Behind The Figures By Ijeoma Nwogwugwu, Email:ijeomanwogwugwu@thisdayonline.com
Mobil Producing Nigeria Unlimited, the Nigerian subsidiary of ExxonMobil - the world’s largest company by market capitalisation, is unhappy with this newspaper. The company would rather we let go of a story published two weeks ago questioning the renewal last November of three of the company’s expired oil mining leases – 67, 68 and 70 – in Nigeria and the validity of the contract filed with the stamp duties office.
Worse, when Platts, a leading provider of information on the energy and metals markets, made enquiries immediately after the story broke to ascertain if there was a question mark surrounding Mobil’s leases, the company was economical with the truth. It stuck to a convoluted story line insisting that it had a valid contract for the leases covering a duration of 20 years and was operating them legally. This is completely untrue.
Mobil is very aware that it does not have a valid contract, and its officials who have reviewed the contract signed by Odein Ajumogobia, the former Minister of State of Petroleum for and on behalf of the Nigerian government and Mark Wood, managing director/chairman of MPNU for and on behalf of ExxonMobil Corporation, have admitted as much quietly. Little did the company and Ajumogobia know that when this paper went to press with the story, it had in its possession a copy of the executed contract, which had been scrutinized in detail.
On the signature page of the said contract, the last paragraph just before the space allotted to the signatories states as follows: “In witness whereof, the Minister of Petroleum and his alternate the Minister of State of Petroleum on behalf of the Federal Government of Nigeria and Mobil Producing Nigeria Unlimited have caused their signatures and respective common seals to be afflicted on the day and year first written”.
That Rilwanu Lukman’s signature was conspicuously missing as the substantive Minister of Petroleum at the time, and the preceding paragraph required him to append his signature, was an inexcusable oversight on the part of all the lawyers that drafted the agreement, and most especially Ajumogobia himself, a seasoned lawyer and Senior Advocate of Nigeria.
But besides the validity of the contract, there are so many other reasons why the lease renewal between Mobil and federal government needs to be revisited. For one, a legal precedent in the oil industry had already been established when a Federal High Court in Abuja in August last year made it very clear that the only person statutorily mandated by the Petroleum Act of 1969 to grant, supervise, and by extension renew oil leases, on behalf of the federal government is the Minister of Petroleum, and not a junior minister in the ministry.
Ajumogobia in a discussion with this writer on the matter when the story was published had argued that the said judgement is on appeal and therefore cannot be taken as being final. However, his position can be dismissed on the grounds that until an appellate court rules otherwise, it is the judgement of the lower court that subsists and must be adhered to.
Second, this brings to the fore the delineation of duties between ministers and their ministers of state that was carried out by late President Umaru Yar’Adua a few months before he fell ill. It is obvious that certain laws of the federation do not recognize the roles of ministers of state and statutorily mandate only the ministers of certain ministries to carry out specific functions, failing which the action of a junior minister can be called into question or invalidated.
By implication, when Yar’Adua delineated the duties of the petroleum ministry and assigned the responsibility of granting and supervising the operation of oil leases to Ajumogobia, the late president was acting ultra vires. In other words, a huge mistake was made by the late president.
A bigger issue, however, is how the recommendation of the committee set up by Ajumogobia to undertake a valuation and hold negotiations on the expired leases held by Mobil and Chevron Nigeria Limited was largely ignored by the former minister of state, enabling Mobil to pay a substantially lower amount of $600 million for the leases. OMLs 67, 68 and 70 with a combined out put of 580,000 barrels of oil per day, first and foremost, are some of the most prolific shallow waters leases in Nigeria’s continental shelf.
Initially awarded to Mobil in 1969, they hold considerable proven and probable reserves of oil and associated/non-associated gas that still remain untapped. Mobil has admitted as much and confirmed that the three blocks accounted for much of Nigeria’s oil production last year when output was almost halved due to attacks on several onshore installations by militants in the Niger Delta.
Had Nigeria elected not to renew these leases and put them in the DPR basket for public tender, Mobil cannot deny the fact that they could have attracted billions of dollars from other interested parties with an unquenchable thirst for Nigerian oil.
Based on the valuation conducted by the committee, Mobil and the Nigerian National Petroleum Corporation, being the equity holders in the leases, were expected to pay $6.375 billion as 100 per cent of the reserve fee. With a 40 per cent stake in the leases, Mobil’s share of the $6.375 billion amounted to $2.55 billion.
Additional terms imposed on the leases by the committee included a requirement by Mobil to invest in a downstream petroleum refinery under the joint venture arrangement it has with NNPC; commit to investing in domestic gas infrastructure in line with the Gas Master Plan to ensure zero flaring; and a commitment to a minimum of 10 per cent equity participation in domestic gas processing and infrastructure, as well as gas supply obligations. These additional terms imposed an extra commitment of $1.2 billion on Mobil.
But when Mobil refused to accept the request by the committee to pay $2.55 billions for the leases and the commitment to investing some $1.2 billion in a refinery and gas infrastructure for the domestic market, the committee based on the advice of Dr. Lukman waived the commitment imposed on Mobil to invest in a refinery and gas infrastructure. The committee, nonetheless, stood its ground on the fee of $2.55 billion, which Mobil still maintained it would not pay. Instead, it made a conditional offer of $75 million for leases that it knew could attract so much more.
In the end, after a deadlock between Mobil and the committee that stretched into months, Ajumogobia who by this time was supposedly responsible for the supervision of leases went and accepted $600 million as the final offer from Mobil, knowing fully well that Lukman felt otherwise, and was the reason the latter refused to append his signature to the contract.
The most bizarre aspect of this whole lease renewal fiasco is that both Mobil and Ajugomobia knew that a legal lacuna was likely to arise from the hastily signed leases. Both parties have admitted that there were two contracts prepared by Mobil’s legal department for the leases - one with a space for Lukman to sign and another without a space for Lukman to sign.
This was the surest sign that they both knew Lukman would refuse to play ball, and there was no precedent in which the Minister of Petroleum had refused to sign a contract for leases. But in amending the contract, which Ajumogobia eventually signed and has been filed by Mobil, they also forgot to amend the last paragraph as indicated above, thereby putting all the parties in a binder.
The questions that arise from all this are the following: Should Mobil be allowed to continue to operate the leases by the federal government when it is apparent that its contract was not validly executed? Did the federal government have the right to extract maximum value from the very lucrative leases? If it did, what prevented it from doing so? Did Ajumogobia act in the best interest of Nigeria or did he allow himself to be stampeded by Mobil which was overly-anxious to get the leases renewed before the one-year extension granted on them by the ministry expired, and more significantly, before the enactment into law of the Petroleum Industry Bill?
In my candid opinion, Nigeria did not derive maximum value for the three leases in any shape or form. The yawning gap between the $600 million which Mobil was made to pay for the leases and the $2.55 billion that the committee asked for is too significant to be ignored. Mobil may want to argue that it was compelled to sacrifice one lease – OML 69 - when discussions started on the renewal of leases in 2008. Yes, but Mobil should also remember that it got those leases in 1969 at no cost whatsoever to the company. In fact, they were awarded on a discretionary basis.
And despite the billions of dollars that have been invested by Mobil in the said leases, it has also extracted maximum returns on its investment in those 41 years.
Moreover, the energy sector in1969 cannot be compared to 2008, 2009, or 2010 for that matter. Nigeria in 1969 was a neophyte as far as oil industry operations was concerned, and was eager to award leases for free to international oil companies to exploit its hydrocarbon resources. Today, the scenario is completely different. With the emergence of several countries, particularly from Asia, in dire need of oil, Nigeria can no longer afford to renew or award new leases at a pittance.
As already mentioned, had OMLs 67, 68 and 70 been put on tender, they could have fetched the federal government a lot more than the measly $600 million paid by the world’s most valuable company, Mobil. Worst case scenario, Mobil could have been given the right of first refusal, but would still have had to cough up the highest bid for the blocks under a tender process.
Right now, the onus is on the Ministry of Petroleum to invite Mobil back to the negotiating table and extract better value for those leases. Even if the federal government elects to award the leases for $600 million to the company, the contract backing their renewal must be validly signed by the Minister of Petroleum Resources. Should Mobil threaten to go to court or arbitration, it really does not have a case. So it is in the interest of the company, whether it likes this newspaper or not, to sort out the mess in which it finds itself.
Let this incident also serve as lesson to the petroleum ministry to proceed with due care as it negotiates the pending renewal of leases held by Chevron and Shell Petroleum Development Company.
No comments:
Post a Comment