Sao Tome & Principe nets $49.2m from oil deal with Nigeria

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By Hector Igbikiowubo wth Agency Report

Tuesday, February 08, 2005

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THE twin-island state of Sao Tome and Principe has netted
$49.2 million from its 40 per cent stake in the Join
Development Zone (JDZ) it shares with Nigeria, owing to the
signing of a $123 million offshore oil exploration and
production sharing agreement (PSA) with some multinational
oil and gas exploration firms.

While the revenue accruing to the twin island state
represents 10 times as much as the country’s annual export
earnings from cocoa, the signing of the PSA leaves Nigeria
with $73.8 million owing to its 60 per cent stake in the JDZ.

The block was awarded to a consortium comprising
ChevronTexaco (51 percent), ExxonMobil (40 percent) and the
Nigerian oil company EER (9 percent) in April last year.

EER, also known as Dangote Energy Equity Resources, is owned
by Alhaji Aliko Dangote, a wealthy businessman from Kano
State who played a prominent role in raising funds for the re-
election of Nigerian President Olusegun Obasanjo in 2003.

After several months of delay, the final exploration and
production sharing contract was finally signed in Sao Tome
last Tuesday.

The consortium agreed to pay a front-end signature bonus of
$123 million for the right to explore Block One of the Joint
Development Zone established by Sao Tome and Nigeria. This
lies in formerly disputed waters 190 miles to the north of
Sao Tome island.

Under the terms of a treaty signed in 2002, Nigeria will
receive 60 percent of all income from the exploitation of oil
and gas in the Joint Development Zone, while Sao Tome will
receive 40 percent.

Sao Tome’s share of the signature bonus for Block One is
therefore $49.2 million - a windfall for this former
Portuguese colony of just 140,000 people. Nigeria will
receive $73.8 million.

ExxonMobil said in a statement that all payments made under
the terms of the production-sharing contract would be fully
disclosed.

This is viewed as important for good governance in Africa.
Senior government officials in many oil-producing countries,
including nearby Angola and Equatorial Guinea, have been
accused of diverting much of their country’s oil wealth into
arms purchases or their own pockets.

Seismic data from Block One have encouraged oil experts to
believe that exploratory drilling will reveal large
commercial reservoirs of oil, while it is believed that the
JDZ alone accounts for over six billion barrels of oil.

The Atlantic Ocean is up to 1,800 metres deep in this block,
but new technology has made it possible for oil and gas to be
extracted profitably at these extreme depths.

Mr. Carlos Gomes, the chairman of the Joint Development
Authority, set up by Nigeria and Sao Tome to manage the
shared acreage, told the local internet news service that
drilling should start within the next six to 12 months.

If oil is found in commercial quantities, production could
start in 2008, he added.

That may prove optimistic. A World Bank official who visited
Sao Tome in late 2004 said he only expected the country to
export its first shipment of crude in 2012.