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Secret saga behind a 9 billion barrel block in Nigeria

From AFRICA ENERGY INTELLIGENCE 24 AUGUST 2011

After ten years of maneuvering and court cases, Shell ended up by offering to buy Malabu Oil & Gas’ offshore block OPL 245 (see our report in AE1 656). The stakes in the game were indeed high. lying alongside Total’s Akpo block, the acreage could contain up to 9.23 billion barrels. Amid rising calls for local ownership of Nigeria’s oil resources, the transfer of the country’s most promising license to a Western major could prove politically dangerous to the new government of president Goodluck Jonathan.

Malabu under siege

With Agip as its partner, Shell offered S1.3 billion to Malabu Oil & Gas for all of OPL 245 in early July. After fighting the Anglo-Dutch major for years in order to retain control of the concession, Malabu, founded and headed by former oil minister Dan Etete (1995-1998), had little choice but to accept: many other majors had been jockeying for years for a piece of OPL 245, and particularly China National Petroleum Corp, China National Offshore Oil Corp and Taiwan’s China Petroleum Corp, but had backed away because of the fear of legal trouble with Shell.

Debuting on OPL 245 in 2000 as minority partner of Malibu, Shell got the government of Olusegun Obasanjo to evict its Nigerian partner in 2002 and remained the lone operator of the concession for four years. To recover its acreage, Malabu instigated legal action in the United States and Nigeria and finally recovered OPL 245 in 2006. However, Shell never resigned itself to the loss and continued to include OPL 245 among its assets logged in its annual reports, although specifying that its rights were “disputed.” When Shell was OPL 245’s operator, it drilled two wells in 2005, Etam 1 and 2, that identified no less than 1,08 billion barrels of probable reserves (PSO). According to a study carried out in 2007 by the geophysical consultancy Ikon Sciences, the total of probable reserves on OPL 245 could amount to 9 billion barrels.

High Risk Operation for Abuja

Shell and Malabu signed a memorandum of understanding early this summer but Nigeria’s Department of Petroleum Resources hasn’t yet approved the transaction. And for a very good reason: Malabu was awarded its license under an indigenization program and its production sharing contract specified that 40% of the acreage had to be owned by a Nigerian company.

Transferring the block to Shell would require drafting a new contract. Moreover, state-owned Nigeria National Petroleum Corporation won’t be involved in the operation. As a result, Shell’s acquisition of OPL 245 could appear starkly at odds with calls by the current oil minister, Diezani Alison-Madueke, to nationalize the country’s oil resources.

Legal Compromise

To speed up the Nigerian government’s decision on OPL 245, Shell discreetly laid to rest an arbitration procedure this summer that it had launched against Abuja in 2007 before the International Center for the Settlement of Investment Disputes (1(510), a wing of the World Bank. Shell demanded $500 million in damages and interest. The case, instigated by Ann Pickard, who was vice president for exploration and production for Shell in Africa at the time, deeply strained relations between the Anglo-Dutch giant and the Nigerian government. Shortly after Pickard’s departure (she has headed Shell Australia since 2009), her successor, Ian Craig, decided on switching strategy: arbitration against Nigeria was gradually set aside (the latest report to the arbitration tribunal was sent in May, 2010) and direct bargaining with Malabu began. It was those talks that led to the MOV in July.

Ten years of coverage on OPL 245 can be found on our site Africaintelligence.com in the report “Shell vs Malabu: the OPL 245 Saga”.

RELATED: Allegations surrounding Shell Malabu $1.3 billion Nigerian oil deal

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