Nigeria Awards 14 Exploration Blocks in Mini-Bid Round

LAGOS May 19, 2006 (Dow Jones Commodities News Select via Comtex)

Nigerian, Chinese and Indian oil companies emerged winners Friday in Nigeria's mini-bid round for 18 oil exploration blocks.

The auction is aimed at drawing investment into the country's downstream and power sectors, and the bidders expected to invest at least $2 billion in projects on refining, power generation and agriculture in addition to the blocks they won.

Eleven companies participated in the mini-auction for the 18 oil blocks, Nigeria's Department for Petroleum Resources said. The ownership of two blocks remains undecided, while there were no bids for two others.

The auction is expected to fetch a total of $539.5 million for the 16 blocks once all the final payments are made.

Nigerian company Transnational Corp. will pay the largest sum, $135.5 million, for three blocks. Transcorp, formed in 2005 by a group Nigerian entrepreneurs, plans to invest about $1.5 billion into the Port Harcourt refinery. It has already been pre-qualified to bid for a 51% majority stake in the refinery, which is slated for privatization. Transcorp will also invest in the Greenfield refinery, to be located in Lagos.

Chinese company CNPC International, a unit of China National Petroleum Corp. (CNPC.YY), won the largest number of blocks, four, for $16 million. Meanwhile ONGC-Mittal, a partnership between Indian oil company Oil & Natural Gas Corp. (500312.BY) and Mittal Steel Co. (MT) won two blocks for $125 million.

CNPC is to invest $2 billion into the Kaduna refinery, located in northern Nigeria, in addition to its investments in the four blocks it won.

Senior Vice President Huang Yu said the company would commence exploration as soon as the production sharing contract agreement was signed.

"We have the capability for operation and finance, so there is no problem for us," Yu told Dow Jones Newswires at the end of the auction.

ONGC-Mittal has the right of first refusal on two blocks. It was the sole bidder on the first block and decided to exercise its right of first refusal on block 279 after Sahara Energy Ltd. (SAH.V) bid $65 million for the block. ONGC-Mittal will pay $75 million for block 279.

ONGC-Mittal plans to invest $6 billion in the 180,000-b/d Greenfield refinery, as well as a 2,000MW power plant and a railway.

INC Natural Resources will pay $105 million for blocks 252 and 292. But under a special arrangement with the government, the company only paid a $20 million deposit - less than its 25% mandatory deposit. The $20 million will be used to fund an ethanol project in Jigawa, Nigeria, the DPR said.

Three other companies - Nig-Del United, BG-Sahara, a partnership between BG Group PLC (BG.LN) and Sahara Group, and Clean Waters - each won blocks for $11 million, $10 million, and $55 million, respectively.

Albert Aramobi, Managing Director of Nig-Del, hopes the award will help stem the tide of violence in the area by providing employment for the youths in the region. Nig-Del is an initiative by the government for the region, where attacks by angry youths have cut the country's crude oil production by more thant 500,000 b/d.

"If successful, we hope it will provide jobs and opportunities generally in the area," he said in an interview with Dow Jones Newswires. He said the company planned to commence work immediately after the papers are signed.

The DPR, which organized the bid round, said it has suspended any decision on block 284 pending the resolution of a challenge by Lotus Energy on the amount offered by Sahara Energy for the block.

Lotus Energy, which has the right of first refusal on block 284, complained that the $57 million offered by Sahara Energy was too high for that block.

Tony Chukwueke, the head of Nigeria's Department of Petroleum Resources said that the company with the right of first refusal on that block has the right to challenge an offer that is considered too high. A final decision is expected by the end of next week.

Despite the two unsold blocks and two contested blocks, Chukwueke said the results were satisfactory.

"I'm pleased because the event went very well and met our expectations," he told Dow Jones Newswires at the end of the exercise.

Copyright (c) 2006 Dow Jones & Company, Inc.