In spite of SacOil's optimistic announcement that it is quitting oil prospecting licence (OPL) 233 located in Koloama Community, Bayelsa State, within the transition zone and shallow offshore environment (5-10m) in the Niger Delta, it seems that trouble is brewing in yet another example of failed "marriages" in the Nigerian upstream sector.  This announcement completes its exit from Nigeria after reaching arrangement in April with Transcorp to exit OPL 281.  The company says it is now focusing on African oil and gas opportunities with short-term production opportunities. They expect any exploration assets to be in proven areas of discovery with above average upside potential.

OPL 233 was granted to Nigdel United Oil Company Ltd under a production sharing contract (PSC) with the Nigerian National Petroleum Corporation (NNPC) in 2006 in a mini bid round. AIM listed Energy Equity Resources (EER) acquired a 20 per cent interest in the block from Nigdel. That acquisition, which was financed by SacOil in a complicated arrangement that SacOil says gave it a 20 per cent interest, received Ministerial Consent in August 2014 leaving the parties ready to move into the appraisal stage in its work programme after awarding the seismic acquisition contract to Verity Geosolutions earlier in the year. 

Unfortunately, the arrangement for SacOil's participation in OPL 233 has now unravelled after SacOil, which is listed on the JSE and AIM, decided to pull out of Nigeria, citing a new portfolio rationalisation strategy. SacOil reached agreement in April with EER, which restructured EER's debt obligations to SacOil in exchange for SacOil's waiver of certain rights and interests emanating from the loans. However, SacOil said, it retains the existing security over EER's 20% interest in OPL 233. Selling the deal to its shareholders, SacOil said that the settlement would enhance its ability to recover the sums owed to the company and its shareholders.

Following the completion of the arrangement with EER, Sacoil announced that it had terminated its joint venture with Nigdel, and consequently its participation in OPL 233.  SacOil claims it has the right to be refunded by Nigdel for all costs expensed to date on OPL 233.  As a result, the company says, it has no future commitments and obligations associated with the appraisal of OPL 233.  

Following this revelation, Dr Thabo Kgogo, CEO of SacOil, commented, "The termination of the joint venture in respect of OPL 233 is in line with the strategy communicated to shareholders previously, improves the Company's financial position and will reduce future financial exposure emanating from such higher risk assets." 

Dr Kgogo optimistically continued: "With the expected return of capital from OPL 233 and OPL 281, combined with SacOil's existing cash resources, the Company will be in a far stronger position to pursue its strategy of increasing production and focusing on cash generative assets".

Things might not go quite as smoothly on OPL 233 with regards to the monies it is expecting back, however, as Nigdel has taken a different position on the issue of the funding. Nigdel claims that has defaulted in the delivery of its financial obligations under the joint operating agreement (JOA) relating to OPL 233. In a statement by Nigdel's CEO, Chief Joseph Penawou, the company said: "SacOil has consistently and continually failed to fulfil its financial obligations under the Agreements between the parties."

Nigdel says that following the "prolonged and cumulative failure" by SacOil, it opened discussions with the company aimed at remedying the situation. The indigenous operator says it proferred various alternatives to SacOil, eventually issuing a default notice to SacOil, which expired on 18 April 2015. Nigdel said that under the JOA, it has the right to require that SacOil completely withdraw from the JOA and the contract in OPL 233 thereby resulting in Sacoil's loss of its title, rights and beneficial interest in the OPL 233.

Nigdel has come out to speak openly on this issue following SacOil's announcement of its withdrawal from OPL 233.  According to Nigdel, accuses SacOil of intending to misinform its shareholders, saying that SacOil cannot validly withdraw from OPL 233 under the provisions of the Farm In Agreement, without remedying its existing default first.

Oyo Field Production Stabilises at Over 7,000 Barrels Per Day

 Independent oil and gas exploration and production company, Erin Energy Corporation has commenced production from its new Oyo-8 well and says that production from the field located offshore on oil mining lease (OML) 120 has now stabilised at a rate of 7,080 barrels per day. The company, which is the operator of the field, and formerly known as CAMAC Energy, has a 100 per cent interest in the well. Erin, which is listed on the New York and Johannesburg Stock Exchanges, expects to add to its Oyo field production from the Oyo-7 well, where it is currently engaged in drilling and completion operations and expects to achieve first oil production within a few weeks.

Additionally, the company has completed site surveys for three of its top prospect drilling locations after identifying four Miocene exploration prospects. The four prospects have a combined 2.4 billion barrels of recoverable P50 prospective resources.

Segun Omidele, Senior Vice-President of Exploration and Production said the company was looking forward to an exciting second half of 2015.  He added excitedly, that the new production would "generate immediate revenues, cash flow and earnings for our shareholders."

Houston based Erin Energy Corporation is focused on energy resources in sub-Saharan Africa and has 9 licenses across 4 countries including current production and other exploration projects offshore Nigeria, as well as exploration licenses offshore Ghana, Kenya and Gambia, and onshore Kenya. The company's Nigerian venture has delivered great value. Estimated probable and proved recoverable reserves at Oyo field were initially estimated at 45 million barrels, and later revised to 50 million barrels.

 In 2011, Netherland, Sewell & Associates produced a report which now estimates the field to have reserves of 1.9 billion barrels of crude with a high of 6.3 billion barrels of oil-in place. Recoverable and prospective oil resources are estimated 626 million barrels with a high of 2.2 billion barrels.  Erin has been producing oil and natural gas from the Oyo field since December 2009.  

Universal Energy Commences Production at Stub Creek

Universal Energy in which gas producers, Seven Energy has a 62.5 per cent equity interest, has commenced production from the marginal field, Stubb Creek Field in Akwa Ibom State at an initial gross rate of 2,000 barrels per day (bpd). Approval has been secured for delivery through Exxon Mobil's Qua Iboe Terminal, allowing the field, which came on-stream early in February to begin production.

The Early Production Facility in Unyenge, Mbo Local Government Area and the 23 kilometre pipeline for the evacuation of oil have been completed. Universal expects to quickly ramp production up to 8,000 bpd from the initial rate once the processing capacity of the Early Production Facility is upgraded to handle that capacity. The marginal field is an oil asset with considerable undeveloped non-associated gas reserves, making it of much interest to gas producer, Seven Energy. The company plans to develop the field's gas resources in the future and to drill a non-associated gas appraisal well.

Dangote Selects UOP Technology for its Lekki Refinery

The dreams of Africa's richest man, Aliko Dangote, to solve the problem of the nation's refining capacity is a step closer to realization following the news that the Dangote Group has chosen the technology for its refinery.  Dangote selected the UOP technology, a wholly owned subsidiary of Honeywell, a leading international supplier and technology licensor for petroleum refining. UOP will supply process technology, catalysts and proprietary equipment for the 500,000 barrels per day capacity plant that will cost around $9 billion.

The refinery, which is expected to enter into operation in by 2018 will more than double the country's current refining capacity. The nation's four refineries with a combined capacity of 450,000 barrels is currently achieving anything between 10 and 20 per cent of capacity forcing Nigeria to import petroleum products to service the country's needs.

In addition to processing crude oil to produce high-quality gasoline, diesel and jet fuel that meet Euro V specifications for reduced emissions, the Dangote refinery facility will produce world-scale quantities of polypropylene, a key petrochemical used in plastics and packaging.  Other key UOP technologies that will be used at the plant include:

• The UOP Resid Fluid Catalytic Cracking process to produce transportation fuels from crude oil. It will also supply propylene, which will be used as a feedstock for polypropylene.
• The CCR Platforming™ process to produce high-octane gasoline blending components.
• The Unicracking™ process to produce diesel.
• The Penex™ process to produce high-octane gasoline.
• The crude distillation unit (CDU) design will be provided by UOP's alliance partner, Process Consulting Services.

Pete Piotrowski, senior vice president and general manager of UOP's Process, Technology and Equipment business said:"The company's UOP has been designing state-of-the-art refineries and petrochemical plants for more than a century, so we are well-equipped to help Nigeria develop a massive new installation to meet its domestic needs."

Capital Oil Breaks Rank to Ease Fuel Shortage

 Capital Oil has come to the rescue of a grateful nation after breaking rank to begin selling fuel to the public. The company says it is releasing about 70 million litres of petroleum products into the market over the next few days.  This welcome move is however too little to make a great dent in the situation if the crippling strike by oil workers does not come to an end. The fuel shortage, which initially began after petroleum marketers refused to import petrol due to unpaid oil subsidy claims, was exacerbated when the Petroleum and National Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) went on strike. The oil workers unions are protesting against the Nigerian Petroleum Development Corporation (NPDC)'s withdrawal from operatorship of Shell divested oil blocks, oil mining leases (OMLs) 42, 40 and 30. They are asking the Minister of Petroleum to reverse the withdrawal and resume operatorship.

 The ensuing petroleum shortage has wreaked havoc with businesses in the business capital of Lagos. The roads are deserted, buses are not running, businesses are closing, flights are being cancelled, communications networks for phones and internet are facing severe disruption and now banks are beginning to limit their operational hours as the fuel shortage takes its toll.

 Speaking about his decision to break rank and begin supplying petrol, the CEO of Capital Oil, Ifeanyi Ubah said he took action to ease the nation's suffering.  He confirmed that once the current stock is depleted, there will be further supplies coming in as they have more stock on vessels waiting to berth at the port. Ubah is asking other marketers to follow suit and save the nation from "impending economic and social crisis."

 Just before we went to press, the strike was called off.  Before that, other marketers had not joined the Capital in defying the strike, as they appeared to be waiting to see the repercussions on Capital Oil before deciding whether or not to join.  While they wavered, the strike continued to bite with land and air travel looking likely to grind to a halt if the strikes had continued much more into the week. In addition, lives could have been put at risk as hospital generators stopped working for lack of fuel.

 The incoming government is now under pressure to remove the corrupt fuel subsidy that has seen the subsidy bill ballooning to such a level that the nation can no longer afford to pay it, leaving the marketers to go on strike, holding the nation to ransom. 

Shell Reopens 180,000 Bpd Bonny Light Crude Export Pipeline

 Shell has re-opened the 180,000 barrels per day capacity Trans Nigeria pipeline, which supplies Bonny Light crude oil grade to the export terminal. Although Shell did not declare a force majeure on supplies, the 4-day closure could lead to delays in loading some June cargoes according to Reuters. The reason for the shut down was not given.  

OPEC Daily Basket Price Stood at $61.86 a Barrel Thursday, 21 May 2015

The price of OPEC basket of twelve crudes stood at 61.86 dollars a barrel on Thursday, compared with $60.91 the previous day, according to OPEC Secretariat calculations. Oil prices were continuing to rebound as US supply declines. However, those wishing to declare an OPEC victory over US tight oil must not be too hasty as there is still a large supply overhang and it is still too early to call the battle.

 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). 

Seven Energy Begins delivery of gas to Alaoji Power Station

Seven Energy, the indigenous Nigerian integrated gas company, through its wholly owned subsidiary, Accugas, has commenced supply of gas to the Alaoji Independent Power Project in Alaoji, Abia State. Gas delivery to the 504MW power station commenced in May 2015. Accugas is one of two gas suppliers to the plant with an initial contractual commitment to supply 30 million cubic feet per day ("MMcfpd"). The Alaoji project is the largest of Nigeria's National Integrated Power Projects (NIPP), the first phase of which was commissioned in March 2015.

Speaking on the accomplishment, Phillip Ihenacho, Chief Executive Officer, Seven Energy, said: "The reliable supply of gas to the National Integrated Power Projects has been one of the core obstacles to their completion, and the consequent addition of significant generation capacity into the grid. Seven Energy is pleased to be able to provide this solution, ensuring that Alaoji has access to the gas it needs to commence electricity generation."

Seplat Responds to Okonjo-Iweala Waiver Accusations

Seplat Petroleum Development Company Plchas issued a strong response to the accusations levelled by the Co-ordinating Minister of the Economy and Minister of Finance, Ngozi Okonjo-Iweala, at Seplat. In a letter to the Executive Secretary of the Nigerian Investment Promotion Commission (NIPC), the Minister said that the federal government had lost a lot of revenue due to fraudulently tax holidays granted by officials of the NIPC to companies that did not qualify.  She however singled out Seplat among the oil companies that had been wrongfully granted such waivers.

Seplat has now issued a statement to clarify its position on the matter. Seplat said it had applied for pioneer tax incentive in 2013, through NIPC. The company said it followed the prescribed process for application and provided all the information and documentation required in support of the application. At the time of the application, Seplat was aware that in line with the objective of the NIPC Act, the government intended to promote investments in certain areas of the Nigerian economy and particularly in relation to indigenous participation in the oil and gas industry. The Chief Executive Officer of Seplat, Austin Avuru said in the statement: "This we believe was aimed at engendering rapid sectorial growth and employment generation."

The pioneer tax incentive was subsequently granted to Seplat and the Federal Inland Revenue Service duly acknowledged the grant waiver to be applicable to the company for 5 years.

In the statement, Seplat goes on to list the ways in which it had utilized the waiver, as a demonstration that the idea behind the tax waivers, was working as companies like Seplat have invested the tax savings in projects that have benefitted the economy. Among the projects they had invested in as a result of the savings are: 

• Increase in Gas Supply to the Domestic Market - $300 million invested in gas development over the tax holiday period, taking gas production from 90 MMscfd to the current level of around 200 MMscfd.
• Increase in Oil Production - oil production from a daily average of 14,000 barrels in 2010 to the current daily rate of over 70,000 barrels, thereby increasing Seplat's royalty payments to government from $40 million per annum in 2010 to about $340m presently.
• Continued funding of the NPDC/Seplat JV despite substantial outstanding cash calls.
• Employment and Community Development - over 300 new jobs created and several community development projects in its operating areas.
• Statutory payments post pioneer period - aggressive re-investment of pioneer tax waiver proceeds have led to a significant increase in oil and gas production and as such, the company's tax and royalty payments are expected to double post pioneer period compared to the level it was at pre pioneer period.

In its defence, Seplat says that is what the pioneer incentive program was designed to achieve. The company believes that it is an excellent example of the purpose of establishing the pioneer incentive scheme. The company said it intended to continue to contribute meaningfully to the growth and development of the Nigerian economy.

In her letter to NIPC, Okonjo-Iweala, said that Pioneer status was granted to companies whose products did not meet the requirements of the list of industries or products specified in the schedule to the Industrial Development (Tax Relief) Act.

Furthermore, she said, the tax relief period for a pioneer company was to commence from the production date of the company for a period of three years in the first instance. The period was thereafter extendable for an initial one year period and then for another one year period, but subject only to the satisfaction of the President that certain requirements such as rate of expansion, standard of efficiency, level of development of company, among others, had been met. NIPC, she said, had been issuing the tax waivers for 5 years.

 To compound matters, according to Okonjo-Iweala, in some instances, Pioneer Status was granted in in arrears leading to recipient companies demanding refunds of taxes already remitted into the Federation Account.

Whilst not saying how much wrongfully issued tax holidays had cost the nation, she did say that such tax loss of revenue base, erosion and profit shifting had cost the nation $60 billion.

 Industry watchers are wondering why, if indeed she was aware of the wrongful issuance of tax holidays by NIPC, Okonjo-Iweala said nothing all this time and allowed the practice to continue. One lawyer that wished to remain anonymous commented that any attempt to wrestle unpaid taxes from the companies to whom the waivers were wrongfully given could result in law suits against the federal government, especially given the kinds of sums that are at stake.

SC orders Chevron to maintain status quo with regard to disputed oil blocks

 Britannia-U's attempt to win the divested oil mining leases (OMLs) 52, 53, 55, received yet another boost after the Supreme Court ordered all parties to maintain the status quo with respect to the action. Britannia-U was appealing against a Court of Appeal order dismissing the interlocutory injunction, which Britannia-U Nigeria had obtained against Chevron in a federal high court, ordering Chevron not to deal with the assets pending the determination of the substantive case. The injunction has now been reinstated.

Britannia-U recently won a disclosure order in the US court against Chevron under which Chevron has to disclose all documents and communications relating to the bid. Chevron has already signed SPAs with a Seplat consortium, consisting primarily of Seplat as the buyer of OML 53, Amni International of OML 52 and Belema Oil of OML 55.   

Offshore West Africa announce Strategic Partnership with International Trade Council

Offshore West Africa Conference & Exhibition, owned and produced by PennWell Corporation, has announced a Strategic Partnership for the upcoming 20th anniversary edition with the International Trade Council (ITC). Taking place on 26-28 January 2016 at the Eko Hotel & Suites, Lagos, Nigeria, the 20th annual Offshore West Africa will build on the success of the 2015 event, which also took place in Lagos, which attracted a record breaking international audience of almost 2,400 leading oil and gas industry professionals from more than 30 countries worldwide.

The International Trade Council is an independent, non-partisan membership organisation, mediator and thinktank dedicated to being a resource for its members, government officials, business executives, journalists, educators and students, civic leaders, and other interested citizens in order to help them better understand the world of domestic and international trade. The Council provides services to members in 76 countries. (For further information please visit www.tradecouncil.org).  Offshore West Africa is pleased to announce this alliance, with Mr. Guillermo Torres, Marketing Manager, International Trade Council stating, "ITC & PennWell are working together on a number of initiatives to provide the international business community, particularly in the field of oil & gas with opportunities to gain insight, network and improve knowledge with the aim of providing significant business opportunities to generate sustainable business growth and prosperity".

Offshore West Africa will continue to feature a technical and strategic conference program developed by an Advisory Board comprised of leading industry experts, as well as an exhibition showcasing products, technologies and services from global and regional oil & gas companies, held concurrently, bringing together exhibitors and attendees from around the world for three days of education, networking and new business development.

In addition to the announcement of the return of Offshore West Africa to Nigeria, the Advisory Board and Conference Director, Mr. David Paganie, has announced the opening of the 2016 Conference Call for Papers, with a deadline for abstract submittal set for 19 May 2015.

Offshore West Africa has released the Technical Focus Areas that any abstract should be based upon. These technical focus areas are listed at www.offshorewestafrica.com. To have your presentation considered for the technical session program, please submit you 100-400 word abstract on one or more of the technical focus areas listed.