Nigeria’s Department of Petroleum Resources (DPR) has revoked four Oil Mining Licences (OMLs) belonging to Addax Petroleum due to the non-development of the assets by the petroleum company.
The affected assets are OML 123, 124, 126 and 137.
The Director/Chief Executive Officer, DPR, Mr. Sarki Auwalu, told journalists in Lagos on Tuesday that it was discovered that over 50 per cent of the assets had remained underdeveloped.
He said the non-development of the assets led to the loss of revenue by the federal government.
“Addax refused to develop the assets and Addax was, therefore, not operating the assets,” he said.
He said going by the country’s Petroleum Act, “the first reason for a revocation is when you discover that the asset is not being developed, according to the business guidelines, because it is economic sabotage.”
He added: “You (Addax) know the potential of the asset, but you refused to develop it. This state of underdevelopment is against the principle of the Petroleum Act and constitutes revenue loss to the government.”
Auwalu said the situation was due to a lack of investment by Addax, which he said was also against the spirit of the Petroleum Sharing Contract (PSC).
“One of the assets – OML 137 – holds a gas reserve of more than three trillion cubic meters (tcm). This has the potential for us to increase our gas reserve and it can support the integration of gas development of the asset. The entire OML 137 holds about five tcm in two key reserves, but the company failed to develop this asset in line with the government’s gas revolution policy and it was, therefore, necessary to take a step to attract willing and capable investors to under the development of the assets both for our domestic use and exports,” he stated.
According to him, the average reserve profile of the assets showed that oil reserves have remained essentially flat.
Since Addax took over, its oil reserves have remained flat, Auwalu said, adding that the company never made effort to grow the reserves.
He said crude oil in all three producing assets had been declining over the years due to inadequate investment by the company.
“There has also been significant gas flaring in all the assets, with no viable gas monetisation solution in place – either for domestic or export – which is contrary to our desire to make our economy’s gas-based by 2030. Above all, Addax has never supplied gas to the domestic market, even though they were given domestic gas supply obligation,” he said.
Auwalu stated that the revoked licences have been awarded to Kaztec and Salvic Consortium after due process, based on the same terms and conditions given to Addax.
Kaztec is owned by Sir Emeka Offor.
The consortium will meet with the DPR for an official handover of the assets.
Addax Petroleum had declared a force majeure on its operations in 2015.
In a related development, the Nigerian National Petroleum Corporation (NNPC) Tuesday signed an Engineering, Procurement and Construction (EPC) contract with Maire Tecnimont of Italy for the rehabilitation of the Port Harcourt refinery in Rivers State.
At the ceremony in Abuja, NNPC Group Managing Director, Mallam Mele Kyari, said unlike, in the past, the current exercise isn’t turnaround maintenance, but an overhaul and rehabilitation of the plant.
Tuesday’s ceremony followed the approval by the Federal Executive Council (FEC) in March of $1.5 billion for the rehabilitation of the facility, which is expected to be delivered in three phases, with the last phase due in 44 months.
According to the federal government, the project will be jointly funded with Internally Generated Revenue (IGR) from the NNPC, budgetary allocation and loans from Afreximbank.
However, the FEC’s approval generated controversy as many stakeholders faulted the propriety of committing $1.5 billion to the rehabilitation of the loss-making refinery amidst competing national needs.
Kyari again defended the decision to rehabilitate the refinery yesterday, saying in the past, turnaround maintenance projects were mismanaged, leading to the complete deterioration of the refineries.
He added that many of the questions being raised by Nigerians remain valid due to unfulfilled promises in the past.
He stated that the signing of the agreement for the Kaduna and Warri refineries will take place by June, adding that he will ensure the transparency of the entire process.
He said: “This is not turnaround maintenance; this is complete rehabilitation work. We are going to have major engineering work, major procurement and major installation work and ultimately the commissioning of the works.
“I have said it over and over that, we have not taken care of these refineries over the years; that we have mismanaged the turnaround maintenance work overtime in the last 20+ years and these plants have degenerated to a level that today, we are not turning around but resuscitating them, which is different from TAM.”
According to him, resuscitating the plant means that some of the parts have become obsolete and have to be replaced while other parts will be upgraded, noting that these come with additional costs attached.
But he said Nigerians would have the opportunity to assess what is being done to revamp the refineries, as the process would be opened to a public audit during and after the rehabilitation.
“We should have no fear because there’s a scope of work and we will publish that scope of work. There’s also a question as to why this is different, which is a very valid question. We have done TAM on these refineries over the years. There have been so many interventions that have taken place. There are so many things we didn’t do it right and we have to admit it.
“But what is different today is that we have a clearly defined scope of work. We went through a clear competitive process, we did scoping and examination and we know what to fix,” he stated.
According to him, in a clean break from the past, there’s now a contract with clear conditions as to the level of performances in relation to time, including other indemnities.
He said if the contractor fails to deliver, there are clauses on how the matter will be dealt with, adding that those details were non-existent in the past contracts, resulting in the deterioration of the refineries.
On the remaining non-functional refineries, he said: “Our schedule is to select the right contractors for Warri and Kaduna refineries and award the contracts by the end of June latest.”
The Managing Director, Port Harcourt Refinery Company, Mr Ahmed Dikko, stated that the first phase will see the rehabilitation of the facility to the desired capacity of 90 per cent and above.
He said with the experience of Tecnicmont and the local content part of the project, it would be the beginning of the country’s effort to end product importation.
“There are important commercial clauses, which we have looked at through day and night. This is the EPC process for the refinery. The price is $1.397 billion, inclusive of VAT. The provisional sum approved for this contract is $162.2 million; the mode of payment is through an escrow account which will be established in the next two months at the most.
“The commencement date will be from today and completion period will be in three phases with the maximum being 44 months, phase one will be completed in 24 months, the next phase is 32 months while the last stage will take 24 months,” he said.
Earlier, a statement from Tecnicmont said the contract would ensure the restoration of the complex to a minimum of 90 per cent of its nameplate capacity in the first phase.
It stated that the project will be delivered in phases from 24 and 32 months while the final stage will be completed in 44 months from the award date.
Group Chief Executive Officer, Tecnicmont, Mr. Pierroberto Folgiero, said with the agreement, the company’s business strategy on geography diversification, to grow and assist its clients in their revamping initiatives, is well on course.
Obinna Chima in Lagos and Emmanuel Addeh in Abuja