9 September 2018

São Tomé and Príncipe: 17 Years After, Nigeria-Sao Tome's JDZ Remains Unproductive

Abuja — The commercial viability of over 500 million barrels of crude oil reserves stranded in the Nigeria-São Tomé and Príncipe Joint Development Zone (JDZ) has been called to question, as the region is yet to produce its first oil 17 years after discovery.

In fact, the JDZ, where crude oil was expected to be drilled, is on the verge of collapsing, just as the possibility of commercial deposits of crude oil in the region is becoming gloomy.

Already, most International Oil Companies (IOCs), that pushed for drilling rights in the region have all moved away, alleging that viable oil deposit is elusive in the zone.

The joint development authority was borne out of a treaty between the two countries to jointly develop petroleum and other resources in the exclusive economic zone, which could only be jointly developed to avoid breaching international treaties.

The JDZ is along the maritime boundary of Nigeria/São Tomé and Príncipe.

In the face of the inability to produce meaningful results, the JDZ has lately been embroiled in alleged high-level corruption charges, which crippled its daily operations, which started on February 21, 2001.

The failure of the Federal Government to get technocrats to run joint development zone productively, as well as, the level of government spending on the venture is beginning to create fresh concerns for experts, whose opinions on the future of the project are divergent.

While the project is reportedly running on a budget of about $12m yearly, the likes of Total, Chevron, Sinopec, Addax, ExxoMobil have already pulled out of the zone after drilling some wells, justifying the claims that it is difficult to drill there, and the oil has no commercial value.

Meanwhile, United States-based, ERHC Energy Inc., which has interest in six blocks in the JDZ - 2, 3, 4, 5, 6 and 9, said it has drilled a number of wells, which did not yield desired results.

The São Tomé and Príncipe's 2014 Extractive Industries Transparency Initiative (EITI) report released recently showed that since the JDZ was established, 43 per cent of all revenues from the zone had been spent on the Joint Development Agreement (JDA's) operating costs.

For instance, EITI said over $129m out of the $302.6m revenues generated from signature bonuses, sales of seismic data, licences, transfer fees and others, were used to settle JDA operating expenses.

President/Chief Executive Officer, ERHC Energy, Peter Ntephe, in an email response to The Guardian's posers said the company last drilled some wells in the zone about seven years ago.

According to him, "from August 2009 to January 2010, ERHC and its partners drilled five exploration wells - one well in Block 2, one in Block 3, and three wells in Block 4. These were the first wells ever drilled in these blocks.

"Biogenic methane gas was discovered in at least three of the wells, but not in sufficient quantities to be declared commercial. Without a commercial discovery, there can be no appraisal, field development and production. Further exploration wells will, therefore, have to be drilled in those blocks to see if oil and gas in commercial quantities can be discovered," he added.

Ntephe noted that ERHC had to rein in on its activities, as drilling in such areas remains expensive, saying, "Exploration wells in deep offshore provinces such as the JDZ are expensive and costs over $100m each.

There are also significant additional costs to the associated studies and work that goes into preparation for a well. The total cost of the drilling campaign by ERHC and its partners, as narrated above, was over half a billion dollar.

"When you ask therefore, about what is delaying production, the answer is simple - there has been no commercial discovery yet. As noted, without a commercial discovery, there can be no production."

An oil and gas expert and civil society advocacy campaigner, Dauda Garuba, said a situation where Nigeria has committed so much resources to the deal makes the loss worrisome in the face of lack of results.

Even though he noted that pulling out of the deal could be difficult for the country because of the surrounding situation, which bothers on international politics, he cautioned that the country must tread wisely on the project.

"If you study the origin of the JDZ, it is based on an existing United Nations' resolution.

It was the best approach, the only challenge is that it has not yielded something yet. Whether to pull out or hopefully invest is something that is entirely going to be political," Garuba said, adding that businesswise, the country would need to rejig the project or pull out, but prevailing foreign policy and security makes the situation difficult to address.

On his part, a former staff of Chevron and Publisher of Africa Oil and Gas Report, Toyin Akinosho, said since the Federal Government owns about 60 per cent stake in the project, the country must decide whether to rejig the company for profitability, or pull out of the deal.

In fact, a probe into alleged financial impropriety in the award of a multi-million naira contract for the construction of the head office for company in Abuja, as well as, the mismanagement of money from signature bonus compounded the firm's woes, as payment of staff salary and office space were already throwing the objective of the pact off balance.

Akinosho said even though the zone has no large deposit, there is a level of deposit that smaller companies must be allowed to take over, adding that the fact that the IOCs left signifies that something is seriously wrong, but all hopes not lost.

According to him, companies like Kosmos Energy, which discovered oil in some Africa countries, where IOCs see no prospect at some point wouldn't mind exploring oil in places like the JDZ.

"The fact that Kosmos Energy is still in JDZ tells you something.

The way the geology of petroleum works is that you might be the smartest guy in the world, after looking at the data and not seeing anything that convinces you that there is something, then some other organisation can come and make sense out of the data.

"The Zohr Oil find in offshore Egypt is located in an acreage that Shell had looked at for 10 years and they didn't find anything and then Eni came and looked at the same thing and found 30 trillion standard cubit feet of gas.

It was the same thing with Kosmos Energy in Ghana. The clear thing about JDZ is geology, let's see what Kosmos will come up with," Akinosho said.

And for former President, Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, the fact that the management lacks the needed human capacity, especially people who understand the workings of oil and gas sector contributed to the failure of the bilateral trade.

São Tomé and Príncipe

Optimism Greets Nigeria-Sao Tome & Principe Development Pact

Hopes have been reignited that a 40-year treaty signed 17 years ago for a Joint Development Zone (JDZ) between Nigeria,… Read more »

See What Everyone is Watching

Copyright © 2018 The Guardian. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.