. They have also adopted a new technology, APCL. The decision to adopt APCL was taken after the exit of ConocoPhillips, the owners of the Optimised Cascade Process, which accounted for 80 per cent of the technology previously to be adopted in building the multi-billion dollar LNG plant.

Planned as a world-class, greenfield LNG facility located in Brass Island in Bayelsa State, the project is designed to produce 10million metric tonnes of LNG per year.

Once ConocoPhillips, a partner in the project, announced its planned exit from Nigeria and the project, negotiations began for terms of a licence for the continued use of the ConocoPhillips' technology. The negotiations were aimed at ensuring that the exit of the Houston-based ConocoPhillips from the Brass LNG project would not delay the construction of the plant. At the time, the negotiation also included transitional arrangements for ConocoPhillips to continue to provide expertise to ensure a smooth transition. The negotiation followed concern by the other shareholders of Brass LNG that the exit of ConocoPhillips would impact negatively on the multi-billion dollar project. They were unable to agree terms and the shareholders decided on the use of the APCL technology instead.

The Nigerian National Petroleum Corporation (NNPC) holds 49 per cent equity in the project, while ConocoPhillips, French oil giant, Total and Italian company ENI each hold a 17 per cent stake each. Last year the shareholders were looking for a taker for ConocoPhillips 17 per cent stake. At the time one stakeholder who wished to remain anonymous said: "With the exit of ConocoPhillips from the Brass LNG project, it has been challenging finding who will replace ConocoPhillips and take over its shareholding." Eventually, the parties decided that, for the sake of the viability of the project, the remaining partners, NNPC, Total and Eni, would take over the shares.

NOGintelligence also gathered last year that NNPC planned to divest 17 per cent of its stake in the ENI-run project after the Final Investment Decision (FID). Of the 17 per cent to be divested, Bayelsa and Rivers State Governments were proposed to take five per cent each, while the rest would go to NNPC's strategic investors. The three potential strategic investors, it was learnt, include Japan LNG, Itochu Corporation and a joint venture between Sahara Energy and Sempra Energy.   There is no confirmation of whether this planned divestment still remains on the cards.

The shareholders signed the Heads of Agreement (HOA) for the Brass LNG project in October 2003 and the FID on the project is still awaited. The appointment of the pre-FEED team is a step towards keeping the project alive.

Forcados Pipeline Reopens

The NNPC operated Trans-Forcados pipeline has reopened following repairs on the vital pipeline in the Oteghele area of Bayelsa State. The pipeline closed a week ago leading the Minister of Power, Professor Chinedu Nebo to issue a warning that the shut in would disrupt gas supplies available for power generation. As a result of the shut in, power generation in the country dropped by about 1,500 mega watts, which is almost half of the Nigeria's power supply.

This was the third incident on the pipeline in 17 days, which sustained damage to the 24-inch and 28-inch sections early in January, taking around a week each time to repair. The pipeline, described as a vital artery, is responsible for gas supplies to some major power plants in the country and its closure affects supply of gas to those plants.  

The closure also affected producers using the pipeline to evacuate their crude production including Seplat and NPDC. The re-opening of the pipeline will be a huge relief for many - electricity consumers, power generation companies and producers alike.

At the same time as the Trans-Forcados, the troubled Nembe Creek Trunkline, recently bought by Aiteo Group and its partners as part of the Shell divestment from oil mining lease (OML) 29, also came under attack. The 150,000 barrels per day pipline was closed to remove theft connections and it remains shut.

OPEC Daily Basket Price Stood at $43.88 a Barrel Thursday, 29 January 2015

The price of the OPEC basket of twelve crudes stood at $43.88 dollars on Thursday, compared with $44.08 the previous day, according to OPEC Secretariat calculations. OPEC basket prices have continued to hover below $45 since January 2, when it stood at $51.78. At that time there was still a debate about whether prices would go below $50. Sure enough it did, the very next day, when it dropped to $48.87 (nearly $3 in one day). It has continued to hover around the early 40s since then, almost causing panic when it dropped to $41.50 on January 13, prompting analysts to begin to talk about a $20 oil price.

OPEC Ministers came under attack for their position on the crisis at the recent World Economic Forum in Davos. Speaking at the event, Eni and Total warned the OPEC countries that the policy of not cutting production to reduce the glut would force oil companies to slash their budgets leading in time to a supply shortage and sharp rise in oil prices. They warned the OPEC nations to act now to stabilise oil prices for the future.

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).

Nigeria Pays Ghana $10m for Non-delivery of Contracted Gas

The Nigerian National Petroleum Corporation (NNPC) has had to pay $10 million in penalties to Ghana as Ghanaians continue to suffer from power outages as a result of NNPC's failure to deliver the contracted quantity of gas to Ghana under the West African Gas Pipeline (WAGP) project. NNPC is under contract to deliver 120 million cubic feet of gas daily through the WAGP but has consistently failed to do so resulting in millions of dollars in fines and misery for electricity consumers in Ghana. Power plants that are dependent on the piped gas from NNPC have been shut down due to the catalogue of failures.

Only in September, NNPC's Group Executive Director, Gas and Power, Dr. David Ige, reiterated NNPC's commitment to the supply of gas to the West African Region. He said at the time: "The outstanding force majeure situation is being addressed by NGC and should be lifted very shortly. Beyond this, major interventions are being implemented to grow supply to meet the full requirements of both WAGP and the domestic power market. It is expected that much of the net supply shortages beyond the FM induced reduction, will be addressed within the next 4-5 months."  

According to Dr Ige, since 2013, there had been some supply disruptions affecting gas shipped through the West African Gas Pipeline. These, he said, had been largely due to force majeure events like the outage of the Escravos-Lagos pipeline and other secondary pipelines such as the Trans-Forcados pipeline. NNPC and its joint venture partners were fined $10 million in 2013 for supply shortages.

"Nigeria remains committed to supplying the West African region. The current supply challenge is being addressed aggressively and full contractual supply should be attained within a few months," Dr Ige insisted in September. Unfortunately, the situation remains largely the same with the Ghana national grid having to shed some 400 to 600 megawatts of power as a result.  

Ghana is now desperately trying to develop its own reserves so that it will no longer have to depend on the erratic supply from NNPC. They are hoping to develop about 300 - 350 million standard cubic feet of gas from the Jubilee and TEN fields. Unfortunately, with oil companies slashing their budgets these projects may not get off the ground quickly enough to provide the relief the Ghanaian consumers so badly need.

Seplat Gets New Extension till February 13 to Make Offer for Afren

Seplat has won a new extension from the UK Takeover Panel to make a firm offer to take over beleaguered FTSE 250 London Stock Exchange listed Afren. Dually listed (Nigeria and London) Seplat now has until 17.00 on February 13 to make a firm offer or back off.

At the end of last year, as Afren's woes continued with news that it had overstated its Kurdistan assets, rumours began circulating in financial circles that Seplat was circling Afren. Soon after Afren released a statement, followed by Seplat, confirming that they were in talks. However they both stressed that there was no certainty that an offer would be made. The UK Takeover Panel gave Seplat until January 19 to make a firm offer or withdraw from discussions. As the date approached, Seplat continued to hold back and applied for an extension. They were given till January 30 to make an offer but it seemed they were still unwilling to make a move and have now won an additional extension. It now remains to be seen whether the two will be celebrating a new marriage on Valentines Day, or going their separate ways.

Afren's shares have been tumbling since it was hit by scandal in mid 2014. Since then, nothing has gone right for the company, which is now trying desperately to restructure its finances to avoid a fire sale. It may all be too late. As the 31 January deadline loomed the firm was being valued at £46.7 million - a staggering drop in value considering it was valued at £1.5 billion at its peak. The company is now in trouble and has issued a cash-call of £200 million to shareholders to avoid running out of money. To add to its problems, a payment of £33 million to lenders and bondholders has fallen due and it is now desperately trying to negotiate terms for a deferral of the payment.

With all the walls closing in on Afren, Seplat is in no hurry to make a move as it waits to pick the company up at rock bottom price. The purchase offers compelling risk reward payoffs with a substantial upside potential. With oil prices tumbling and £800 million debts, it seems Afren is now Seplat's to lose.

James Bay Instructs International Law Firm Over OML 25 

The opening salvo in a brewing legal battle over oil mining lease (OML) 25 has been fired with the release of a statement by James Bay Resources, listed on the Canadian Securities Exchange, that it has retained international law firm Amsterdam & Partners LLP in connection with the Company's petroleum interests in Nigeria. The firm is expected to launch legal action on behalf of James Bay in respect of OML 25, which Shell divested last year.   

Crestar Integrated Natural Resources Limited won the bid for OML 25. Crestar is special purpose vehicle owned 45 per cent by James Bay while 55 per cent is owned by a number of oil and gas professionals, including Niyi Olaniyan, the founder and CEO of Crestar, who is ex Shell, and Osten Olorunsola, the former Director of Petroleum Resources (DPR).

Crestar is said to have won the coveted asset in this round of Shell's onshore divestment, after bidding a reported $450 million. In the statement, James Bay said that Crestar paid the full purchase price for the Shell joint venture's (JV) interest in OML 25 into an escrow account with JP Morgan in June 2014. Final closing of any transfer of an interest in a Nigerian oil and gas licence or lease is only achieved when the consent of the Minister of Petroleum Resources to the transaction is obtained. It seemed it was only a matter of time for these Nigerian oil and gas professionals to achieve the true intent of the local content initiative.   

It was not to be however. For the first time in the history of the Shell divestments, the Nigerian National Petroleum Corporation (NNPC), a 55 per cent owner of the asset, decided to exercise its right of pre-emption, contained in the terms of the joint venture agreement, to buy the asset itself. On the face of it there is nothing wrong with that exercise. James Bay however claims that the right pre-emption had in fact expired and had expressly been waived.   

Before resorting to legal action, as James Bay now appears to have done, the Crestar shareholders mounted a campaign to try and resolve the situation. There were diplomatic missions to political figures in Abuja to intercede on their behalf. The Canadian ambassador to Nigeria was drafted in to lend his effort in the mission to get a resolution. Then rumours surfaced that an alleged rift between the Minister of Petroleum and Olorunsola, by then, Crestar's chairman, who was sacked by the Minister the year before was to blame. Determined not to let the valuable asset slip away from them, Crestar offered Olorunsola up for the chop and he stepped down as chairman of Crestar, but to no avail.

Now, it seems that only an about turn by NNPC will avert the brewing legal action. It is not clear from the statement who James Bay intends to sue: Shell and its joint venture partners? NNPC? The Ministry of Petroleum Resources? The Federal Government of Nigeria? What is clear is that the appointment of Amsterdam & Partners led by Robert Amsterdam, said to be a veteran of combats with governments around the world including Nigeria and Zambia is meant to sound a warning that this battle will be hard fought. Robert Amsterdam lists Nasir El-Rufai, former Minister of the Federal Capital Territory of Abuja among his high profile Nigerian clients.

Amsterdam makes it clear in the James Bay statement that they expect the timing of the legal action, just before the election, to cause political embarrassment. Robert Amsterdam is quoted as saying, "The fact that this saga is playing out on the cusp of a hotly-contested election promises more than just a legal fight, it guarantees a demand for political review at the highest levels."   

NNPC is yet to comment publicly on the reason behind its exercise of the pre-emption rights and how the State owned corporation, already struggling to meet cash calls for its joint ventures, intends to pay for the acquisition. James Bay alleges in the statement that it has evidence, which NOGintelligence has not seen, that NNPC is trying to fund the acquisition from private third parties. Any such arrangement, they claim, would violate Nigerian laws regulating government borrowing.   

Communities Affected by Bonga Spill Protest Shell's Non-Payment of Compensation

Barely a month after an $86 million settlement with the Bodo Community Shell is dealing with community disagreements over another spill. This time, the Itsekiri and Ijaw riverine dwellers affected by the 2011 Bonga oil spill descended on the offices of the National Oil Spill Response and Response Agency (NSODRA) located in Warri, Delta State, demanding an enforcement of the $3.6 billion compensation order imposed on the Shell Nigeria Exploration Company (SNEPCo), in November 2014 by the House of Representatives. SNEPCo is a subsidiary of the Dutch giant, Shell. The villagers are angry over NOSDRA's failure to enforce the compensation order.

The compensation award (then equivalent to N604 billion) was imposed on SNEPCo over the Bonga crude oil spill, which occurred on December 20, 2011. The House Committee on the Environment estimated that 40,000 barrels of oil was spilled into the marine environment in Bonga.

According to the independent report adopted by the Committee, the oil spillage and harmful chemical pollutants affected 350 coastal communities and satellite villages in the state. SNEPCo is said in the Committee's report to have agreed the estimate. The compensation was broken down as follows: N63.6bn for direct losses, being irreversible damage made up of N103.192bn for loss of income, N85bn for provision of water, while N27.4bn was for forestry. For the indirect losses, the oil company was ordered to pay N14.35bn for health hazards, N8million for injurious affection and N302.4bn as punitive damage.

A community leader, Chief Otobo Itiemogha, said: "The House of Representatives Committee on Environment on November 26, 2014, directed NOSDRA to liaise with SPDC to commence discussion within two weeks on the payment of $3.6 billion compensation to the victims. Shell refused to call a meeting for negotiation and we wrote several letters, which were not responded to. It now been two months since the directive by the House of Representatives and our last ultimatum to SPDC expired on Wednesday. We are tired of waiting for Shell to decide whether it wants to obey Nigerian law or not."

The agitation from the communities affected by the spills will only serve to draw attention to the Bodo Community oil spill saga. In the ensuing compensation claim brought on behalf of the community in a London High Court, Amnesty International reported that Shell was forced to reveal that it had been aware, at least since 2002, that most of its oil pipelines were old, and some sections contained "major risk and hazard." This has been a public relations disaster and Mutiu Sunmonu, the former Managing Director of the Shell Petroleum Development Company of Nigeria Ltd (SPDC) and Country Chair of Shell Companies in Nigeria had to leave 36 years of service with Shell only few days after service a few days after an $86 million settlement was agreed with the Bodo Community residents earlier this month.  

Osagie Okunbor, who has taken over from Sunmonu in both roles, will have his hands full as he negotiates various legacy spills including the one from Bonga.

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