Oil industry experts warn operators on framing of legal agreements

Experts in the oil and gas industry have advised Nigerian indigenous oil and gas firms wishing to go into partnerships, to be sure to employ the services of experienced lawyers and engineers to guide their transactions, in order to avoid conflicts and losses along the line.

The experts say engaging the services of  experienced lawyers and engineers would ensure a full understanding for indigenous companies, of the content and context of  the terms of partnerships , particularly with bigger partners that have more financial resources to execute developmental programmes.

The advice is coming against the background of the ongoing misunderstanding between Oriental Energy Resources Limited and Afren plc, over the issue of forward sales of crude oil agreement. Forward sales of crude oil is an agreement for the prepayment of oil, which is a common practice among partners in the international upstream petroleum industry.

In the current tussle between the two oil firms, Oriental  has stated that the forward sale of crude oil transaction of $100 million in July 2012 was a “loan”  and that this was mischaracterised by the Afren press release.

Oriental and Afren entered into the Oriental Ebok Forward Sale of Crude Oil Agreement  (“Forward Sale Agreement”)  in July 2012. Oriental agreed to sell approximately one million barrels of its future oil production to Afren,  thereby permitting Afren to book those reserves in 2012.

Victor Eromosele, a former manager  with the Nigeria Liquefied Natural Gas Limited (NLNG)  who reacted to the  situation said  that  the  current  development  between the  two  companies would  not have any  negative  implication  on prospective local oil and  gas companies  in the country intending to enter any agreement with companies that have more financial  muscles than them.

He added that whatever happens, the structure of the transaction already entered into by Oriental and Afren would not be changed, saying  the issue is a problem of  corporate  governance within Afren’s organisation.

Also speaking, Eddy Wikina, the managing  director of Treasure Energy and former external  relations manager of Shell Nigeria Exploration and Production (SNEPCO) said that  Nigerian  oil and gas companies that want to  enter into partnerships should make sure that they employ the services of experts in drawing up agreements in the  industry, so that they don’t begin  to regret their actions later.

“They must employ quality services to guide against future regrets” Wikina said.

A Lagos based legal practitioner who pleaded anonymity, said his view is that these agreement need to be properly documented and far from the outset. “I believe these are ingredients which need to be present for such local partnerships to succeed.”

Oriental, the owner of 60 percent equity of the Ebok and Okwok assets, offshore Nigeria, while refuting Afren’s allegations, said it was now necessary for  it to set the records straight.        

According the company: “Results of the independent review by Wilkie Farr & Gallagher (UK) (“WFG”) into certain transactions undertaken by Afren and whether such transactions should have been announced at the time they were entered into, in accordance with requirements of the Listing Rules.”  

  Muhammadu Indimi, executive chairman of Oriental, stated that “Afren’s press release, including their summary of WFG’s findings, was little more than a collection of suppositions, unsupported innuendoes and a series of false and defamatory statements”.

Indimi added that “it is now necessary for Oriental to set the record straight”  and that he regrets that the agreed protocol with Afren that required them to provide Oriental with an advance draft of any proposed press release for comment was blatantly ignored by Afren.           

  Egbert Imomoh, executive chairman of Afren, said:  “The decisive and comprehensive actions we have set out  should leave no-one in any doubt about how seriously Afren takes the issues uncovered in July and our commitment to rebuild the confidence of shareholders, partners, staff and our other stakeholders.

“Our focus is now on delivering the significant opportunities we have before us, with an open and transparent approach to our business, based upon mutual respect, the highest standards of ethics, governance and business conduct.”

Olusola Bello