EXCLUSIVE: Jonathan Govt's Dubious OPL 245 Contract With Shell To Cost Nigeria 'Up To $5.8bn'

Once the Zabazaba and Etan Integrated Development Project comes on stream in 2020, Nigeria will lose out on 30 per cent of all revenues from crude oil sales made from the field. This is thanks to the resolution agreement on the ownership of Oil Prospecting Licence (OPL) 245 proposed by oil giants Royal Dutch Shell and Eni S.p.A. in 2010 and signed by the Goodluck Jonathan administration.

According to industry experts, the #0percent revenue loss will be $4.5billion at the minimum, and could be up to $5.8billion.

In new email leaks seen by Sahara reporters, discussions between executives in Shell Petroleum Development Company (SPDC), its subsidiary Shell National Exploration Company LTD (SNEPCO), its parent company Royal Dutch Shell, and Eni, identified the OPL 245 field as no longer a production sharing contract under the resolution they got the government to sign. During a discussion of the first draft in 2010, Malcolm Brinded, former Executive Director for Upstream International Royal Dutch Shell, said in a mail addressed to other Royal Dutch Shell executives: “Under the proposed settlement structure, this is no longer a PSC and thus no cost recovery takes place (although in settlement agreement we confirm fiscal treatment under relevant PSC law (precedents for this). We thus only rely on tax law to determine tax deductibility.”

Nike Olafimihan, Managing Counsel, Legislative Development Compliance & Functions, (SPDC), informed a team of deal breakers that the Nigerian Petroleum Corporation (NNPC) had agreed to bow to an agreement which will see it kicked out of one of the country’s most productive offshore fields. Following a meeting with the then Attorney General of the Federation (AGF), Mohammed Adoke, on Friday 11, 2011, Olafimihan said she had received information that NNPC “may be willing to bend on some of the Production Sharing Contract (PSC) issues”.

The email read: “After the meeting, I received information that NNPC may be willing to bend on some of the PSC issues, provided they contain strong disclaimers along the following lines:

Shall be a one-off that cannot be used as a precedent for any other transaction

Shall in no way affect parties’ position in the PSC arbitration

Shall not be used or acted upon in said arbitration.”

Based on a valuation of the Zabazaba Etan project, 560 million barrels of oil has been determined for the field. According to the details for the execution of the Zabazaba project, 120,000 barrels per day will be delivered by the field.

Underscoring how damning the resolution agreement proposed in October 2010 will be to the Nigerian government, Brinded said on March 22, 2010: “The solution proposed leaves NNPC without any economic interest in the Licence - a first in deepwater and obviously carrying some longer term risks.” The executives of RDS were, at this point, discussing a draft resolution agreement.

That precedence commented on by Brinded meant that NNPC would be progressively forfeiting expected revenue, starting at 30 per cent of profit oil.

Brinded, who is one of the Shell officials being prosecuted in Milan, reechoed his sentiments, this time with precise figures: “Revenue being lost would be NNPCs profit oil share (initially 30% of profit oil).”
He was giving details on the import of the deal to the other executives who seemed to need clarification on what impact their proposal would have on the future of the project.

Under the Deep Offshore and Inland Basin Act of 1999, profit oil — oil left after all costs and tax have been deducted — will be done in accordance with the agreement arrived at between the holder of the licence and the contractor. In the definition of terms listed under the act, a Holder means “any Nigerian company who holds an oil prospecting licence or oil mining lease situated within the Deep Offshore and Inland Basin under the relevant provision of the Petroleum Act. However, all production sharing contracts signed in Nigeria, since the first agreement in 1993, has been held by NNPC.

The deal, brought to the government in October by Shell and ENI to end the ownership saga with Malabu, proposed that SNEPCo and Nigerian Ajip Exploration — a subsidiary of Eni — will have 50 per cent stake each in the block. SNEPCO will be the licencee, NNPC should be roll and NAE will be the operator. Nigeria’s state-owned oil company was thus skewed off any profit oil.

In December 2017, SaharRreporters had reported that Shell and Eni paid just one-third of Shell’s valuation of the block. In setting out the case for acquiring the field, an internal Shell Group Investment Proposal dated September 10, 2008 had described the block as “a key building block in Shell's aspiration in Offshore Nigeria” with “significant strategic 'hub' value.”

The proposal was signed by Shell’s then second in command, Malcolm Brinded, who said the project had been identified as a “must win”, initial exploration having led RDS to the conclusion that OPL 245 contained “about 500 million barrels of crude oil”.

With four wells drilled, a year later, Shell revised its estimates, saying the figure was about 531 million barrels, 419 million of which was considered exploitable.

In the early 2000s, Malabu had undertaken seismic and other assessments of the field, which estimated that the field could contain up to nine billion barrels of crude oil. Malabu concluded that the gas reserves of the field, estimated at 600 million barrels of oil equivalent, were likely to be more valuable than the oil.

It held that were that total of 600m barrels to become proven and thus bookable as reserves of oil, Shell’s 50% share in the field would inflate its bookable reserves by nearly 41%, which would be of “material significance” to the share value of the company.

In March 2010, Iain Craig, Shell’s then Head of Exploration for Sub-Saharan Africa, circulated a proposal to commence negotiations with the Federal Government of Nigeria, calculating that the field would be worth between $1.6billion at $50 a barrel and $3.6billion at $80 a barrel. It was this proposal that was being discussed at the time Brinded flaunted how juicy it would be to have NNPC out of the deal. In September of that year, just six months before the deal was finally closed, Shell’s number crunchers were explicit. In a briefing for senior management, they put the value of the block at an eye-watering $3.2 billion (assuming an oil price of $80 a barrel. That estimate was made without taking account of the value of the gas.

In 2017, Abubakar Malami, Nigeria’s Attorney General, advised Muhammadu Buhari, Nigeria’s President, to terminate litigation against Shell and Eni on the grounds that NNPC could buy back its rights to become the concessionaire of the oil block. According to him, both parties had spent $2.5 billion on developing the field since 2011. However, civil society organisations have cautioned against this, saying the initial revocation of Malabu’s concession rights should have stood and no resolution needed. On this premise, they contest that the agreement could be voided, seeing that Dan Etete, former Petroleum Minister, was a public office holder when he assigned the block to himself. A26.docx A28.docx Shell emails pp 296-311 54772-13 faldone 17.docx