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Friday, 07 June 2019 15:43

BUHARI REVOKES A SELECTION OF OIL CONCESSIONS

Written by

The Department of Petroleum Resources (DPR) the regulatory authority of the Nigerian oil and gas sector has revoked 5 Oil Mining Leases and a prospecting license.  The directive was reported to be from the President  Muhammedu Buhari who is also the petroleum minister. The licenses that were revoked belonged to Pan Ocean (OML98) Allied Energy and Resources (OML 120, 121) Express Petroleum (OML108), Cavendish Petroleum (OML110) and Summit Oil (OPL206). The ostensible cause being legacy debt which was presumably in the form of unpaid royalties and tax on profits and production bonuses. The Minister of State  for Petroleum Resources Dr Ibe Kachikvwu  in remarks made public in February, put companies on notice of the government's intentions. At the time he expressed concerns that companies were not making their statutory remittances as required by the Joint Venture agreements with the government.

‘‘A situation whereby we write to oil companies to pay up royalties, and for 90 days they are unable to comply. What that simply says is that they are not ready for business and we cannot continue to wait for such companies. We must move on. So going forward, I have asked the DPR to give additional 30 days grace period, after which their licenses will be withdrawn. I have instructed the DPR to revoke their licenses.’

It has been a long time  in coming, but in the good old Nigerian tradition nobody pays a blind bit of notice to any warning until it is too late. The upstream sector of the Nigerian oil and gas industry has for far too long treated signature bonus  payments, royalties and other statutory payments as optional obligations to be circumvented or evaded. The DPR cannot be absolved as it has enabled the poor payment behavior of these companies. There are bound to be more companies and perhaps this  spate of revocations will serve to galvanise  those companies to settle their outstanding obligations. Many of the indegenous Operators have struggled to generate free cashflow. The effect of low barrel prices and shut ins caused by militants hsve affected their liquidity. There is also the issue of theft which has seen some producers lose up to 20% of their daily production. So many have chosen not to breach their covenants with bondholders in favour of negotiating with a more pliable DPR. It is apparent that a clearly  cash strapped Federal Government is in no mood to indulge big oil

It will be interesting to see what the DPR does with the leases that have been revoked. Given that the directive came from the President it is difficult to see how such a revocation can be challenged. Under extant legislation, the Petroleum Act grants the Minister exclusive and unfettered power to grant licenses and leases and amend, renew, extend or revoke same pursuant to the provisions of the Act. There is no express right of appeal against the decision of a regulator. In practice, redress from regulatory decisions can be sought before the Federal High Court by commencing an action in court or by initiating arbitration. In reality challenging the authority of the President in a Nigerian court is a poor alternative, moreso when a clear breach in the terms of the lease has been established.

There is clearly a renewed agression in going after errant oil companies, most of whom are owned by prominent indegenous families. Much was made of the revocation of Summit Petroleum's OPL owned by the family of the late Chief  MKO Abiola the winner of the 1993 Presidential election in Nigeria. But Cavendish Petroleum belongs to the equally illustrious Mai Deribe clan and Allied Energy Resources to well connected  but recently troubled  Kase Lawal of Erin Energy. Express Petroleum and Gas Company is owned by the Dantata family who are a well known wealthy Northern family.  It has been alleged that Pan Ocean's lease OML98 was revoked after negotiations failed with the Government, the JV partner to resolve the issue of outstanding payments . There has also been the suggestion from other Leasees that payments were not made due to current well documented litigation between NAE and Allied Energy. The Leasees first instinct will be to reach for the law courts but their obligations under the lease terms are very precise. 

There is an unsubstantiated rumour  the exercise is a ploy to transfer the leases to other companies. I think that is a bit far fetched.  There is also the distinct possibility however,  that the action is targetted and is a coded message to elite owners of oil  blocks, many of  whom acquired them  through grand acts of generousity and patronage. Given the shifting sands of litigation and emerging legislation it is hard to see how any other  investor would have the confidence to take on those leases.  More importantly there is also the question of the borrowing which the assets secured.  Allied Energy have announced three of their  projects around OML147 will be ready for unveiling at the technical start-up taking place June 10, 2019.  This revocation clearly puts the solvency of the company at risk. It is also a time of worry for local banks that have overextended exposure to indegenous oil companies.

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