By Sebastine Obasi

On April 25, 2013 youths and elders of five oil-producing communities in Delta State protested at the National Assembly, alleging that the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, and the Shell Petroleum Development Company (SPDC) Limited, were involved in a N58.9 trillion shady oil deal, not few people were worried.

Their worry was based on the timing and the motive behind such allegation. The allegation came at a time when the Minister had ensured that discipline, transparency, fairness and a level playing field as the norm rather than the exception in the nation’s oil and gas industry.

The five communities comprised Itsekiri Ethnic Nationality (led by Emami Ayirimi); Ijaw, (Aribogha Johnny); Urhobo (Jaro Egbo), Isoko (Zino Onaemor); and Ndokwa (Emmanuel Orwti), under the aegis of “Restoration Niger Delta”.

In their petition, they alleged the untoward transfer of 60 percent of the 55 percent equity holding in the form of production rights of the Nigerian Petroleum Development Company (NPDC) in Oil Mining Leases (OMLs) 26, 30, 34 and 42, to Atlantic Energy Drilling Concepts Limited, an indigenous company.

They also alleged that the award of the blocks to Atlantic Energy was meant to deny the communities their right of first refusal, being host communities of the affected oil blocks.

Alliance will boost local content In a counter move, on Tuesday, May 7, another group of Niger Delta oil producing communities’ elders threw their weight behind the ‘Strategic Alliance Agreement’ (SAA) between the NPDC and Atlantic Energy on the oil blocks.

The leaders who spoke in Abuja at a press conference stated that those calling for revocation of the agreement were fomenting unnecessary tension. The group also stated that opponents of the agreement were causing fresh uprising in the region and should be charged with treason.

The elders wondered why such actions were taken in the first instance without their consent, asking, “How many traditional leaders did they consult?”

Led by Anamali Joseph Oji, the group argued that those campaigning for the transaction to be aborted did not have the interest of the region at heart. Others in the team included Timi Ebimene (Ijaw), Ezekiel Egwubiare (Urhobo), Luke Acholonu (Ndokwa), Onajega Michael (Isoko) and others.

According to them, “We are of the opinion that in the spirit of fairness and true federalism, we should give the above mentioned company the chance to prove what it can do as an indigenous company even though it is not from the Niger Delta host communities but as a Nigerian company, it should be encouraged.”

They further stated, “NPDC, a Subsidiary of NNPC did the right thing by transferring the operatorship of the oil blocks above to Atlantic Energy. If not for anything, the deal supports the local content policy which we, the oil producing communities have agitated for over the years.”

The elders therefore, called on their representatives at the National Assembly to do the region proud by enacting laws that will promote the development of the area instead of “joining bandits to blackmail innocent public servants in the administration of President Goodluck Jonathan.”

They added that the move “will, to a large extent, determine our voting pattern as electorates come 2015.”

From all indications, the petition condemning the Strategic Alliance Agreement between NPDC and Atlantic Energy may have been done in bad faith, as the issues raised by the petitioners border on transfer of production rights in the affected oil blocks, which process ought to have been regulated by the Public Procurement Act.

Terms of agreement

From available records, the alliance between the NPDC and Atlantic Energy was neither a divestment of asset nor transfer of operatorship. It was simply an alternative funding arrangement in order to meet the NPDCs cash call obligations in the OMLs in question.

The petition also did not indicate that particulars of NPDC ‘s equity interest in the OMLS were transferred either in part or wholly to Atlantic Energy in defiance of the Procurement Act.

Contrary to the allegations of bribery, it was gathered that the entry fee paid by Atlantic Energy to NPDC was to acquire the right to fund and not payment for the acquisition of participating interest in the leases. This is a common practice in the industry and conforms to international best practice.

Funding constraints

In the past few years,accessing funding for oil and gas projects has been very difficult. Apart from the prohibitive costs of funds, the Central Bank of Nigeria, CBN has been tightening the noose of what it considered excessive lending by banks to the oil industry. This has since made oil industry practitioners especially the upstream sector operators, to look for alternative funding arrangements for their operations.

In his reaction to the petition, Mr. Victor Briggs, the Managing Director, NPDC, said some of these forms of alternative funding which are essentially joint venture arrangements such as illustrative agreements, royalty purchase, sale purchase agreements, farm out agreements, production sharing contracts and drilling funds are in line with world best practice.

He explained, “What the NPDC did by the Strategic Alliance Agreement with Atlantic Energy Drilling Concept Limited falls under the category of drilling funds. It is important to point out here that whether it is the Modified Carry Arrangement (MCA) or the Project Financing model that is adopted, the NPDC negotiates the most competitive financing terms for itself and this was done in the instant case.

“The NPDC after a careful due diligence which considered other oil companies who showed interest and submitted proposals for the Strategic Alliance arrangement, selected Atlantic Energy Drilling Concepts Limited as its provider of alternative funding  in order to meet the cash call obligations in the affected OMLs.

Such funding is by way of loans and do not in any way undermine or jeopardize the equity holding of NPDC. It is also important to note that the NPDC itself does not own the OMLs but is only an operator of the FGN interest in the OMLs and as such could not have sold what did not belong to them.”

Briggs further noted that alternative funding for oil companies and Ministries, Departments and Agencies, MDAs, has been a practice under the present administration’s transformation agenda, as it is a much cheaper and in this case, more specialised form of raising working capital.

He said, “In these times when all should be concerned with cutting production costs in the oil industry, particularly in the wake of huge subsidies, this strategic action by NPDC should be welcome and encouraged.”

Deal is due process compliant

Briggs also defended that due process was followed, as some other companies that showed interest in the blocks could not meet up the requirements.

According to him, “In this financing arrangement, many oil firms that showed interest were considered, but due diligence showed that many of such firms were already in huge debts and some were indeed in the CBN caution list.”

He further explained that alternative funding for oil companies and MDAs was cheaper and in line with the transformation agenda of President Goodluck Jonathan’s administration. He added that the claim of five billion barrels proven oil reserves was calculated to whip up cheap public sentiments, as the entire holding of all the four blocks was below five billion barrels.

“Rather than violate any guidelines in the industry, it has rather shown that the organization is proactive and very much at home with global trends. It is only worthy of commendation and not condemnation,” the NPDC boss stated.

Similarly, the claim by the petitioners that their “right of first refusal” was denied cannot be substantiated as the Niger Delta communities whom they alluded to, are not legal entities. Also, there is no company whether oil or otherwise registered in that name at the Corporate Affairs Commission. The action taken by NDPC is a strategic one that is fast gaining popularity and global relevance in the oil industry.

Previous agreements

It was gathered that the SAA between NPDC and Atlantic Energy was not the first. In 2011, a similar agreement took place between NPDC and Septa Energy, an indigenous company, for the development of OMLs 4, 38 and 41. Also, in October, 2010, the Federal Government approved a service agreement between NPDC and Septa Energy, to facilitate gas supply to Independent Power Plants (IPPs) in the Niger Delta.

The company, whose focus was to supply gas for the domestic market, was said to have expressed particular interest in gas. It was learnt that after due diligence was conducted and Septa Energy was discovered to have a track record in gas developing  projects, with keen interest to invest huge amounts of money in the Nigerian oil and gas industry, NPDC invited the company for partnership.

The transaction would see Septa Energy investing about $700 million in the long term. Septa Energy, a gas solution provider, has invested about $420 million in the development of two main gas fields and for the construction of a 60km gas pipeline in Nigeria for the delivery of gas to the Ibom Power Plant, making the firm the first Nigerian company to deliver gas to an IPP.

The NPDC/Atlantic Energy deal has followed the Septa pattern and as such, is not a trade-off of the oil blocks but an alternative funding arrangement, which gives Atlantic Energy the right to fund the OMLs. Payments made by the company to NPDC were for the acquisition of the right to fund.

The alliance relieves NPDC of the burden of shopping for funds to run the oil blocks and will not compromise NPDC’s right over them. The contract runs under the auspices of the Drilling Funds category of the NPDC’s mandate.

The deal entered into by NPDC with Atlantic Energy is not new in the world of best practices as far as the global oil industry is concerned. Foreign companies operating in Nigeria are known to have entered into such agreements with reliable partners without protests from any community and oil industry interest-group.