This Day (Lagos)

Nigeria: ExxonMobil Oil Leases Face Legal Hurdle

Lagos — The agreement allegedly reached in November last year between Mobil Producing Nigeria Unlimited (MPNU) on behalf of ExxonMobil Corporation US and the Ministry of Petroleum Resources on behalf of the Federal Government for the renewal of three oil mining leases (OMLs) for a duration of 20 years has run into a legal quagmire.

THISDAY investigations have revealed that contrary to the well-publicised statements by ExxonMobil and the petroleum ministry that the leases - OMLs 67, 68 and 70 with a combined output of 580,000 barrels of crude oil per day - had been renewed and the contract thereof executed, one of the key signatories to the contract, Dr. Rilwanu Lukman, the petroleum minister at the time, refused to append his signature to the contract.

The absence of a valid contract has emboldened the Chinese National Offshore Oil Corporation (CNOOC) to submit a revised $50 billion bid for a 30 per cent stake in the said oil leases held by Mobil, along with others held by Shell Petroleum Development Company, Chevron Nigeria Limited and Total.

CNOOC had last year written to the Federal Government expressing interest in acquiring a 49 per cent stake, translating to 6 billion barrels in oil reserves, in 23 oil blocks already leased to the international oil companies (IOCs).

Of the 23 blocks, 16 are held by Shell, Mobil and Chevron under Joint Operating Agreements (JOAs) with the Nigerian National Petroleum Corporation (NNPC), but had expired in 2008 and were up for renewal.

Sources in the Presidency and Petroleum Ministry disclosed that the supposed contract renewing OMLs 67, 68 and 70 is deemed null and void because Lukman declined to sign the contract as stipulated under the Petroleum Act, 1969. A copy of the lease renewal contract made available to this newspaper showed that on the signature page of the document, the space left for Lukman to append his signature was blank.

Instead, the contract was executed by the former Minister of State for Petroleum Odein Ajumogobia and Director Legal Services, Ministry of Petroleum Resources, Mrs. Grace E. O. Taiga, for and on behalf of the Federal Government. The Managing Director MPNU Mark Wood and Executive Director/General Counsel Dr. E. I. Kachukwu signed for and on behalf of ExxonMobil.

Government sources explained that Lukman refused to sign the contract on the grounds that the $600 million Mobil had offered for the renewal of the three leases was well below the valuation undertaken by a committee set up to negotiate and renew the leases.

The committee comprising five members from the ministry and NNPC was inaugurated in March 2009 by Ajumogobia and was tasked, among others, to undertake the following measures:

-Evaluate the oil leases held by Mobil (OMLs 67, 68 and 70) and Chevron (OMLs 88, 89, 90 and 95); -Using the discounted cash flow method for valuation, establish their economic current and future value as a basis for their renewed; and -Extract maximum value for the Federal Government of Nigeria from the renewal of the leases.

Shell, it was gathered, was left out because it had instituted a law suit challenging the rights of the Federal Government to renew its leases under new terms. However, Shell has since withdrawn the suit. In the course of its work, the committee established that these oil blocks especially Mobil's (67, 68 and 70) are the most prolific portfolio of hydrocarbon assets off shore the Niger Delta. Accordingly, they were termed the "Crown Jewels" by the committee.

The three blocks were established to still hold significant leftover probable reserves (termed 2P by the industry) oil and associated/non associated gas in them, and despite 40 years of production, significant resources still remain unproduced.

A Mobil company official who spoke on the issue confirmed that the three blocks are some of the most prolific blocks in Nigeria and accounted for most of the oil produced by the country last year when output fell on account of heightened attacks on oil installations by militants in the Niger Delta.

The valuation carried out by committee on the blocks arrived at $2.55 billion as a reserve value for Mobil's 2P oil and gas reserves in the blocks, while $1.5 billion was determined as the value of Chevron's 2P oil and gas reserves.

On the basis of the valuation, Mobil, which has a 40 per cent stake in the blocks in a joint venture with NNPC, was expected to pay $1.020 billion in proportion to its interest in the blocks. NNPC with 60 per cent would have been required to pay $1.530 billion. The committee consequently invited Mobil for the first of several meetings on negotiations for its blocks on March 24, 2009.

Being mindful of the IOCs resistance to renew their leases under new terms, the committee cited the First Schedule, Section 35 of the Petroleum Act, which empowers the Minister of Petroleum to impose on a licence or lease, special terms and conditions not inconsistent with the Act.

The committee subsequently advised the Mobil team of the $2.55 billion valuation for its leases and requested the US oil giant to pay the amount as a basis for their renewal for 20 years. Mobil balked at the amount, but after a period it wrote to the minister of petroleum vide a letter dated August 25, 2009 in which it proposed a conditional offer of $75 million for the three leases for 25 years.

But following consultations with Lukman and Dr. Emmanuel Egbogah, the President's Special Adviser on Petroleum Matters, the company's offer was rejected by the committee. Both sides were said to have stubbornly maintained their positions for months until Mobil approached Ajumogobia and after series of meetings, the valuation for the leases was revised downwards to $1.5 billion.

Mobil was therefore required to pay $600 million in proportion to its 40 per cent interest in the blocks while NNPC was expected to pay $900 million.

Apparently satisfied that it had secured a better deal and was expected to pay a lot less than the $1.02 billion demanded by the committee, Mobil agreed to the revised terms for its leases, and a contract was drawn up for execution by the relevant parties. By coincidence, this happened shortly after President Umaru Musa Yar'Adua had delineated the responsibilities of the petroleum ministry and assigned all matters pertaining to oil leases, among other functions, to Ajumogobia, the junior minister.

Owing to the specific tasks handed him by the President, Ajumogobia in his capacity as minister of state went ahead and signed the contract for and on behalf of the Federal Government. However, immediately this was done, the Director, Legal Services in the ministry, Mrs. Taiga, drew his attention to the fact that the contract was invalid, as Section 2 (1) (c) of the Petroleum Act stipulates that "Subject to this Act, the minister may grant a lease to be known as an oil mining lease, to search for, win, work, carry away and dispose of petroleum."

Section 8 (1) of the same Act further states that the "minister shall exercise general supervision over all operations carried on under licences and leases granted under this Act." Promptly, another contract was produced and the appropriate space provided for Lukman to sign as the minister of petroleum. But he refused insisting that he cannot append his signature to a document that will deprive Nigeria of the full benefits of the leases.

Mobil, sources informed this newspaper, has been fully aware for months that it does not have a valid contract and has been operating the leases illegally. But a Mobil company official defended Ajumogobia, stating that as a minister of the Federal Republic, he acted within his rights when he executed the contract.

Irrespective of Mobil's defence of Ajumogobia's action, a ministry official admitted that during the handing over to the new Minister of Petroleum, Mrs. Dieziani Allison-Madueke, Ajumogobia notified her that the contract renewal was still pending. "This was surest admission that Mobil had no contract," he stated.

Mobil's line of argument has also been dismissed by an adviser in the Presidency who indicated that there was already a legal precedent in the oil industry that should have guided the action of all the parties.

Alluding to the ruling by a Federal High Court in Abuja last August, he recalled that when Ajumogobia carried out the President's instruction to cancel two oil blocks awarded the Korean National Oil Company, the court's judge reversed the decision on the grounds that the President acted ultra vires through the minister of state.

Justice Mustapha Abdullahi, in that ruling, held that the President had no power to void the allocation of the blocks belonging to KNOC in the manner it was done. His position was that even though the President has the power to revoke such licenses by virtue of Section 5 (1) of the 1999 Constitution, Section 2 of the Petroleum Act confers the power to revoke oil prospecting licenses on the minister of petroleum (and not minister of state).

The presidential adviser disclosed that under the circumstances, a fresh recommendation has been made to Acting President Goodluck Jonathan that Mobil's leases be renewed for one year while negotiations are re-opened to get a better deal for Nigeria.

If an agreement is reached, the contract will be backdated to 2008 when the leases actually expired, he stated. The adviser maintained that Mobil should be made to offer and pay more for the leases because they contribute to the company's oil reserves put at 72 billion barrels in 2007. "We are talking of the largest public traded company in the world with reserves of 72 billion barrels of oil equivalent. This company makes more than Nigeria annually. We should not allow them to take us for a ride," he maintained.

But Mobil is unrelenting in its bid to get the leases renewed on its own terms. For the US oil giant, it is important that the issue is sorted out before the passage of the Petroleum Industry Bill, which will usher in new fiscal terms and legislation in the manner the oil and gas sector is governed. An aide of the minister (Allison-Madueke) confirmed that ExxonMobil's Chairman/CEO Rex Tilerson will be leading a team to meet with her in Houston Texas this week where she will be attending the annual Offshore Technology Conference (OTC).

When contacted, the minister admitted that among other issues, Mobil's lease renewal had been brought to her attention since she took over as minister barely a month ago. "It is one of many issues that have been brought to my notice, which we intend to look at in the weeks ahead," she said.

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