• Thursday, March 28, 2024
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No clarity on NNPC takeover of troubled $2bn OML 11 asset 21 days after deadline

Oil Mining Licence (OML) 130

Twenty-one days after expiration of the deadline given to the Nigerian National Petroleum Corporation (NNPC) by President Muhammadu Buhari to take over operatorship of $2 billion Oil Mining Licence (OML) 11, there is still no clarity over the fate of the oil assets.

President Buhari had, in a letter dated March 1, 2019, through the office of the Chief of Staff Abba Kyari, directed the state-owned oil company and its upstream arm, Nigerian Petroleum Development Company (NPDC), to take over operatorship of the entire oil blocks in OML 11.
OML is located in Ogoniland, in the heart of the Niger Delta, where environmental and human rights controversies have prevented Shell Petroleum Development Company from operating over the years.

The letter had directed NNPC to take over the assets not later than April 30, 2019 and to also ensure smooth re-entry given the delicate situation in Ogoniland.

“NNPC/NPDC to confirm by 2 May 2019 of the assumption of the operatorship,” the letter signed by Abba Kyari, Chief of Staff to the President, said.

Twenty-one days after the expiration of the directive, however, stakeholders in the oil sector are still in the dark on whether NPDC has taken over or whether Shell is still in possession of the assets.

Neither NNPC nor its upstream arm has made any statement in respect of the matter, while Shell has also refused to take any step claiming it’s yet to receive any directive from government.
Sources familiar with the issue told BusinessDay that aside from the fact that the process of getting back the licence for such oil block was tedious, the joint venture partners in OML 11 were not just NPDC and SPDC. They stated that two other international oil companies, Total and Agip, were also partners in the oil block.

When contacted with inquiries on whether it has transferred OML 11 to NPDC, Shell Nigeria said it cannot comment on a leaked government memo.

“On status of OML 11 in relation to the government memo cited, we are unable to comment on a reported internal government correspondence,” Bamidele Odugbesan, media relations manager at Shell Nigeria, told BusinessDay.

Joseph Onele, energy lawyer and policy consultant at Bloomfield Law Practice, said it may be too early to judge what steps Shell would likely take to protect its interests in the event a dispute finally arises with respect to Shell’s interests in OML 11.

“Shell is likely going to adopt alternative dispute resolution mechanisms. I see Shell starting with negotiation and perhaps ending with arbitration,” Onele told BusinessDay.

Onele believes it is in the best interest of both Shell and the Federal Government to amicably resolve whatever dispute that may arise out of OML 11 by both parties making compromises where feasible and reasonable.

The Movement for the Survival of Ogoni People (MOSOP) has already rejected the directive, stressing that the resumption of oil exploration in Ogoniland in the face of current pollution remained unacceptable.

Since the directive, stakeholders in the oil sector have expressed concern and urged the Federal Government to be more transparent in handling the matter.

“This is why some of us keep advocating for effective industry governance. It is a strong arrogation of power on the part of the Chief of Staff. I am not sure he has the authority legally,” said Wummi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan, in an emailed response.
Also, the directive from the Presidency has been subjected to massive interpretations from energy lawyers who have argued that the licence for OML 11 was not revoked nor withdrawn from Shell Petroleum Development Company which was widely circulated; rather, the operatorship of the oil block was transferred from SPDC to NPDC.

“It’s an open secret that NPDC doesn’t have the financial capability to run those assets. Even the ones they are holding now they are looking for third party financing,” Luqman Agboola, head of energy infrastructure at Sofidam Capital, told BusinessDay.

While some of the experts agreed that government has the right to transfer ownership of any licence at any point in time when there is a breach of operation, others said there is also the possibility of Shell triggering the dispute resolution clause or mechanism in the underlying contract and seeking remedies for breach.

Asked if Shell is entitled to any compensation, Agboola said, “Government can value the current infrastructural properties of Shell on the assets and pay them some money or wait for the assets to start producing before giving them some barrels of oil as compensation.”

Other stakeholders said the current situation has shown that the agglomeration of presidential powers with that of Minister of Petroleum can be very dangerous, especially when the man wielding both powers has socialist leanings.

Oil Mining Lease (OML 11) lies in the south-eastern Niger Delta and contains 33 oil and gas fields. In terms of production, it is one of the most important blocks in Nigeria as the terrain is swamp to the south with numerous rivers and creeks (Ogoniland).

Ogoniland in Rivers State, home to OML 11, has a very chequered history when it comes to oil and gas exploration and engagement with international oil companies. From 1958, when Shell began oil exploration in Ogoni till date, the community has been at the receiving end of the various environmental hazards that have accompanied the production.

Since 1993, not much in terms of production has happened there. However, with the falling crude prices and the 2019 budget benchmarked against 2.3 million barrels of oil per day, the government is in a frenzy to ensure maximum production for oilfields. It is estimated that the country has lost an average of $7.01 billion in one year and a total of $177.136 billion in the last 25 years to the lack of production in Ogoni.

DIPO OLADEHINDE