Days before the restoration of four oil mining licenses to Addax Petroleum, the Nigerian National Petroleum Corporation (NNPC) launched a blistering tackle on its sister agency, Department of Petroleum Resources, with a strong appeal to President Muhammadu Buhari to reverse DPR’s revocation of the OMLs and reject a reallocation to another company.

The NNPC in a letter to the president on April 20 argued that the revocation of the oilfields would have implications on the Nigerian economy and the diplomatic relationship between Nigeria and China. Addax is owned by Sinopec, a state-owned Chinese firm, the nine-page memo seen PREMIUM TIMES shows.

Three days after the letter was sent, the president overruled the revocation by the DPR, and cancelled the reallocation of OMLs 123, 124, 126, and 137 to Kaztec Engineering Limited/Salvic Petroleum Consortium, a firm DPR picked as a replacement.

The clash is the latest example of how government agencies often appear to work at cross purposes and succeed in having the president do their bidding. PREMIUM TIMES reported on Monday how the Minister of Transportation, Rotimi Amaechi, and the Managing Director of the Nigerian Ports Authority, Hadiza Usman, repeatedly faced off over the award of contracts, and Mr Amaechi at least once directed a procurement process be suspended in favour of an incumbent contractor

In revoking the four OMLs, the DPR cited Addax’s inability to comply with agreed targets. Addax has a production sharing contract with the NNPC. A panel set up by the Ministry of Petroleum to review the case concluded that Addax had caused the country significant losses in revenue and jobs.

The committee led by a former senator, Magnus Abe, said $1 billion had been invested in the contract but Addax Petroleum called it off over an issue that was unrelated to the project. The action put over 3000 Nigerians out of work, the committee said.

The presidency’s statement, signed by spokesperson Garba Shehu, said: “President Muhammadu Buhari has approved the restoration of the leases on OMLs 123, 124, 126 and 137 to the Nigeria National Petroleum Corporation, NNPC which is in production sharing contract with Addax Petroleum, a company wholly owned by Government of the People’s Republic of China on the blocks. The leases belonging to the Federation were revoked on March 30, 2021.”

“While directing the Department of Petroleum Resources, DPR to retract the letter of revocation of the leases, the President also directed NNPC to utilize contractual provisions to resolve issues in line with the extant provisions of the Production Sharing Contract arrangement between NNPC and Addax,” it said.

NNPC Counters DPR

The NNPC warned the president that the revocation, if unresolved, will create an unprecedented level of contingent liability of well over US$1 billion for NNPC as the party in contract with Addax, reputational damage to the country with possible dire unintended diplomatic consequences.

The NNPC faulted the DPR for revoking the oilfields saying it is the petroleum minister who has the power to revoke leases. If defended Addax, saying “Addax has not been investing in capital projects, development drilling, and exploration activities due to dispute on applicable fiscal terms on its blocks.”

“It is within the right of the Honourable Minister of Petroleum Resources (HMPR) to revoke Oil Mining Leases (OMLs) as provided in Paragraph 25 (1) of the First Schedule of the Petroleum Act. It is clear that the procedures as stipulated by the Petroleum Act to revoke the lease of a lessee were not duly followed in this case and this portends several legal, commercial, and diplomatic implications,” it said.

“The provisions of the Act stipulate that revocation of a Lease is against the Lessee (on fulfilling revocation conditions) and clearly the Department of Petroleum Resources (DPR) erred by processing the revocation against Addax (a PSC Contractor) instead of NNPC (the Lessee).

“Addax has already written to DPR expressing their intention to exercise their right to challenge the revocation using all government, diplomatic and legal means to seek redress and achieve satisfaction.”

Implications

The NNPC argued that the ability of NNPC and the newly appointed contractor to partner and properly utilise the assets may be severely hampered if Addax goes ahead with its threat to legally challenge the revocation process.

It said the immediate implication of the revocation and reallocation of the OMLS is that NNPC (as the actual Concessionaire/Lessee) is no longer associated in any way with OML 137 as it is now awarded to new allottees as a Sole Risk Block.

“Based on DPR’s letter, There is no valid PSC in place between NNPC and the newly appointed contractor parties and as such, there is currently no contractual basis for any sort of interaction between NNPC and the Kaztec Engineering Limited/Salvic Petroleum Resources Limited (KEL/Salvic) Consortium,” it said.

“In addition to possible resort to legal contest, Addax could still have grounds to make claims in respect of cost recovery of outstanding expenditure or consequential losses such as profit against NNPC and thus indirectly the Government.”

Aside from the legal implications, the oil company told Mr Buhai about commercial implications that would negatively affect the increase in crude oil production and revenue generation.

It said the OMLS 123 and 124 are due to expire on July 1, 2022, while OML 126 expires on November 24, 2024, but renewal negotiations and (Head of Terms) HOT discussions are currently ongoing and revocation presents a hard bargaining point for the Corporation during these negotiations as the Contractors may likely seek more stringent guarantees.

READ ALSO: Panel says Addax Petroleum caused Nigeria ‘economic waste’, submits report to Buhari 

“NNPC will require at least US$1 billion to settle the outstanding cost oil liability, consequential losses such as profit, plus other liabilities such as severance for employees, abandonment, decommissioning and amortized capital expenses,” it said.

“China, the Parent Country of Addax is the largest trading partner of Nigeria representing over 20 percent of international trade and almost 3 times the next largest trading partner. Addax diplomatic threat is thus not inconsequential and should be taken seriously.”

In addition, it reminded Mr Buhari that China also provides financing for key infrastructural projects like the Railways Projects and the Abuja-Kaduna-Kano Gas Pipeline Projects, amongst others, and warned that the revocation action could also threaten the realisation of these critical projects.

Addax took over ownership of the four OMLs after the NNPC terminated a contract with Ashland in 1998, which held control since 1973. Sinopec bought the Switzerland-based Addax Petroleum in 2009 for US$7.24 billion.

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