Category: Energy

By Muyiwa Lucas

 

Italian oil exploration firm, Eni is considering spinning off oil and gas operations in Nigeria, other West Africa and the Middle East countries into new joint ventures (JVs) to help reduce debts and fund its shift to low-carbon energy, according to sources.

Africa’s biggest foreign oil and gas producer, Eni has prized assets in Nigeria, Congo and Angola. Apart from its big production centres in Egypt and Libya, it has built a presence in the Gulf and is looking to grow in Asia.

 The move is part of a major overhaul the company launched last year as it transitions into renewables and a gradual tapering of oil and gas output. Eni aims to replicate the success of its 2019 oil and gas spin-off in Norway, where it formed JV Var Energi with a private equity firm HitecVision and retains a 69.6 per cent stake.

That created Norway’s second largest oil and gas producer after acquiring Exxon Mobil’s portfolio there for $4.5 billion, giving it production of about 150,000 barrels of oil equivalent daily. The investment has been profitable, paying Eni nearly $1.3 billion euros in dividends since its creation.

“The company is working on doing more of the same (as Var) with chosen partners in West Africa and the Near Far East and Far East,” a source said.

Creating a separate entity will allow Eni to shift some of its debts, which rose last year to 26.7 billion euros ($32.2 billion), off its balance sheet given it will no longer be consolidated at group level, the sources said.

With lower debts, Eni hopes to raise new capital to build its renewables and low-carbon business which will form the backbone of the future company.

Eni has recently held talks with several large oil and gas producers, including BP and Total, to merge parts of their operations in West Africa and the Middle East, sources told Reuters.

Eni, BP and Total declined to comment. BP and Total face challenges similar to Eni’s in terms of managing debts and low-carbon emissions but it remains unclear if the talks will be successful, the sources said.

Europe’s top energy companies were forced to raise record amounts of debts after oil and gas demand cratered in the wake of the pandemic. Eni Chief Financial Officer Francesco Gattei in February told analysts that there are “opportunities” in business combinations like Var Energi to remove debts from Eni’s balance sheet.

“We aim to replicate our Norwegian Var model in different countries, with potential business combinations which are currently under screening,” Gattei said at the time.

Other companies have gone down the same path in recent years. BP merged its Norwegian operations with local producer Det Norske in 2016 to create Aker BP, which trades on the Oslo Stock Exchange.

Large oil companies prefer operating oil and gas fields, taking pride in their operational capabilities.But for Eni, which has said its oil output will start tapering off after 2025, the JV model offers a way to cut costs and squeeze more money out of the oil and gas division.

Eni, headed by veteran oilman Claudio Descalzi, is also mulling spinning off its new retail and renewable energy business next year in order to raise funds. It could list a minority stake in a unit that could be worth around 10 billion euros, according to sources.

Like its peers, Eni has set ambitious targets to slash planet-warming emissions to net-zero by 2050 while rapidly expanding its renewable power generation and biofuel capacity.

The joint ventures model offers companies a way to build a new low-carbon business centred around renewables, power trading and retail, while jettisoning legacy oil and gas businesses which will be wound down over time, a senior source close to Eni said.

The new model also offers transparency to investors regarding greenhouse gas emissions, he added. “If you still co-own the new company you’re still liable for the emissions. But you can report them separately which allows you to show investors how you are decarbonising your core business.’’

By Muyiwa Lucas

 

HOPES of increased revenue for the country is on the horizon as a data and analytics firm, Global Data, has projected that as many as 100 oil and gas projects are set to start in the country by 2025. This figure, the firm said, will account for 23 percent of new projects in the industry in Africa within the next five years.

In the report entitled: ‘Africa oil and gas projects outlook to 2025 – Development stage, capacity, capex and contractor details of all new build and expansion projects,’ the firm revealed that of the 100 projects expected to commence operations during the period, petrochemical projects will hold the highest share of new startup projects in the country through 2025, with 28 projects, followed by 25 expected upstream oil and gas projects, 24 refinery projects, and 23 midstream projects.

In the upstream, some of the notable projects include the Deepwater Bonga North oilfield and the Onshore conventional gas Okpokunou Cluster Development. Bonga North is in its Front End Engineering Design (FEED) stage and is expected to start operations by 2025. Cluster Development is at a feasibility stage and is expected to begin operations by 2024, the GlobalData report said.

Yet, it maintained that projects in the country’s refining sector will also be watched as the biggest African economy is eager to reduce its reliance on fuel imports, revamp its old refineries, and build new ones.

The 650,000 barrel per day Lagos refinery is a key project expected to start operations in 2022 and become the largest oil refinery in Africa.

“Nigeria is betting on several refinery and petrochemicals projects to meet its growing domestic demand and reduce its reliance on imports. The projects also have potential to transform Nigeria as an exporter of refined products to neighboring countries,” Teja Pappoppula, Oil & Gas Analyst at GlobalData, said.

Among the upcoming petrochemical projects are the Brass Fertiliser & Petrochemical Company, Brass Methanol Plant are a key projects with a capacity of 1.70 million tonnes per annum (mtpa).

“The new build plant has already received approval and is expected to start operations by 2025. Gas processing projects account for around 39 percent of upcoming midstream projects. ANOH-Seplat is one of the key projects with a capacity of 300 million cubic feet per day (mmcfd). The project is in the construction stage and is expected to start operations in 2022. In LNG, Nigeria’s expansion is a key liquefaction project with a capacity of 7.60 mtpa and a project cost of $7 billion. The liquefaction project has been approved and is expected to start operations in 2025,” it stated.

These projections buoy the hopes of the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, who recently made it known that Nigeria, as the continent’s largest crude oil producer and exporter, expects to end its crude-for-fuel swap deals by 2023 when its refining capacity is set to increase with state refineries revamped and a new refinery built.

“The outlook for Nigeria’s downstream sector looks bright with attractive market conditions, large market, significant crude distillation capacity additions from various refinery projects, improvements of the distribution network and the use of natural gas,” Kyari assured.

By Yamai John

By curiously questioning the wisdom of President Muhammadu Buhari, who is also the substantive Minister of Petroleum Resources, in canceling the revocation by the Department of Petroleum Resources (DPR) of four oil mining leases belonging to Addax Petroleum Exploration Nigeria Ltd., Senator Magnus Abe goofed and exceeded his brief. Here is why.

In a position which can only be interpreted as second-guessing the President, Senator Abe insists that “the Department of Petroleum Resources (DPR) was right to recommend a revocation of the mining leases issued to Addax in the national interest.” Abe expressed this position after President Buhari had cancelled the revocation of the oil leases of Addax.

Clearly crossing the line of protocol, Abe suggested that President Buhari was deceived in cancelling the illegal revocation of Oil Mining Licence (OML) 123, 124, 126 and 137 belonging to Addax. Abe backed his trenchant, unfounded position by querying whether it was Addax, allegedly accused of tax fraud abandoned its Nigerian investments for over 10 years, or the DPR that tried to hold them to account that should be held responsible for deceiving the President.

It could be recalled that on March 30, DPR revoked the four Addax licences over alleged poor development of the assets. The PSCs consists of Oil Mining Licence (OML) 123, 124, 126 and 137. Sarki Auwalu, DPR director, had claimed that over 50 percent of the assets were underdeveloped, which he said cost the government lost revenue.

But on Friday, April 23 2021, President Buhari handed down an executive approval for restoration of the leases on OMLs 123, 124, 126 and 137 to the NNPC which is in Production Sharing Contract (PSC) with Addax Petroleum. The leases were revoked on March 30, 2021.

According to presidential spokesman Mallam Garba Shehu, the restoration of the OMLs to Addax Petrleum was in line with the current administration’s commitment to the rule of law, fairness and enabling a stable business climate for investment. He further stressed that the development reaffirmed the Buhari administration’s obligation to the rule of law and sanctity of contracts.

The President had also directed NNPC to utilize contractual provisions to resolve issues in line with the extant provisions of the Production Sharing Contract arrangement between NNPC and Addax. This is indisputably the way to go.

Senator Abe, an intellectual of no mean repute, is a former senator and board member of the Nigerian National Petroleum Corporation (NNPC). He recently chaired a presidential inter-ministerial committee set up by presidential directive convened by the chief of staff to the president.

The Abe-led Committee on Compensatory Contracts and other incentives for Kaztec Engineering Limited said $1 billion had been invested in the contract but that Addax Petroleum called it off over an issue that was totally unrelated to the project. It alleged that the action put over 3000 Nigerians out of work. Talk of giving a dog a bad name. Shortly, the DPR inaugurated a team to evaluate the “revoked assets” of Addax Petroleum.

DPR’s spokesperson, Paul Osu subsequently told Nigerians that, “DPR had recently revoked the four assets of Addax Petroleum Exploration Nigeria Ltd., namely OMLs 123, 124, 126 and 137 due to the non-development of the assets by the company.”

He further stated that a team of experts will evaluate the current status (As-is) of the revoked assets, including liabilities post revocation, in order to facilitate takeover of the assets by the new operators – Kaztech/Slavic Consortium. New operators? But the whole contrived game fell through with the President’s swift intervention.

Were the flawed revocation allowed to stand the Nigerian government would have shot itself in the foot by a poor disposition towards contractual matters. But good a thing, clearly the President was far better informed on the issues at play. This is especially so, as already Nigeria has a poor reputation with respect to adherence to the rule of law and sanctity of contracts which the circumspect President Buhari administration has been making effort to correct.

More, the special bilateral relationship, Nigeria enjoys with the Peoples Republic China, the owner of Addax Petroleum, would have suffered immeasurably. Federal agencies like the Federal Ministry of Finance and National Planning, Debt Management Office, Federal Ministry of Foreign Affairs and others can attest to the level of strategic engagement Nigeria shares with China.

Perhaps, many may not know that China, arguably the world’s largest economy, is playing an important role in Nigeria’s current development trajectory. Despite shrill, often uninformed criticism against borrowing from China, much of the grounds covered in infrastructural development are undergirded by Chines funds.

Going forward, contrary to Abe’s position that it is within the purview of DPR to revoke or allocate oil blocks, the DPR exceeded its regulatory jurisdiction in this instance to terminate the Addax/NNPC contract. Specifically, Clause 19 of the Addax Production Sharing Contract clearly spells out the ground for the Termination of the PSC by the Concessionaire (NNPC) and this is predicated on four specified premises which were not breached.

It is vitally important to note that the PSC is a contract between the Concessionaire (NNPC) and the Contractor (Addax) and that clearly the regulator (DPR) is nowhere a party. But curiously in this case, the DPR exceeded its regulatory authority to axe the contract.

The key essentials of contract stipulate having two willing parties, meeting of minds between the parties and existence of consideration. Given the circumstances of the entire revocation, it is not illogical to clearly see that the regulator clearly erred and overstepped its bounds by not only terminating the contract between Addax and NNPC but also concocted a nonexistent contract between NNPC and KEL/SPR which Senator Abe is bending over backwards to defend.

The recent speculative media report titled: “Petroleum Minister, Cronies Plot Kangaroo NNPC Report to Divert $650 million Oil Contracts to Themselves,” finds unwitting reinforcement by Abe’s off-key defence.

Abe, stoutly debunked his alleged involvement in the a so-called $650 oil contract scam, insisting that it only exists in the imagination of those interested in ripping Nigeria off. He also insisted that he will continue to defend the country’s interest. In a statement he personally signed, he alleged the report was designed to create the impression of a major scandal and arm twist the federal government in the recent attempt to revoke some oil blocks from Addax petroleum.

Abe even went as far as indirectly giving a wrist-slap to the Mallam Mele Kyari-led NNPC by suggesting it was not the place of the corporation to award or revoke oil mining licences. Whether he is correct or wrong on this score, it was a needless, prickly missile to hurl in the direction of the corporation in which he is a board member.

Abe is well advised to seek to live by the Latin meaning of his name – Magnus – which translates to greatness. Contradicting Mr. President and seeking to contrive crisis dressed up as national interest, thereby attempting to throw the spanners into the cog of an important strategic bilateral relationship like the Sino-Nigerian one is unbefitting of an intellectual of his ilk.

The more uncharitable observers may even wonder whether Abe’s bruising, long-drawn battle with his former political soul-mate, the Minister of Transport, Chief Chibuike Amaechi may have affected his better known sense of equanimity.

By uncharacteristically muddling his facts, curiously affronting the President and seeking needless battles in turfs outside his specialization can only diminish the reputation of the gentle giant from the Niger Delta. Clearly, it will be needless to progress on this gaffe.

By Perry Okolugbo

In 1998, the NNPC entered into a 20-year PSC (Production Sharing Contract) in respect of certain oil mining leases (OMLs) with Addax Petroleum, a company listed on the Toronto Stock Exchange (TSX). The PSC was subsequently extended for a further four years, until 2022. The assets were OMLs 123, 124, 126 and 137.

Under the PSC, Addax fully funded and operated the development of the OMLs, with profit shared between Addax and NNPC. From 1998 until 2009, Addax increased production in these OMLs to about 130,000 bopd. In 2009, Sinopec (a Chinese state-owned company) purchased Addax Petroleum. As a result, Sinopec obtained the rights to these assets.

No payments were made to the Federal Government during the purchase by either party. However, in recent years, there have been no new investments in the assets, and by 2021, production had declined to 25,000 bopd. This led to a significant reduction in revenue accruing to Government. In addition, large gas resources in the assets remain undeveloped, and excess gas has been continuously flared to the atmosphere, contrary to FGN policy and best-practice and international environmental practice.

Since 2017, Sinopec has attempted, by a private sales process, to divest its rights in the PSCs (which are due to expire in July 2022) to a third party of Sinopec’s choice. In March 2021, Mr. President via DPR announced the revocation of the PSC rights to Sinopec, and an assignment of the rights to an indigenous consortium of Kaztec Engineering Limited and Salvic Petroleum Resources.

As part of the assignment, the new consortium are required to:

a. Operate the OMLs under a PSC with NNPC

b. Pay a Good and Valuable Consideration (GVC) of US$ 340 m at the commencement of the PSC

c. Develop the significant oil resources which have been lying fallow, and ramp up production

d. Commence development of the large gas resources within 24 months both for the domestic market and for export, in line with the Government’s aspirations for the gas industry

e. Ramp up investment in the OMLs so that production revenues, royalties and taxes to the Government are exponentially increased, in addition to the upfront payment of GVC.

The new operating consortium has been carefully chosen by Government for their familiarity with the assets. Kaztec, one of the leading indigenous EPIC-M companies with vast experience in offshore and onshore petroleum E&P, has collaborated with the previous operator on the assets for many years. The essence therefore is to ensure a seamless transition of operations with no disruptions in production or loss of revenue to the Government.

The choice of consortium is also in the accordance with the Nigerian Oil and Gas Industry Content Development (Local Content) Act which was enacted in 2010 to promote indigenous operation of Nigeria’s oil and gas assets. Under the Act, seasoned Nigerian independent operators like Kaztec and Salvic are to be given first consideration in the award of oil blocks and oil field licenses.

The consortium intends to maximise the potential of the assets to ensure that the Government and people of Nigeria reap their full benefits against the backdrop of the ongoing Energy Transition. In addition to optimizing production, the Consortium intends to deepen relationships with local communities, boost local content in all its ramifications and increase the employment and training of Nigerians, directly and indirectly.

At the urging of DPR, the Consortium has engaged with the previous operator, to ensure a smooth and amicable transition of operations at the assets. The DPR also directed that Addax and the new Consortium engage in an amicable resolution of all issues including a commercial settlement if needed. These discussions between the new Consortium and Addax commenced in April 2021.

The DPR should be commended for proactively taking concrete steps to boost the revenue accruing to the Government from these underperforming assets. Nigeria and China continue to enjoy cordial economic, political and social ties, and will cooperate to ensure the mutual development of their countries.

Okolugbo writes in from Abuja.

The American Petroleum Institute (API) and the African Energy Chamber (AEC) have signed a Memorandum of Understanding (MoU) to collaborate on capacity building initiatives and standardisation to enhance safety, environmental protection and sustainability in African countries producing natural gas and oil.

“API is pleased to collaborate with the AEC to expand use of our world-class standards and programmes to help enhance the safety, transparency and sustainability of natural gas and oil operations across the African continent,” API Segment Standards and Services Vice President Alexa Burr said, adding: “This is our first partnership with an African based organisation, and we look forward to supporting AEC’s efforts to drive industry-wide technical knowledge.”The number of petroleum producing countries in Africa has increased substantially, coinciding with a movement across the continent to enact robust, equitable and imminently more transparent policies.

This continent-wide pursuit to increase the technical capacity of local organisations is of paramount importance in these natural gas and oil economies.

It will be vital for public and private representatives of African host economies to work with the international petroleum industry and help ensure the developmental needs of the local markets are met while maintaining policies that allow for oil sector investment in these economies and accelerating the adoption of industry practices that enhance safety and environmental protection.

”Our association with API is a milestone for the work we do, and we are confident we will see American ingenuity – a key component of the partnership between African producing nations and IOCs – at its best,” US-Africa committee Chair of the AEC Jude Kearney said.