Indigenous Exploration and Production (E & P) companies, Atlantic Energy Drilling Concept and Septa Energy, have stated that the Strategic Alliance Agreement (SAA) entered with the Nigerian Petroleum Development Company (NPDC) in relation to Oil Mining Leases (OMLs) 26, 30, 34 and 42 is meant to provide financial services for the operatorship of the oil blocks.
The companies said the financial services agreement did not vest ownership interest of any kind on either Atlantic Energy or Septa Energy in the four oil blocks divested by Shell, Agip and Total a few years ago.
A top official of the company explained yesterday that contrary to reports that the two firms merely put down $50 million, the actual amount paid was $135 million and that only 10 per cent of NPDC crude was lifted as profit oil, and not 60 per cent as erroneously reported.
The official described as phony and untrue reports that the two firms were lifting as much as 60 per cent of NPDC’s share of the crude under the joint venture arrangement with other companies, describing the claim as a “figment of the imagination”. Providing further clarification on the deals, an official of one of the companies, who craved anonymity, confirmed that $135 million was the actual amount paid to NPDC, the exploration and upstream subsidiary of the Nigerian National Petroleum Corporation (NNPC).
He said: “$135 million was paid to NPDC and it was fully receipted and not the $50 million that was reported. Then another $500 million has since been spent to develop the oil fields. That money was borrowed at a high rate of interest, which is already affecting the companies’ bottom line.”
The official expressed doubts that in the next five to six years the company would be able to break even.
“We are always shocked by the figures we hear and see in the papers; they are so far from reality that sometimes we wonder whether they are referring to the actual agreement or something else.
“We seriously think that our participation in this technically complex and capital-intensive venture should encourage other Nigerians to venture into it.
“Ours is a testimony that local participation is gradually coming of age. But instead of encouragement, what we get is a rash of attacks and criticism that undermines everything we have invested in this country – time, money, hope and aspirations. “We are venturing into aspects of this sector that was the exclusive preserve of foreign multinationals,” he said.
Stressing that there was nothing new or wrong in agreements of that nature, the official said such services had been in existence in the past administrations.
He added: “International Oil Companies (IOCs) had financial service agreements with NPDC, so there is nothing new about it. I can tell you here that most IOCs are surprised and unhappy at the capacity of indigenous companies to perform in this area.
“We have surprised them with our capacity to raise the required finance; they didn’t give us a chance, so we are not surprised at the attacks.
“It is to the credit of the Local Content Act that indigenous companies like ours are now considered worthy of being big players in a sector that was largely seen as the exclusive preserve of the IOCs.
“Come and see the resources we have invested. Come and see the foreign manpower we have attracted and you will begin to understand that we believe in the country.” The agreements, he explained, had widened the scope of local content, expanded capacity and reach of indigenous companies, which for the first time are providing major financial muscle that NPDC lacked to ensure uninterrupted operations of the blocks. Providing further details about the transactions, he said in May 2011, following NNPC’s assignment of its interest in the OMLs to NPDC, it (NPDC) entered into the SAAs with Atlantic Energy in relation to the oil blocks.
He said the SAAs did not confer ownership interest of any kind on Atlantic Energy in the relevant OMLs.
“By virtue of the provisions of the SAA, Atlantic Energy has undertaken to, among other things, assist NPDC in funding its share of the entire costs of petroleum operations, provide NPDC with the required technical capacity to function as operator of the relevant OMLs and provide technical training to NPDC’s staff.
“Following the execution of the SAA, Atlantic Energy has made investments in hundreds of millions in the relevant OMLs, including the payment of the entry fee of $135 million prescribed by the SAAs.
“Among other significant investments and contributions, Atlantic Energy has in furtherance of the SAA, invested in a number of key projects, including the upgrade of the OML 34 area to a 360 million standard cubic feet of gas per day producing facility. “This all-important plant is the single largest gas supply facility for the Escravos-Lagos pipeline system which distributes critical gas feedstock to power plants in South-west Nigeria and to a number of countries in the West African region,” he said.
He added that because of Atlantic Energy’s contributions, NPDC had recorded significant step-change progress in understanding the subsurface reservoirs and surface facilities in the areas comprised in the relevant OMLs.
This, he said, resulted in a 200 per cent increase in certified reserves and the generation of 200 million barrels of crude oil of new field development plans.
“In return for the enormous obligations assumed by Atlantic Energy, the SAA explicitly confers on Atlantic Energy the entitlements to receive remuneration-in-kind from the NPDC in the form of allocation of a portion of PDC’s share of profit oil from the relevant OML areas, and independently lift, dispose of and retain proceeds of crude oil it receives from the NPDC as remuneration-in-kind,” he said.
He stressed further that “SAAs are not novel to the oil and gas industry in Nigeria and elsewhere. As a matter of fact, in 2001 (11 years prior to the NPDC/Atlantic Energy SAAs), Italy’s Agip adopted the SAA model with NPDC as a viable arrangement for optimal development of its oil fields.
“Five years after that, China’s Sinopec, also one of the largest oil companies in the world, executed a similar contract to the SAA with the NPDC.
“As such, NPDC’s SAA with Atlantic Energy has simply adopted a well-recognised and legitimate commercial funding model, which has particularly benefited the Nigerian oil and gas industry in many ways in the past two years,” he said.