NEITI Clears Air On NNPC’s $1.8bn Oil Block Transfer | Independent Newspapers Limited
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NEITI Clears Air On NNPC’s $1.8bn Oil Block Transfer

Posted: Apr 25, 2016 at 3:52 am   /   by   /   comments (0)

The Nigeria Extractive Industries Transparency Initiative (NEITI) has cleared the air on its initial statement that the Group Executive Director, Finance of NNPC, Mr. Isiaka Abdulrazaq, had claimed at a recent meeting with NEITI that the assignment of eight oil blocks by NNPC to one of its subsidiaries, the Nigerian Petroleum Development Company (NPDC), was not transparent and would be investigated.

NEITI said that the GED, Finance of the NNPC did not make the statement, but claimed that the statement was a sort of a mixed-up occasioned by a discussion about the full payment of the consideration for the divestment and some reconciliation issues.

“NEITI wishes to state categorically that Mr. Abdulrazaq did not say that the transaction was not transparent; neither did he say the new NNPC Management would investigate the transaction. It was a discussion about the full payment of the consideration for the divestment and some reconciliation issues flagged in the finalized 2013 NEITI Audits that occasioned the mix-up,” NEITI said in a statement.

NEITI also recalled that the divestment of the eight blocks to NPDC was highlighted in the 2012 independent NEITI Audit Report, saying that the report disclosed that the oil blocks were divested by the NNPC to NPDC during the period covered by its 2012 Audit at the cost of $1.8 billion, of this amount, only $100 million was paid.

Clearing the ground on the issue, NEITI said that in a communication with NEITI over the weekend, the NNPC GED reiterated what he had said to the NEITI team when asked about the divestment to NPDC: “the decision (to assign the oil blocks) was consistent with the desire of the NNPC to build the capacity of its subsidiary, the NPDC, to compete favourably in the oil and gas industry as a flagship exploration and production national company. Although the investment decision was made years before the new NNPC team came on board, it was made in accordance with the powers vested in the office of the Minister of Petroleum Resources.”

It also noted that on the concerns of NEITI on transparency issues in the national oil company that predated the new management of NNPC, Mr. Abdulrazaq further explained that “serious and concerted engagements were in progress between the top echelon of the new team in NNPC, the Department of Petroleum Resources (DPR) and the Ministry of Petroleum Resources to determine the assets, goods and valuable considerations.”

“I NEVER said what was quoted (in NEITI’s press statement),” he added. “The NNPC values its relationship with NEITI and whilst there are areas where we may professionally disagree as agencies, unbridled and misleading press releases do nothing other than fan the flames of media sensationalism at the expense of the credible work that NEITI as an agency is normally associated with,” Abdulrazaq was quoted to have said.

NEITI said that its internal review also confirmed that Mr. Abdulrazaq was quoted out of context and was misrepresented in its earlier statement. “This statement provides the needed correction and clarification. The mix-up is regretted,” NEITI said in the statement.

Meanwhile, in an earlier statement made available to the media on the outcome of the meeting which had the Chairman of NEITI’s Board, Dr. Kayode Fayemi who is also the Minister of Solid Minerals; NEITI’s Executive Secretary, Mr. Waziri Adio and Mr. Isiaka Abdulrazaq who represented the Group Managing Director of NNPC and Minister of State for Petroleum, Dr. Ibe Kachikwu in attendance, NEITI said that Abdulrazaq had claimed that the transfer of oil blocks to its subsidiary, the Nigerian Petroleum Development Company (NPDC) valued at the cost of $1.8 billion but for which only $100 million has so far being paid by NPDC was not transparently conducted.

According to NEITI, the meeting was convened to resolve the frosty working relationship between both organisations, as well as bridge the information gap between them in the execution of their respective mandates.

Abdulrazaq noted NNPC’s full commitment to the NEITI process, saying that the corporation would henceforth deepen its involvement at all levels of NEITI processes in the oil and gas sector.

Continuing on the lingering controversy over NNPC’s transfer of the oil blocks; OMLs 26, 30, 34, 42, 4, 38 and 41: “We in the new management team of NNPC have reviewed that transaction and totally agree with NEITI that the transaction was not transparent and should be investigated,” Abdulrazaq was quoted to have said.

NEITI had in its 2012 oil and gas audit report stated that Nigeria may have lost billions of Naira from the transaction. Its audit findings were further buttressed by a PwC audit report which also said that the NPDC had yet to complete the payment for the assigned assets, with only $100 million paid out of the total value of $1.85 billion assigned by the Department of Petroleum Resources (DPR).

NNPC and NEITI had in the past held different positions on this transaction, with the former insisting that the transaction was duly completed.

Also in the statement, NNPC provided its defense of the 445,000 barrels per day (bpd) domestic crude allocation to it from the country’s daily production, as well as other clarifications on revenue remittances to the federation account, management of the fuel subsidy regime, Joint Venture cash call and its debt to the federation.

On domestic crude allocation of the 445,000bpd which NEITI has over the years faulted in its reports as source of huge loss of revenues given the fact that refineries are not working, the corporation said: “It is based on its responsibility to ensure availability of petrol for local consumption.”

Razaq added: “We sell the allocated crude using the international market price and use the proceeds to procure products also at international market price and sell the products to domestic market at subsidised price to meet sensitive local consumption demand.”

He explained further that in carrying out this statutory national responsibility, it often put the NNPC at debts and exposed it to enormous national pressure to meet citizen’s demands.

He also said that in-line with the NEITI’s recommendations in its audit reports, the on-going restructuring in NNPC would involve unbundling it into autonomous business units that will operate commercially, profitably and transparently.

The statement also quoted Fayemi to have welcomed the spirit of the new team in the NNPC and called for closer cooperation based on mutual respect between NEITI and the NNPC.

“The role of NEITI in the extractive industries is to ensure that revenues from oil, gas and mining are prudently managed to support national development, reduce poverty and positively improve the lives of the citizens. We need the NNPC to understand this and open its doors for NEITI operations,” Fayemi said.

Meanwhile, controversies over transfer of ownership of oil blocks are frequent occurrence in the oil and gas industry.

You may recall the controversy that stalled the process by Shell Petroleum Development Company (SPDC), to transfer ownership and operatorship of three oil blocks to Seplat Petroleum Company Limited.

SPDC had said it had sealed a deal to transfer, within six months, its interest in the three production licences and other related equipment in the Niger Delta to a consortium led by two Nigerian companies and a French firm.

The Anglo Dutch company is the operator of the licences under a joint venture between the Nigerian National Petroleum Corporation (NNPC), 55 per cent; Royal Dutch Shell, 30 per cent; Total Exploration & Production Nigeria Limited, 10 per cent; and Nigeria Agip Oil Company, 5 per cent.

It said that the agreement covered Shell’s 30 per cent interest in oil mining leases (OMLs) 4, 38 and 41, covering approximately 2,650 square kilometres in the north-western Niger Delta. Crude oil production in the area, included about 30 wells with a production capacity of approximately 50,000 barrels of oil equivalent per day.

SPDC identified the buyer as Seplat Petroleum Company Limited, an indigenous consortium jointly formed by two Nigerian firms – Platform Petroleum Limited and Shebah Petroleum Development Company Limited – along with Maurel & Prom of France.

Independent learnt that controversy trailed the transaction following the decision of the NNPC to exercise its rights by taking over the operatorship of the blocks, in accordance with the provisions of the joint operating agreement (JOA) between Shell, NNPC, Total and Nigerian Agip Oil Company.

According to investigation, NNPC capitalised on the JOA, which provides that SPDC as a partner and operator shall give other partners “prior right” to acquire its interest in the blocks before offering the interest to a third party. A top official of the National Petroleum Investment Management Services (NAPIMS), an investment arm of NNPC, had said that with this provision, SPDC was expected to have given the NNPC and other partners the right to acquire its interest before accepting Seplat’s offer.

Article 19.4 of the JOA states: “Subject to Clause 19.1 and 19.2, if any party has received an offer from a third party, which it desires to accept, for the assignment or transfer of its participating interest, it shall give the other parties prior right and option in writing to purchase such participating interest as provided in sub-clauses 19.4.1 to 19.4.2.” He also confirmed that SPDC required NNPC’s approval before going public with the offer.

Clause 19.2 of the JOA states: “Either party may, at any time upon notice to the other parties transfer all or its participating interest to an affiliate of such party, subject to any necessary government approval.”

The NAPIMS official also said that SPDC, as the operator of SPDC/NNPC Joint Venture, had no powers to transfer its operatorship to a third party without the written consent of the NNPC.

According to the JOA, Shell can only transfer operatorship to its affiliate or affiliated company and Article 1.1.2 (i) of the JOA defines Shell’s affiliates as: Shell in the Netherlands; Shell Transport and Trading Company Plc in the United Kingdom or any other company that is being controlled directly or indirectly by any of these two companies. “Seplat is not an affiliate company of Shell,” said the NAPIMS official. He disclosed that following these unresolved issues, the indigenous firm had not yet taken physical possession of the blocks, except, perhaps, the blocks’ 2,000 square kilometre 3-Dimensional seismic data, which contained information on where crude oil could be drilled.

Independent also gathered that the delay in handing over the blocks to the Nigerian firms then followed the decision of the NNPC to operate the three blocks through its subsidiary, the National Petroleum Development Company (NPDC). Indications that all was not well with the deal between SPDC and the indigenous firm had emerged after a statement by the then Group Managing Director (GMD) of NNPC, Mr. Austen Oniwon, that the corporation had acquired Shell’s interest in the three oil blocks.

“National Petroleum Development Company is growing. I will tell you that only yesterday, we signed an agreement, which saw NPDC acquiring 55 per cent interest in OMLs 4, 38 and 41. This will immediately, with all effort from all of us, increase the asset base of NPDC by over 150 million barrels of crude oil and we are going to proudly achieve the production of 100,000 barrels of crude oil per day before the end of the year,” he had said.

The Managing Director of Seplat Petroleum Company Limited, Mr. Austin Avuru, had explained that what the NNPC boss meant was that NNPC had assigned its original 55 per cent stake in the oil blocks to NPDC. “I think what Oniwon meant was that NNPC has assigned its stake to its subsidiary, the NPDC. But SPDC’s stake still belongs to us (Seplat). We are still controlling Shell’s interest. By this arrangement, our new partner is now NPDC and not NNPC,” he said.

Independent also gathered that an NNPC official had also explained that all NNPC-operated blocks are always operated by the NPDC as the subsidiary is not self-accounting and is also not a legal entity in the joint venture. “So, if NNPC was merely assigning the blocks to NPDC, it should not have been news. The truth is that by the position of GMD, SPDC has relinquished operatorship to NNPC’s NPDC and not Seplat. From the huge investment they have made, Seplat wanted to acquire not only Shell’s interest but its status as the operator. But now, the highest NNPC can concede is to make them hang on to Shell’s 30 per cent interest but they won’t like that because that is not what they bargained for. It is the operator that spends other people’s money and tells them stories,” he said.

Independent learnt that a Shell Joint Venture official said that the desire of SPDC to hand over the blocks to indigenous companies was part of its commitment to encouraging local companies in the upstream business, stating that the position of the NNPC now towards the transaction was that “we (NNPC) can’t force you (SPDC) to hang on to your equity but you don’t have the right to assign operatorship to a smaller company.”