Nigeria-São Tomé & Príncipe JDZ at wits’ end 17 years on

Egina Deep Sea Oil Facility

In 2001, when Nigeria and São Tomé and Príncipe, an island nation close to the equator, signed a 45-year treaty for the joint exploration and exploitation of petroleum and fishing resources in a border region considered to be resource-rich, citizens of the two countries were hopeful that the pact would become productive and improve their standard of living, but 17 years after, the zone has remained fruitless.

The treaty, which was also a provisional solution to boundary and resource sharing related issues, became inevitable, to avoid crisis between the two countries should petroleum and other resources in the exclusive economic zone be exploited.

The agreement came into force on January 16, 2003 and was registered by the United Nations on October 3, 2003. With the pact, expectations were that over 500 million barrels of crude oil and other resources would be exploited and shared on the ratio of 60 per cent for Nigeria and 40 per cent for São Tomé and Príncipe. The Nigeria–São Tomé and Príncipe Joint Development Authority (JDA) headquartered in Abuja is an organisation established by the treaty to regulate activities in the zone.

Reportedly, the treaty is premised on the fact that Nigeria is traditionally Africa’s regional powerhouse, the need for the countries to take charge of the economic resources in the zone, the need to avoid cases like the Bakassi Peninsular crisis that started in 1994 when Nigeria sent troops to the area, which resulted to clashes between soldiers from Nigeria and Cameroon.

This scenario led to negotiations between the two countries around 1998, and the issue was concluded under President Olusegun Obasanjo, with an agreement consisting of the treaty itself, an appendix and a Memorandum of Understanding (MoU). The treaty opens with a clear reference to Paragraph Three of United Nations laws on Sea Article 74, which stipulates that the parties take
“into account the United Nations Convention on the Law of the Sea. In particular, Article 74, Section Three, which requires states with opposite coasts, in a spirit of understanding and cooperation, to make every effort, pending agreement on delimitation, to enter into provisional arrangements of a practical nature, which do not jeopardise or hamper the reaching of a final agreement on the delimitation of their exclusive economic zone.”

The Main Provision Of The Treaty
The major provisions of the treaty is the establishment of the zone in a specific area defined be coordinates, and it also created the Joint Development Authority (JDA) to develop and manage the petroleum and other natural resources in the JDZ, which the proceeds must be shared. The treaty varied for 45 years, is subject to a review after 30 years.

According to it, there will be no remuneration of claims for the period the treaty is in force, even as it approved an independent legal personality for the JDA and a Joint Ministerial Council (JMC) to have the overall political responsibility and to supervise the JDA.

Oil Prospecting In The Zone
The International Monetary Fund (IMF) in a report stated that the first bidding round for licenses in oil fields located in the JDZ was successfully concluded in April 2004, resulting in the award of block one.

The winning bid reportedly totaled $123m in oil signature bonuses, and the awardees were ChevronTexaco (with a 51 per cent operating share), ExxonMobil (with a 40 per cent share) and the joint Nigerian-Norwegian Dangote Energy Equity Resources Limited (with a nine per cent share).

ChevronTexaco was the designated operator under the consortium, while ExxonMobil executed its preferential rights obtained under the 1998 agreement with the São Tomean government. The Production Sharing Agreement (PSA) was signed in May 2005, and drilling exploration activities in the Block One area started in January 2006.

A second licensing round opened in December 2004 for equity in JDZ blocks 2, 3, 4, 5, and 6. Twenty-two companies participated, submitting a total of 26 bids. The signature bonus for the five high bids totaled $283m. The blocks were in the deep water 100 miles south of Port Harcourt. A participant in each block is ERHC Energy Inc., Houston, successor to Environmental Remediation Holding Corporation, which had reportedly established relationships with São Tomean officials since 1997.

The five blocks cover about 3,900 sq km only a few miles south of Akpo and other undeveloped giant oil and gas fields in Nigerian waters.

The JDA had awarded block one to a group led by Chevron Corporation, and an ExxonMobil Corporation affiliate. Nearest to Akpo and in 5, 700ft of water 190 miles north of São Tome Island, it went for a $123m signature bonus.

Block Two covering 692 sq km went for a $71m signature bonus. The operator with 65 per cent interest is a combination of Devon Energy Corporation, Pioneer Energy Resources Co., and ERHC. Block Three with 666 sq km went for a $40m signature bonus. The operator with 51 per cent interest is Anadarko Petroleum Corp. The combination of Devon and ERHC has 25 per cent. The combination of DNO ASA and EER (presumably Energy Equity Resources of Norway) has 10 per cent. A combine of Equinox Oil & Gas, Equinox & Energy Ltd, and Petro-China Co. Ltd. also has 10 per cent. Block Four covering 857 sq km went for a $90m signature bonus. The operator with 60 per cent interest is Noble Energy Incorporated and ERHC.

Block five with 1,091 sq km drew a $37m signature bonus. The operator with 75 per cent interest is identified as the ICC/OEOC consortium. ERHC holds 15 per cent.

Block six covering 588 sq km drew a $45m signature bonus. Operatorship and 85 per cent interest went to Filthim-Huzod Oil & Gas/DNO/EER/Sinopec. ERHC holds 15 per cent.

Oil Majors Abandon Zone As Criticisms Meet Alleged Operational Cost
The authority is facing immense criticisms for being a drainpipe, as it is said to be running on a yearly budget of $12m. But a source at the company, that is familiar with the organisation’s finances debunked the claim, saying that the group has not spent such money since it started operation. Already, a United States (US)-based firm, ERHC Energy Incorporated, which has interest in blocks 2, 3, 4, 5, 6 and 9, reportedly invested over $500m into exploration activities without significant results.

The São Tomé and Príncipe’s 2014 Extractive Industries Transparency Initiative (EITI) report released recently showed that since the JDZ was established, 43 per cent of all revenue from the zone had been spent on the Joint Development Agreement (JDA’s) operating costs.

For instance, EITI said over $129 million out of the $302.6 million revenues generated from signature bonuses, sales of seismic data, licences, transfer fees and others, were used to settle JDA operating expenses.

Most international oil companies (IOCs) that pushed for drilling rights in the Zone, have backed off after a slew of dry wells, raising questions on how commercially viable the whole arrangement is. Total pulled out from Block One in August 2013, which was also previously abandoned by Chevron in 2010. After drilling two new wells in 2013, another oil company announced in July 2013 that the find was too limited to justify further investment.

Additionally, Sinopec and Addax were said to have also walked away from blocks two and four for the same reason.

A source in one of the IOCs, who preferred anonymity, said: “If the IOCs pulled out of the deal, it means the JDZ has no commercial value.”

United States-based, ERHC Energy Incorporated, which has working interests in six blocks in the JDZ – Blocks 2, 3, 4, 5, 6 and 9, said it has drilled a number of wells, which did not yield desired results.

President/Chief Executive Officer, ERHC Energy, Peter Ntephe, in an email response to The Guardian, said the company last drilled some wells in the zone about seven years ago.

According to him, “from August 2009 to January 2010, ERHC and its partners drilled five exploration wells – one well in Block 2, one in Block 3, and three wells in Block 4. These were the first wells ever drilled in these blocks.

“Biogenic methane gas was discovered in at least three of the wells, but not in sufficient quantity to be declared commercial. Without a commercial discovery, there can be no appraisal, field development and then production. Further exploration wells will, therefore, have to be drilled in those blocks to see if oil and gas in commercial quantities can be discovered,” he added.

Ntephe noted that ERHC had to rein in on its activities, as drilling in such areas is expensive, saying: “Exploration wells in deep offshore provinces such as the JDZ are expensive and costs over $100m each. There are also significant additional costs to the associated studies and work that goes into preparation for a well. The total cost of the drilling campaign by ERHC and its partners, as narrated above, was over half a billion dollar.

“When you ask therefore, about what is delaying production, the answer is simple – there has been no commercial discovery yet. As noted, without a commercial discovery, there can be no production.”

JDA Hopeful Of Oil Find Soon
There are indications that the JDZ may become economically viable going by the level of renewed efforts by the countries. Indeed, hope is rising for the commercial viability of the 500 million barrels of crude oil reserves stranded in the region.

Though most IOCs, that pushed for drilling rights in the region left at some point, a top management staff of the company, who pleaded anonymity because he has no approval to speak on the matter told The Guardian that IOCs have indicated interest in returning to the zone.

While Nigeria sent a delegation to São Tomé and Príncipe earlier in the year to discuss among other issues, the need to strengthen the relationship, the source said the level of interest shown by the two countries, which included a visit of the Prime Minister of São Tomé and Príncipe to Nigeria recently were indications of readiness to improve the partnership.

Similarly, the source disclosed that the organisation has been rejiggerd with new workforce and have gathered new data on the viability of oil deposits in the region. This discovery, the source noted, could bring back Total, Chevron, Sinopec, Addax and ExxonMobil that pulled out of the zone over claims that it is difficult to drill there, and that the oil there has no commercial value after drilling some wells.

“If you are following the news, Nigeria sent delegations, which included about four ministers to São Tomé and Príncipe recently. A few weeks ago, the Prime Minister of São Tomé and Príncipe visited Nigeria. As far as the relationship between the two countries is concerned, on the economic aspect, JDZ is the main interest.

“There is a lot of renewed interest by oil majors in the zone. Some of the data we have now, were not available in the past. Also, they now have equipment for deep offshore drilling, which they didn’t have in the past,” the source said.

The source added that the difficulty in exploring at the zone was not the only reason that led to the pull out of IOCs from the region, adding that international politics, as well as, the oil market realities of the time created unfavourable situation for the investors.

JDZ Squirming In Alleged High-level Corruption, Financial Challenges
In the face of inability to produce meaningful results, the JDZ has lately been embroiled in alleged corruption charges. Even though the company’s former executive director, Finance and Administration (name withheld) was at some point petitioned for financial misappropriation, sources at the company dismissed the allegations.

The director, whose tenure expired in October 2016, repotedly paid himself his full terminal benefits in December 2016, and remained in office beyond the period. NEITI also pointed out sometime ago that the company has no audited accounts.

Alleged financial dire straits, as well as, sharp practices reportedly crippled the execution of the multi-million naira contract awarded for the construction of the company’s head office in Abuja.

In fact, the challenge supposedly forced the company to relocate from its initial luxury office located at No 117 Aminu Kano Crescent, Wuse II, Abuja, in 2016 to No 13 Audu Ogbeh Street, Jabi Abuja. This is even as a former chairman of the organisation, Luis Prazeres, a Sao Tomean, and foundation member who served on the board for six years before resigning told the media that funding challenge was affecting the outfit badly.

Prazeres, was quoted as saying: “In 2015, the situation became worse and we wrote to the two countries saying that the state parties should continue funding the JDA. We also stressed the need for the two countries to sit down and look at the JDA. We had an over-staffed organisation and funding problem.”

Experts Chart Leeway For JDZ
An oil and gas expert and civil society campaigner, Dauda Garuba, said a situation where Nigeria has committed so much resources to the deal makes the nation’s losses worrisome in the face of lack of results.

Even though he noted that pulling out of the deal could be difficult for the countries because of the surrounding situation, which borders on international politics, he cautioned that the country must tread wisely on the project.

“If you study the origin of the JDZ, it is based on an existing United Nations’ resolution. It was the best approach to be adopted, the only challenge is that it has not yielded something yet. Whether to pull out, or hopefully invest is something that is entirely going to be political,” Garuba said, adding that business-wise, the country would need to rejig the project or pull out, but prevailing foreign policy and security makes the situation difficult to address.

On his part, a former staff of Chevron and Publisher of Africa Oil and Gas Report, Toyin Akinosho, said since the Federal Government owns about 60 per cent stake in the project, the country must decide whether to rejig the company for profitability, or pull out of the deal.

In fact, a probe into alleged financial impropriety in the award of a multi-million naira contract for the construction of the company’s head office in Abuja, as well as, the mismanagement of money from signature bonus compounded the firm’s woes, as payment of staff salary and office space were already throwing the objective of the pact off balance.

Akinosho said even though the zone has no large deposit, there is a level of deposit that smaller companies must be allowed to take over, adding that, “the fact that the IOCs left signifies that something is seriously wrong, but all hopes are not lost.”

According to him, companies like Kosmos Energy, which discovered oil in some Africa countries, where IOCs see no prospect at some point wouldn’t mind exploring oil in places like the JDZ. The fact that Kosmos Energy is still in JDZ tells you something.

“The way the geology of petroleum works is that you might be the smartest guy in the world, after looking at the data and not seeing anything that convinces you that there is something, then some other organisation can come and make sense out of the data.

“The Zohr Oil find in offshore Egypt is located in an acreage that Shell had looked at for 10 years and they didn’t find anything and then Eni came and looked at the same thing and found 30 trillion standard cubit feet of gas.

“It was the same thing with Kosmos Energy in Ghana. The clear thing about JDZ is geology, let’s see what Kosmos will come up with,” Akinosho said.

And for former President, Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, the fact that the management lacks the needed human capacity, especially people who understand the workings of oil and gas sector contributed to the failure of the bilateral trade.

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