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ADDAX OML LICENSE IMPASSE: DPR’s action will boost government revenue – Group

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FUPRE VC lauds FG on commercialisation of Gas ProjectIn the face of the seeming uncertainty surrounding the revocation, restoration of Addax OML License, and the report of the Committee set up by President Muhammadu Buhari on the issue, which indicted Addax for wasting millions of dollars, a Civil Society Organisation, Good Governance Advocates has commended the Directorate of Petroleum Resources (DPR) for taking concrete steps to boost the revenue accruing to the Government in underperforming assets.

In a statement signed by its National President, Kema Maxwell, it noted that in choosing a new operating consortium to manage the OMLs, DPR carefully opted for an operator that is familiar with the revoked assets, and saving the country a huge economic loss.

Already, as part of the assignment of the assets, the new consortium has committed to pay US$340m at the commencement of the PSC to the federal government, a much needed sum in these hard times of tough Government finance. It will also redevelop the significant oil resources which have been lying fallow, and ramp up production, as well as 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.

There are also expectations of more Government revenues, support for host communities and a boost for the local employment and the local economy. Indeed, the benefits derivable are huge.

Good Governance Advocates acknowledges that Nigeria and China continue to enjoy cordial economic, political and social ties, and support the mutual development of both countries.

However, the Magnus Abe Committee set up by President Buhari noted that the actions of Addax/Sinopec put over 3000 Nigerians out of work. It wasted millions of dollars of the hard-earned currency that this country earned. What Government did in revoking Sinopec’s OMLs License was in the best interest of the nation and cannot hurt the cordial bilateral relationship between Nigeria and China.

Moreover, the choice of consortium is also in accordance with the Nigerian Oil and Gas Industry Content Development (Local Content) Act which was enacted in 2020 to promote indigenous operation of Nigeria’s oil and gas assets. Under the Act, seasoned Nigerian independent operators are to be given first consideration in the award of oil blocks and oil field licenses.

Good Governance Advocates recall 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. Following from this decision a committee set up by President Buhari to investigate Addax breach of contract submitted a report, accusing the petroleum company of “economic waste.”

The committee led by a former senator, Magnus Abe, said $1 billion had been invested in the contract but Addax Petroleum called it off over an issue that was totally unrelated to the project. The action put over 3000 Nigerians out of work, the committee said.

According to the group, “We are therefore saddened that President Muhammadu Buhari has ordered the Department of Petroleum Resources to restore the four oil mining licences revoked from Addax Petroleum while directing the Department of Petroleum Resources, DPR to retract the letter of revocation of the leases.”

Maxwell however noted with pleasure that at the urging of DPR, the Consortium had engaged with the previous operator, to ensure a smooth and amicable transition of operations at the assets. These discussions commenced in April 2021, and included a potential bilateral financial settlement between the new Consortium and the previous operator.

The Group further noted that the “new 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.”

Tracing the genesis of the current impasse, Good Governance Advocates recall that in 1998, 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 bpd.

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 bpd leading to significant reduction of revenue accruing to Government.

In addition, large gas resources in the assets have remained undeveloped, and excess gas has been continuously flared to the atmosphere, contrary to the policy of the federal government and best-practice international environmental practice.

Maxwell further stated that 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.

It was therefore heart-warming to our group when in March 2021, President Muhammadu Buhari gave the Directorate of Petroleum Resources approval announcing the revocation of the PSC rights to Sinopec, and an assignment of the rights to an indigenous consortium.

As part of the assignment, the new consortium are required to operate the OMLs under a PSC with NNPC; Pay a Good and Valuable Consideration (GVC) of US$340 million at the commencement of the PSC; and re-develop the significant oil resources which have been lying fallow, and ramp up production

In addition, the new consortium is also mandated to develop 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, and 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.

Good Governance Advocates recounted that the report of the Committee headed by Senator Magnus Abe stated that “Over one billion dollars have been invested in this. Addax Petroleum called off the project over an issue that was totally unrelated to this project. That action put over 3000 Nigerians out of work. It wasted millions of dollars of the hard-earned currency that this country earned.”

As patriotic Nigerians we therefore urge the government to consider the concluding comments of the Magnus Abe Committee which investigated the breach of agreement by Addax that “we felt that the public should be aware of the extent of damage that was done to waste indigenous resources, the economic waste, not only were the workers affected but other projects.”

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