• FG Lost $6bn to DPR’s Poor Administration of Divested Oil Blocks

The federal government lost an estimated $6 billion as a result of the Department of Petroleum Resources’ (DPR) poor administration of the expiring oil blocks, which were sold by the international oil companies (IOCs) between 2010 and 2015 to local firms, Nigerian exploration and production (E&P) operators have said.

The Nigerian operators have, however, stated that all hope is not lost, as the country could earn over $3 billion from the next wave of asset sales if the DPR manages the outstanding onshore oil blocks set to expire soon properly.

DPR has also admitted that it was not prepared to develop the necessary guidelines for the asset divestment programme by the IOCs, as the exercise came as a “shock” to the agency, pointing out that it has learnt some lessons for future exercise.

In the first acquisitions by Seplat Petroleum Development Company Plc and First Hydrocarbon Nigeria in 2010, the IOCs raked in $471 million.

The IOCs were also paid $3.979 billion in the second divestment exercise between 2011 and 2012 by Eland Oil, Starcrest, Neconde Energy, Heritage Oil, Shoreline Energy, ND Western and Oando Energy Resources.

Under the last divestment programme between 2014 and 2015, the IOCs smiled away with $5.954 billion from Seplat, Erotron E&P, Newcross Petroleum, Crestar Integrated Natural Resources, Aiteo Group, Taleveras, Tempo Energy, Belemaoil, West African E&P, and First E&P.

But speaking in Lagos recently at the maiden edition of the Aspen Energy Roundtable, the Nigerian independents argued that 60 per cent of the $10.404 billion paid by the local operators to acquire assets from the IOCs would have gone into the federal government treasury if the DPR had better managed the licences covering the divested oil blocks.

In a keynote speech, the chief executive of Seplat Petroleum Development Company Plc, Mr. Austin Avuru stated that 70 per cent of the money used to acquire the assets came from Nigerian banks.

“The first $471 million was in 2010 and it involved Seplat and OML 26 (First Hydrocarbon), the second was also $4 billion and the third one, which was the most recent was almost $6 billion and you can see the implications of all these.

“So, if you put all these together, you are talking of over $10 billion in spend to acquire these assets. They all usually come to about $2 per probable barrel and about $4-$6 per proven barrel in terms of oil.

“It is not small money and 70 per cent of this money came from Nigerian banks,” Avuru explained.

The Seplat boss, whose company is listed on both the Nigerian and London Stock Exchanges, added that 60 per cent of the monies paid to acquire the assets would have gone into the federal government treasury if the DPR had handled the lease administration properly.

“That is another discussion entirely but I can tell you that 60 per cent of those money would have gone to the DPR if it handled the lease administration properly.

“But this is all the money that we, as Nigerian companies using Nigerian banks, paid to the IOCs and they took the money away. I think that will be a lesson for the next lease administration and bid rounds and renewals because if you have a title to these leases, especially leases that are due to expire and if you don’t take the title, the one who has the title will sell that title for all of this money,” Avuru explained.

The nine Oil Mining Leases (OMLs) – 18, 24, 25, 26, 29, 30, 34, 40, and 42, sold by Shell and its partners between 2011 and 2015 would expire in 2019.

Avuru said there were issues in the administration of the country’s oil and gas resources, which he described as wasting resources, adding that the country’s resources should be administered to ensure that “maximum value is captured without expropriation”.

“We are the victims knocking our heads together and paying three times more for these leases because we have no option. There are no leases available. So we knock our heads together and then the IOCs are smiling.

“We could have paid one third of what we paid to the government and everybody will be happy,” Avuru added.

The Seplat CEO, however, stated that there were still about $12 billion in assets in the portfolio of IOCs that will be divested, adding that the federal government could earn over $3 billion if the DPR manages the licences properly.

“There are still about $12 billion of the IOCs’ portfolio that could still be divested, given the right opportunities, depending on how DPR plays it.

“There could still be $3 billion cash available to DPR, depending on how the DPR handles the administration of those leases that are due to expire,” he said.

Shell’s 17 onshore oil blocks would expire in 2019.

In his contributions, the Managing Director of ND Western, which paid $600 million for OML 34, Dr. Layi Fatona, noted that the federal government did not create the environment for the IOCs to plough back the money realised from the sale of the assets.

Fatona also noted that some of the assets were over-priced but exonerated the IOCs, as the transactions were based on a willing buyer-willing seller basis.
He blamed the government for not creating the environment for the oil majors to reinvest in the country.

“But the most important thing is that when you look at the spending, all of the money came mostly from the Nigerian banking system. And I ask a pertinent question: should we call this capital flight?

“All that money that was taken from the Nigerian banking system by essentially indigenous E&P companies and paid to the IOCs left the shores of this country?
“How much of this money ended up as a backward reinvestment in the Nigerian petroleum industry?” he asked.

“So it is not about capital flight, it is about the fact that we have failed holistically to create the environment where the seller of an asset who makes a profit believes sufficiently in this society and puts all the money back into the system,” he said.

In her response, the Head of Upstream Monitoring and Regulation at DPR, Pat Maseli admitted that the regulatory agency was not prepared for the divestment programme at the outset.

“For the divestments and all that, that came – you know, it came as a shock. Will I say as a shock – we were not really prepared as regulators to develop the guidelines.

“But we have learnt our lessons and we are progressing them and making them better,” she said.

She added that the agency had also learnt its lessons in the marginal bid rounds.

“By the time we have the next bid round, it will be better than the previous ones, where we had forced marriages and it was not working and people were just rent seekers. This time, it is going to be different,” she added.

However, in her remarks, a former President of the Commonwealth Lawyers Association, Boma Ozobia said the IOCs should not be accused of capital flight for selling their assets.

“If you are talking about capital flight for someone who has made an investment and is exiting, you are approaching it in the wrong direction – you are going to put me off from coming back into your jurisdiction to invest again because the idea of making the investment is that I can exit at some point,” she said.