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OML 130: The Relief To Unfasten $760m Gas Revenue

By Adewole Kehinde

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari will surely be remembered for his ability in resolving long-standing disputes and responding proactively to emerging global trends in the oil and gas sector.

First, it was his intervention that led to the reopening of the Oil Mining Lease (OML) 25 flow station after two years of inactivity as a result of squabbles between the host community/Belema Oil and Shell Petroleum Development Company (SPDC) in Rivers State. The closure robbed Nigeria 35,000 barrels of crude oil per day.

Also, a month ago, Mallam Kyari signed the OML 118 Dispute Settlement Agreement, Settlement Agreement, Historical Gas Agreement, Escrow Agreement and Renewed PSC Agreement.

The Nigerian National Petroleum Corporation (NNPC) and its Production Sharing Contract (PSC) partners – Shell Nigeria Exploration and Production Company (SNEPCo), Total Exploration and Production Nigeria Limited (TEPNG), Esso Exploration and Production Nigeria Limited (EEPNL) and Nigerian Agip Exploration (NAE) – have executed agreements to renew Oil Mining Lease (OML) 118 for another 20 years.

The Group Managing Director of the Corporation, Mallam Mele Kyari was quoted as saying that over $10bn of investment would be unlocked as a result of the agreements which signaled the end of the long-standing disputes over the interpretation of the fiscal terms of the Production Sharing Contracts (PSC) and the emplacement of a clear and fair framework for the development of the huge deep-water assets in Nigeria.  

For those who have coursed through the upstream and downstream sectors of the industry, disputes and hostilities are common sight.

In fact, it will be interesting for posterity to capture Kyari as a man who bends over to conquer, because when warring parties refuse to back down, he steps in with the perfect prescription for tranquility, for no personal benefit of his.

Those with private sector orientation know that Kyari’s target-driven style is uncommon in public service.

Mele Kyari as a seasoned technocrat with vast knowledge of the petroleum industry appreciates the importance of industrial harmony and he has placed a premium on it.

He insists that disputes are dangerous impairs that must not be allowed to stifle oil and gas sector and by extension the Nigerian economy.

So, it was a most soothing development when the media was recently awash with the news that the Nigerian National Petroleum Corporation (NNPC) and its partners in the Oil Mining Lease (OML 130) Production Sharing Agreements (PSA) and Production Sharing Contract (PSC) are set to earn over $760m from fresh Gas Supply Purchase Agreements (GSPAs) and Gas Entitlement Agreement (GEA) executed at the NNPC Towers.

The sale structure under which the agreements were executed is designed to provide a clear delineation for the allocation of the gas sale proceeds to all the participating parties, including midstream handling and transportation.

This particular deal comes with phenomenal fortune.

The Group Managing Director of the NNPC said during the signing and I quote “This is a very proud moment for all of us. I understand all the delays, they are completely unavoidable. It is desirable for us to have full alignment of all parties before we proceed. The end result is that there would be clarity around our relationship and we would be unlocking resources that have been on the table for many years. We now have a clear line of sight around gas revenue of up to $250million dollars, and also another $510 million dollars that is applicable to the rest of us.”

If this is not a remarkable achievement, one wonders what is.

The magic wand was the accord the NNPC reached with its partners, China National Offshore Oil Company (CNOOC) and South Atlantic Petroleum (SAPETROL), to settle all outstanding issues surrounding the development of Oil Mining Lease, (OML) 130.

For emphasis sake, OML130 block, a deepwater project, is comprised of prolific bloc’s four oil fields: Akpo, Egina, Egina South and Preowei. Production from the Egina Field block discovered in 2003 is and the second development in production after the Akpo field, located 150 km off the coast of Nigeria in approximately 1,600m of water started in January 2019 and consisted of a Floating Production Storage and Offloading (FPSO) unit and a Subsea Production System.

CNOOC International has a 45 per cent working interest in the OML130 block, and its partners Total Upstream Nigeria Limited, who is the operator of the block holds a 24 per cent working interest, Prime Oil and Gas (16 per cent working interest) and South Atlantic Petroleum Limited (15 per cent working interest).

It will be recalled that at the signing of Head of Terms (HoT) agreement with the partners Kyari, said the deal was part of the Corporation’s Production Sharing Contracts (PSC) Dispute Resolution and Renewal Strategy of 2017 aimed at securing out of court settlement of all disputes around the 1993 PSC and agreeing on terms for their renewal.

The dispute arose from recognition of certain cost and discordant interpretation of the fiscal terms of the PSC by NNPC and the Contractor parties. With the resolution and signing of the Head of Terms (HoT) document which sets out the terms agreed in principle between parties in the course of negotiations, apart from unlocking over $225 million of gas revenues, it will also enable settlement of renewal fees and create an environment conducive to further development of OML 130 with associated benefits to the Federation.

As a man who believes in equity and justice, Kyari assured the NNPC partners that the HoT will clearly enable them to proceed and have a full settlement to the benefit of all stakeholders.

He commended CNOOC and SAPETROL for their understanding, while expressing delight that the HoT will facilitate the conclusion of all renewal issues.

For a fact, such an effort does not go without appreciation.

In his response, Mr. Mike Sangster, Managing Director of TEPNG, expressed delight at the signing of the agreements, adding that the parties were committed to the terms of the agreements.

He commended the GMD and the NNPC for their vigorous pursuit of the aspiration of the decade of gas programme of the Federal Government.

The execution of the HoT signals the resolution of a tax dispute that arose from the $2.3bn acquisition of a 45% stake in OML 130 by CNNOC from SAPETRO in 2006.

The OML 130 consists of the Akpo and Egina Fields which have been producing since 2009 and 2018 respectively.

It is operated by Total Upstream Nigeria Ltd which holds 24% stake, while Petrobras Oil and Gas BV and SAPETRO hold 16% and 15% stakes respectively.

The new agreements offer the gas sales framework for the 100% volume under the PSC and the PSA.

A cursory assessment of the Kyari’s transformational strides in the past two years has reflected remarkable innovations and the attendant positive developments, especially when understood against the backdrop of the pervasive effects of the economic sluggishness caused by the COVID-19 pandemic.

Again, the efforts of Kyari to take the NNPC to the next level can be gleaned by his interventions in a broad spectrum like technology deployment, dispute resolution, transparency and diversification.

Adewole Kehinde is the Publisher of Swift Reporters and Abuja Chamber of Commerce Energy Fellow Expert. He can be reached via 08166240846 and 08123608662

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