The crisis surrounding the Oil Prospecting Lease (OPL) 310 acquisition by Lekoil Limited got messier last week as the company commenced legal proceedings against the Ministry of Petroleum Resources over government’s failure to grant consent for Lekoil’ s investment.
OPL 310 is an offshore license, which includes the potentially large Ogo oil discovery located in shallow water offshore Lagos.
The legal tussle may eventually deny the country about $1 billion in upstream investments while several thousands of jobs are likely to be lost in the process.
According to the plaintiff, “despite progressing exploration and appraisal activities on OPL 310 as previously announced, Lekoil has, to date, not received Ministerial Consent for its acquisition of the additional 22.86 per cent interest in OPL 310 or a satisfactory explanation of why such consent has not been forthcoming.
As a result, the company has taken the decision to apply to the Federal High Court for a declaration that is expected to expedite the consent process, and preserve the unexpired tenure in the licence.”
Stakeholders, however, believe that the development is a setback to the Foreign Direct Investment (FDI) drive of the Federal Government and its Ease of Doing Business initiative, which may be a deterrent for would-be investors.
Genesis of the crisis
On February 1, 2013, Mayfair Assets and Trust Limited, a subsidiary of Lekoil, farmed into Afren Investments Oil and Gas (Nigeria) Limited’s (AIOGNL) interest in OPL 310 for a 17.14 per cent participating interest and 30 per cent economic interest, subject to Ministerial Consent from Nigeria’s Minister for Petroleum Resources. Ministerial Consent was granted for the interest on June 9, 2017.
On July 31, 2015, Afren Plc (Afren), the parent company of Afren Oil & Gas that held interests in the OPL 310 licence, was put into administration and its assets put up for sale. On December 1, 2015, Lekoil announced an agreement with the administrator of Afren and Afren Nigeria Holding Limited to acquire the shares of AIOGNL, which held a 22.86 per cent participating interest in OPL 310.
This interest, according to Lekoil, was also subject to Ministerial Consent from the Minister for Petroleum Resources. The acquisition meant that Lekoil would hold a consolidated participating interest of 40 per cent and an economic interest of 70 per cent in OPL 310 and would become the technical and financial partner of Optimum Petroleum Development Company (Optimum), the operator and local partner in OPL 310, which retains a 60 per cent participating interest.”
The plaintiff further affirmed that an application for the transfer of the 22.86 per cent interest was duly made by Afren Nigeria in January 2016. As the transaction was not undertaken on the basis of an Assigned Interest in the oil block, approval by Optimum was not required under the JOA between Optimum and Afren.
In March 2016, Lekoil was notified by the Ministry of Petroleum Resources that the necessary due diligence exercise would be conducted that month. The due diligence exercise did not take place and has not been rescheduled by the Department of Petroleum Resources (DPR) since then.
Economic impact of delay in assenting to deal
Lekoil regretted that the delay in regulatory consent on the block stands in the way of the company’s plans for the development of a work programme for the Ogo field (the only discovery on the block) for which it has signed a Memorandum of Understanding (MoU) with GE Oil & Gas, now Baker Hughes, a GE company.
Lekoil had estimated $400 million for full field oil development and another $600 million for subsequent upstream gas field development.
More worrisome is the fact that the current lease expiry date is February 2019. Lekoil has an understanding with Baker Hughes for technical partnership and investment in appraisal of the discovery, possibly leading to first oil. But it can’t proceed without ministerial consent. Optimum, which is the licence holder and Lekoil’s partner, is not a technically resourced company, so a work programme will not happen before expiry date if Lekoil doesn’t get government’s nod.
Lekoil has been on the sidelines expecting the second of the two consents of Nigerian authorities on the OPL 310. The consent to complete the transfer of the original 17.14 per cent participating interest that Lekoil acquired on the lease in February 2013 was granted by the Minister of State for Petroleum Resources in June 2017. This means it has taken four years and three months after it acquired the interest in the block to achieve this very important regulatory approval.
According to a recent report by Oil and Gas Report, the key challenge is that Optimum feels it ought to have been consulted when Lekoil acquired the equity from Afren.
‘‘Some of the regulatory officials at DPR, who are in charge of preparing the documents for the Minister of State to sign on, want Optimum to give them a go ahead before doing the required due diligence and processing the consent documents.”
Lekoil, a listed company, argues that the law does not require Optimum’s nod before the Minister can give a consent. Indeed, Optimum is pushing for a renegotiation of terms and Lekoil is pushing back.
“We are trying to work through the process, one lawyer close to both parties says, adding “although it’s not always clear what the process is. This is clearly an issue highlighting how difficult it is to do business in Nigeria.
“The delay in regulatory consent for Lekoil on this block stands in the way of the company’s plans for the development of a work programme for the Ogo field (the only discovery on the block) for which it has signed an MoU with GE Oil & Gas, now Baker Hughes, a GE company.’’
Lekoil had said it is also in discussions with other potential partners for the financing of the appraisal programme, following which, and subject to the fulfillment of a number of conditions including a positive well result, Baker Hughes, through a consortium SPV, and Lekoil, through its funding partners, intend to invest funds towards the full field development capital of the project.
An expert view
According to an expert in Bloomfield Law Practice who is close to the deal explained that all suggestions regarding the delay in the grant of assent are based on speculation.
‘‘However, speculations have suggested that Optimum, the partner to Lekoil, did not grant consent to the acquisition of equity from Afren in the purchase of the oil block. Optimum on the other hand, has delayed in its consent to the transaction. This has been suggested to be the crux of the delay in the grant of ministerial consent.
“It is probable that Optimum may have a hand in the delay in the grant of ministerial consent as explored above.”
The expert noted that the implication of the delay of the grant of consent for Lekoil on this block is the bureaucracy and red tape introduced in the way of the company’s plans for the development of the Ogo field in OPL 310, adding that Lekoil had signed an MoU with GE Oil & Gas, which has not been carried through because of the delays in the acquisition.
He noted that financiers tend to tie their investment to the project, and thus, the stalling of the process will inevitably affect the outlook of investors and potential investors.
In this case, he said the potential financiers may begin to question the bankability of the overall project, and thus the chance of withdrawal may rise. Nonetheless, he disclosed that there has been no report of any such withdrawals as of yet.
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