Oil Majors Absent at Nigerian Licensing Round, Newcomers Lead

ABUJA May 14, 2007 (Dow Jones Newswires)

Major oil-producing companies operating in Nigeria were conspicuously absent at the bidding round for 2007 oil blocks on Friday, when relatively unknown companies turned out to be the winners for a majority of the blocks.

The round involved 45 blocks put on offer. The winners, most of which applied as Nigerian companies, were consortiums that comprised local and foreign companies, officials of some of the companies said. Other winners were Indian companies that were relatively new in the Nigerian upstream sector.

Nigeria offered blocks in the inland basins, continental shelf, onshore Niger Delta, and the Deep offshore regions. But none of these were attractive enough for majors such as Shell Petroleum Development Co., a unit of Royal Dutch Shell (RDSA), Chevron Nigeria, a unit of ChevronTexaco (CVX), and Mobil Producing Nigeria Unlimited, a unit of ExxonMobil (XOM). Nor did Nigeria Agip Oil Co., a unit of Eni (E), and Elf Petroleum Nigeria, a unit of Total (TOT) find the blocks attractive enough to bid on.

The major oil companies account for more than 90% of Nigeria's total crude production.

There were no bids for any of the 11 blocks offered in the inland basins, while only two out of seven offered in the deep offshore were awarded.

Yorkshire Energy World Ltd., one of the local companies with foreign interest, won the deep offshore blocks - Oil Prospecting Leases 258, for which it offered $60 million, and OPL 295, for which it offered $105 million. An official of the company told Dow Jones Newswires that Yorkshire comprises local and foreign partners that formed the consortium. Eight blocks were on offer in the region.

In the continental shelf, 11 blocks were on offer and only seven were awarded. Dangote Oil and Gas Co., owned by one of the country's leading entrepreneurs Aliko Gangote, said it would exercise its right of first refusal to match an offer of $105 million made by another indigenous company - Continental Oil - for OPL 290, the block that received one of the highest number of bids.

In the onshore Niger Delta region, there is a court order on four of 12 blocks. These are blocks carved out from two blocks recovered by the government from Shell, when the company was unable to develop them after the maximum period allowed. The blocks affected are OPLs 2001, 2002, 2003, 2004.

"What we'll do is to collect the bids on these blocks and display them for everyone to see. When we solve the court order, we'll declare the winner," Tony Chukwueke, head of the Department of Petroleum Resources, said at the event.

Shell filed a lawsuit challenging the government's decision to withdraw the blocks and a Federal High Court in Abuja is to rule on the case on May 17.

Of the other eight blocks, seven were awarded to winners, while one - OPL 275 was pending, as Sterling Global Exploration and Production Ltd. said it would exercise its right of first refusal to match an offer of $10 million by Pan Ocean.

Explaining the rationale for the use of the right of first refusal in the bid round, Funsho Kupolokun, managing director of state-run Nigerian National Petroleum Corp., said the government was applying it to "use what we have to get what we don't have."

He said government's aim was to drive investments to needed areas such as power generation, downstream oil sector and railway construction.

The government gave the right of first refusal on some of the blocks to companies that are willing to invest a minimum of $2 billion into these areas.

Also speaking at the round, Edmund Daukoru, minister of energy, said the use of the right of first refusal was yielding results. "For the first time, we have investors rushing in, unlike the experience in 2005," he said.

Only bidders who backed their bids with bank checks covering at least 50% of the signature bonuses they offered were accepted. Government had announced that this would be the criterion on which winners would be decided at the bid round.

They are expected to pay the balance of 50% before the signing of the production-sharing contract before May 29, when a new government is expected to inaugurated.

While some of the participants said they were satisfied with the conditions in the Nigerian oil industry, some said they wanted government to take steps to address the issue of insecurity in the Niger Delta, where attacks by militants have sharply cut crude oil production.

"We will do out best to develop the blocks we won, but there are inherent issues we want the incoming government to address, such as the problems in the Niger Delta," one participant from India told Dow Jones Newswires.

Some observers say the major oil companies shunned the bidding in protest over the government's decision to withdraw some of the blocks. Many of the blocks offered by the government were retrieved from majors, which failed to develop them within the time allowed by the government.

"The government has taken the blocks from Shell, so how do you expect them to bid again?' asked one participant.

However, others say the companies are protesting government reforms in the oil industry that replaced the former joint-venture arrangements, under which the government and its partners funded the projects based on their equity holdings.

In place of the joint ventures, the government is now promoting production-sharing contracts, in which oil companies that fund the projects recoup their investments from crude oil sales, based on agreed terms.

"The government is trying to move away from the previous arrangements, but it seems the majors are not buying into it," said a Nigerian operator, whose company bid for two blocks.

Copyright (c) 2007 Dow Jones & Company, Inc.