OPL 310: LEKOIL and the JOA question
Protracted delays and other bottlenecks in regulatory approvals can negatively impact indigenous capacity for growth within the exploration and production segment in the energy sector in Nigeria.
Such delays which are non-existent in advanced economies and have no place in modern practice may lead to avoidable loss of valuable business time, erode investors’ confidence, engender uneasiness and deny the nation of actualizing its full potentials both as a regional hub and an international market.
In addition, such also negates the federal government’s renewed efforts at boosting Nigeria’s ease of doing business index as championed by the Vice President, Prof. Yemi Osinbajo.
Biting the bullet
LEKOIL, an oil exploration and production firm with petroleum assets in Africa recently commenced proceedings against the Ministry of Petroleum Resources (MPR) over the delay in giving assent to its investments in Oil Prospecting Lease (OPL) 310.
The company said it began to acquire stakes in the block, which is in shallow waters off-shore Lagos in 2013, but the ministry had failed to give any decision on the purchase made in 2015 of an Afren subsidiary, which holds a 22.86 percent stake in the block.
Though the court is yet to confirm a date to commence hearing, it appears that there is more than meets the eye. Industry watchers and practitioners are wondering why regulatory delays have to assume such worrisome dimension.
BusinessDay West Africa Intelligence investigations confirm that the delay which currently worries LEKOIL and warranted the litigation may not be unconnected with roadblocks erected by another key player, Optimum.
The source stressed that “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.”
There is a Joint Operating Agreement. The Joint Operating Agreement requires the consent of the operator for the transfer of interest which applies at the time of funding to the transfer of 17.14 percent interest. That was the direct transfer of interest to LEKOIL from the Afren subsidiary which has 40 percent; LEKOIL has since received ministerial consent for that because Optimum granted consent for that transaction, the source explained.
Stakeholders in the energy sector are also worried about the development and the implications for the industry, regulatory processes and investors, in view of Nigeria’s drive to attract more investment into its critical sectors including petroleum and energy.
An industry expert, Oluwole Cole believes that the requirement of consent from the operator Optimum should not apply to a simple share purchase. According to him, the real question begging for answer is: “Did the DPR conduct the due diligence it was supposed to which would have led to the subsequent recommendation of the ministerial consent?”
Information in the public domain reveal that the transaction was not undertaken on the basis of an assigned interest; Afren assigned 17.14 percent to LEKOIL in 2013 which formed the basis of its listing on the London stock exchange and that Optimum consented to and Optimum is required to consent to it based on the agreement.
“The 22.86 percent was acquired as a result of a direct purchase of an Afren subsidiary. So, in this context, you do not need a consent of a third party to buy a company”, he added.
Race against time
LEKOIL said it decided to sue the ministry due to the protracted delay in decision, which, it said is tying down its funds and ticking off time on its license. 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 license.
The company had noted that its first expression of intent in the oil block started with the purchase of a 17.14 percent participating interest and a 30 percent interest in Afren Investments Oil and Gas Nigeria LTD (AIOGNL) on February 1st, 2013.
It was reported that Mayfair Assets and Trust Limited, a subsidiary of LEKOIL, farmed-in to Afren Investments Oil and Gas (Nigeria) Limited’s (AIOGNL) interest in OPL 310 for a 17.14 percent participating interest and 30 percent economic interest, subject to Ministerial Consent from Nigeria’s Minister of Petroleum Resources. But it took a whooping Forty-two (42) months before Ministerial Consent was granted for the interest on 9 June 2017!
The narrative goes further that because Afren PLC, the parent company of AIOGNL was weakening, on 31st July 2015, it went into administration. LEKOIL then entered into an agreement with the Administrators of the company to purchase its shares.
To that end, on December 1st, 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 percent participating interest in OPL 310. This interest was also subject to Ministerial Consent from the Minister of Petroleum Resources
The procurement of the stakes made LEKOIL a technical and financial partner to Optimum Petroleum Development Company, the operator of the block which retains a 60 percent participating interest, and by implication, LEKOIL would hold a consolidated participating interest of 40 percent and an economic interest of 70 percent in OPL310.
It is therefore bewildering that despite LEKOIL’s confirmation of an application for the transfer of the 22.86 percent interest by Afren Nigeria in January 2016 and assurances that due diligence will be conducted in March of 2016, the company neither heard from the ministry nor the Department of Petroleum Resources (DPR), fuelling its fears of protracted, avoidable loss accrued by the operational hiatus.
As this issue portends grave danger to the industry, analysts are keen to see as events unfold and hope the imbroglio can be resolved speedily with minimal impact on investors’ confidence and the markets and in Nigeria as whole.
FRANK UZUEGBUNAM