Hector Igbikiowubo
29 July 2003
The bidding round for nine oil blocks in the Nigeria /Sao Tome and Principe Joint Development Zone valued at $200 million have survived the coup scare in the Island nation following the reinstatement of the deposed government headed by President Fradique de Menezes last week .
The president of the Island nation was restored to power following a settlement brokered with the coup leaders by Nigeria, Angola , Portugal and some other African nations .
It is expected that following the settlement, the auction of nine oil blocks in waters straddling Sao Tome and Principe and Nigeria should be completed on October 18 as scheduled despite the attempted military coup in the tiny island state. Earlier last week, Olegario Tiny, a permanent representative on Sao Tome's Joint Development Agency (JDA) with Nigeria said; "if a solution with the military is found quickly, during this week, there shouldn't be any negative repercussions."
Seismic data suggests the offshore blocks in the Gulf of Guinea could hold between four and 11 billion barrels of reserves at depths of between 1,500 and 2,500 metres. Coup leaders had demanded the eventual creation of a government that will combat poverty and ensure that Sao Tome's 170,000 people see the benefits of the foreseable oil boom. It was disclosed that even if negotiations with the coup leaders had dragged on, the auction would have been only slightly delayed since multinational oil companies were still trying to get on board."
Look, a day after soldiers seized power, one of the biggest oil majors put down $25,000 to purchase bid papers," said Hassan Tukur, Deputy Director of the JDA and one of the mediators in town to help defuse the crisis. "If you look at Angola or Nigeria, political strife didn't prevent anyone from getting involved in oil opportunities and Sao Tome is going to need the money to address its well-known social problems."
Tukur also pointed out that Nigeria, which will take over 60 percent of revenues to Sao Tome's 40 percent, is the senior partner in the deal, thus making the agreement less vulnerable to the coup on the twin-Island state. The JDA has set a minimum signature bonus of $30 million for each block and has already signed options for exploration with ExxonMobil , the world's largest publicly traded oil company, and ERHC, a small Houston-based company backed by Nigerian investors.
The contract give them the option of taking varying stakes in many of the blocks after the auction. They would have to pay their part of development costs and in some cases they would be required to pay part of the signature bonus.The deals were criticised in Sao Tome, where opposition leaders accused the government of selling the blocks cheaply for personal profit.JDA officials however said they will stand behind the contracts, which were renegotiated last year after the International Monetary Fund (IMF) said they were unfair to Sao Tome."
I don't think the coup will have a major impact on the licensing round. Government changes have been frequent, but contracts are honoured," said Gerhard Seibert, Sao Tome's specialist at the Centre of African and Asian Studies in Lisbon. But the benefits for the people of Sao Tome could not be as easily guaranteed, he said. About $100 million in signature bonuses should flow into the country by the end of the year or more which would be twice its annual budget.
If oil is found over the following three to four years, Sao Tome will also get its cut of production profits."The problem : is Sao Tome's going to get a lot of money and they don't have the institutions or the infrastructure to manage such an amount.
A lot of money could disappear into pockets," Seibert said.
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