This Day (Lagos)

18 August 2014

Nigeria: ONGC Mittal Relinquishes Oil Block in Nigeria

ONGC Mittal Energy Ltd (OMEL), a joint venture between ONGC Videsh Ltd and Mr. Lakshmi Mittal's Mittal Investment Sarl, has relinquished an oil block in Nigeria after the federal government refused to relieve it of a $6 billion downstream investment commitment, reported Bloomberg.

Mittal, an Indian national resident in the United Kingdom, is one of the world's richest men. The steel magnate is the chairman and CEO of ArcelorMittal, the world's largest steel-making company, in which he holds a 38 per cent stake. He also holds a 34 per cent stake in Queens Park Rangers F.C., an English premiership football club.

OMEL had in 2005, under the oil-for-infrastructure deals championed by the Olusegun Obasanjo administration, won the right to explore for oil and gas in the deep offshore Oil Prospecting Licence (OPL) 279 and OPL 285 blocks after committing to invest $6 billion in a 180,000 barrels per day (bpd) greenfield refinery, a 2,000MW power plant or a railway line from east to west of Nigeria.

It paid a signature bonus of $50 million for OPL 285 and $75 million for OPL 279. People conversant with the deal said the company had in 2012 relinquished deep water block OPL 279 after prospective hydrocarbon zones did not offer any viable commercial development.

It however offered to continue with the other block, OPL 285, provided the federal government relieved it of the $6 billion commitment.

Since the government did not agree to the waiver, OMEL transferred its 64.33 per cent stake in the block to partners Total SA of France and EMO Exploration and Production Ltd, a local Nigerian company. Prior to the transfer, Total held a 25.67 per cent interest and EMO the remaining 10 per cent.

After this relinquishment, OMEL is left with just the Al-Furat project in Syria with China's CNPC International Ltd. However, the oil and gas field has been shut since late 2011 after the European Union imposed oil trade sanctions on Syria.

OMEL had in February 2007 signed a Production Sharing Contract (PSC) for OPL 279 and OPL 285. Under the memorandum of understanding (MoU) for the blocks, the Nigerian government was to offer OMEL 120,000 bpd crude oil lifting rights on a commercial basis, two deep-water exploration blocks that would attract a signature bonus structured to reflect an appropriate carried participation in a proposed 180,000 bpd refinery and assurances of liquefied natural gas (LNG) off-take.

Further, upon commercial discoveries of hydrocarbons in the two blocks and assured uplift of crude, the Indian joint venture was to invest $6 billion in Nigeria in the construction of railways, a 2,000MW coal/gas based power plant and commercial agriculture, as well as the upgrade of the Petroleum Training Institute in Delta State.

The Nigerian government has the right to decide the order of priority. However, the downstream commitments were never met and OMEL had therefore requested the Nigerian National Petroleum Corporation (NNPC) for waiver on the investment obligations attached to the PSC of the blocks for entering into Phase-II.

This downstream commitment was deemed to provide a negative return given the study conducted by Foster Wheeler, US-based energy consulting firm, on behalf of OMEL.

Since the structuring of the oil-for-infrastructure deals, most of which were considered over-ambitious and lacking in transparency, not one of them has taken off.

Other countries that rushed to enter the deals when former President Obasanjo was in power included China and South Korea.

With Agency Report

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