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African News Dimension (South Africa): Nigeria: Senate panel indicts NNPC, Shell, others in Bonga projects

African News Dimension (South Africa): Nigeria: Senate panel indicts NNPC, Shell, others in Bonga projects   


By AND Nigeria 


(Information added by “SNEPCO” is the abbreviation for Shell Nigeria Exploration and Production Company Limited.)


ALLEGING grave irregularities in the Bonga Oil Field development project, the Senate Committee on the Upstream Petroleum Sector, has recommended the payment of USD 4,691,2b to the Federal Government by Shell Nigeria Exploration and Production Company (SNEPCO). 


According to the committee, the amount is to the “loss of government take from the project since March 2004 when the project was to commence production of the first oil.”


Additionally, the committee recommended that a foreign company, AMEC be banned from doing business in Nigeria.


The committee also recommended the sanctioning of all officials of the NNPC and the National Petroleum Investment Management Services (NAPIMS) who supervised the project.


The report of the committee presented to the Upper House of the National Assembly nearly 12 days ago, and recently made public, recommended that based on the anomalies observed in the Bonga project, every Production Sharing Contract (PSC) between the NNPC and its Joint Venture Companies (JVCs) should be investigated.


It recommended that the Debt Management Office (DMO) should be involved in all PSCs since the amount incurred by the JVCs end up as debts to be paid by the country.


In the report read to the Senate by the Chairman of the committee Senator Lee Maeba, the committee explained that it recommended the banning of AMEC from doing further business in the country because it has displayed contempt for Nigerian laws.


On the NNPC, the committee said in its recommendations: “The gross inefficiency in NNPC is colossal. There is need to reform the NNPC to make it a regulatory body in the oil industry while its present business units should be made autonomous and commercialised for improved efficiency.” It also called for the reorganization of NAPIMS so that it is a parastatal of the Ministry of Petroleum “for the sake of the national investment in the oil industry.”


The Bonga oil discovery is located in OPL 212 in the Southern part of the Niger Delta. The field lies to the South West of Warri, some 120km offshore at approximately 4033'N, 4036;E, in water depths ranging from approximately 1,000 to 1,150 metres. The licence is operated on behalf of the NNPC by SNEPCO. The main stakeholders are the Government of Nigeria, and the joint developers of the Bonga Field – SNEPCO (55 per cent), Esso Exploration and Production Company Nigeria Ltd. (20%), Nigeria Agip Exploration Ltd. (121/2 per cent) and Elf Petroleum Nigeria Ltd. (121/2 per cent).


Other recommendations of the Committee are:  


If NNPC / NAPIMS are to manage and monitor projects like Bonga, a special structure is desired. Not only would they be the right caliber of technical and financial personnel, but possess the professional orientation sufficient to ensure its integrity, sound judgment and critical evaluation and never be compromised by institutionalised cavalier attitude or outright negligence.


In view of the supervisory role vested in NNPC and NAPIMS, these two agencies of government should take firm grip on the timelessness and milestones dictated by Critical Path Analysis.


The nature and budget for the expenses on the project for the supervisory authority, NAPIMS, should not be funded by the operator.


The total recoverable cost oil expenditure now stands at $2.5 billion and the agreement should be reviewed to reflect such, while $400 million is the unexpended component of the Final Investment Decision (FID).


On the Bonga Project, the committee noted that the entire engineering design, choice of contractors and consultants, choice of construction site was done entirely by the operator, so, Shell, not the Federal Government should bear the brunt of delays in project execution and increased cost.


It added: “From all indications due process was not adequately adhered to. The wider implication of the Production Sharing Agreement was not given serious attention and approvals were not obtained for the excess expenses. In all, it appears that SNEPCO was very much on its own, without close supervision. Major disruption on the project occurred and this was further compounded by engineering/technical problems.


“Conclusively, the project failed the litmus test of a well-managed project namely completion within the agreed period and budget.


To do its job, Senate Committee on Upstream Petroleum engaged the services of Sloane, Bufford and Fullbright International, an ICT, Tax, Financial and Management Consultancy firm to investigate professionally all contentious issues arising from projects on the Bonga Field Development Project.


According to the committee, the commercial reserves associated with the Bonga development have been estimated at approximately 800 MM bbls, inclusive of the near field reserves. It is expected that the associated revenue will substantially exceed the required capital investment and operational expenditure. The project will be fully funded by the OPL 212 partnership. It should be noted that under the PSC terms, no funding from the government is required.


“The revenue to the government will be substantial throughout both the production phase and even the execution phase leading to First Oil. The revenue to the government includes petroleum profit tax, profit share, royalty tax, corporate income tax, value added tax and customs duties. Significant revenue to the government will be associated with the production of oil, the export of the associated gas to the NLNG Train 3 and the importation of equipment into Nigeria,” the committee added.


By Alifa Daniel, Abuja for Guardian newspaper






SHELL PETROLEUM DEVELOPMENT COMPANY-(SPDC) -this is a joint venture operation, managed by Shell Petroleum. The shareholding structure comprises NNPC (55%), Shell International (30%), Elf Petroleum (10%), Agip Oil (5%). This is the largest producing operation in Nigeria, and accounts for almost half of the country’s daily production (approximately 900,000bbl/day) and reserves. The company has 2 operating units-the eastern division, based in Port Harcourt, and the western division based in Warri. SPDC’s corporate headquarters is in Lagos. The company has more than 100 producing oil fields, and a network of more than 6,000 kilometres of pipelines, flowing through 87 flowstations. SPDC operates 2 coastal oil export terminals, Forcados and Bonny.


SPDC has also recently incorporated 2 subsidiary operations- Shell Nigeria Exploration and Production Company Limited (SNEPCO), and the Shell Nigeria Gas Limited. SNEPCO was incorporated to operate the deepwater blocks, which were granted to Shell in 1993. These are production-sharing contracts, and the blocks are located in water depths of between 400 and 1,400 metres. SNEPCO also operates 3 onshore blocks located in the north of Nigeria.





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