Dissecting the NNPC-Neconde Faceoff
FOCUS
The prolonged business disagreement between the NNPC and Neconde, an indigenous operator in the Nigerian oil and gas industry, is costing Nigeria its much-needed foreign exchange earnings as well as goodwill and desperately needed jobs, writes Emmanuel Addeh
In business dealings, disagreements are bound to happen. But when these disputes remain unresolved and are allowed to fester, hurting the parties to the deal and even the entire society, therein lies the problem.
For the first time in recent history, Nigeria has in the last two years, been unable to meet its Organisation of Petroleum Exporting Countries (OPEC) crude oil quota.
For instance, last year, the country was only able to produce just over 60 per cent of its 1.8 million barrels per day allocation. Output mostly hovered around 900,000 bpd and 1.2 million bpd.
Therefore, one would expect that with such massive production losses, the operators in the country would take advantage of every drop of readily accessible oil to ramp up production and increase the country’s foreign exchange earning while also increasing their bottom-line.
However, that appears not to be, with the ongoing war of attrition or even of egos between the erstwhile Nigerian Petroleum Development Company (NPDC) now renamed NNPC Exploration and Production Limited (NEPL), a subsidiary of the Nigerian National Petroleum Company Limited (NNPC) and Neconde Energy Limited, a Nigerian Independent exploration and production firm.
The contentious point of disagreement is the mode of transportation of the oil from Oil Mining Lease (OML) 42 to an exit point.
Neconde is currently in a Joint Venture (JV) with the NPDC or the NEPL, as it is called now on the asset, a lease which comprises previously discovered oil fields in the Niger Delta area, onshore Nigeria.
THISDAY recalls that OML 42 was acquired from Shell Petroleum Development Company (SPDC) in 2011. While Neconde has a cumulative 45 per cent participating interest in the asset, the remaining 55 per cent interest is held by the NNPC subsidiary.
Much Ado about oil movement
While the Joint Operating Agreement (JOA) guiding the relationship between the NEPL and Neconde clearly prescribes consultation in all major decisions between the two parties, Neconde contends that the unilateral decision by the NNPC subsidiary to switch the mode of transportation of oil from OML 42 without the its consent is a breach of the rules.
Indeed, the indigenous oil exploration firm, THISDAY learnt, favours barging the crude from the facility due to its greater than 90% reliability and availability that guarantees cashflow certainty over the last four years while the NNPC subsidiary insists that the oil must go through the problematic Trans-Forcados Pipeline (TFP) and Forcados Terminal (FOT) which had deteriorated to 58% availability in 2022.
THISDAY further understood that without giving any further explanation, the NEPL is basing its decision to ensure the switch from barging to the use of the trouble-ridden pipeline on a resolution by the National Security Council (NSC), which effectively took off on March 31.
However, Neconde contends that the pipeline that it is being compelled to use in transporting its > 35,000 bod production is aged and lacks integrity, thereby leading to cashflow uncertainty and serious environmental issues.
Insiders told THISDAY that the indigenous firm is maintaining that the pipeline must either be replaced immediately or alternative methods of evacuating crude oil must be deployed.
The TFP
The 95-kilometre TFP was commissioned in 1971 and is therefore about 52 years old, even though the pipeline was built to last for about 25 to 30 years. What this means is that the TFP should no longer be in use because it is already overdue for replacement by more than 20 years. Its current age far exceeds original design life.
Indeed, frequent leaks have plagued the pipeline. Numerous clamping and sectional replacements carried out to repair leaks have led to pipeline downtime on the line, thus taking a huge toll on Nigeria and Nigerians by the huge economic losses , in a country that is already severely economically challenged.
But even more catastrophic, according to those in the know, is the environmental pollution and degradation associated with every leak and subsequent repair.
The effects, according to knowledgeable sources, are long-lasting and destructive on the humans and environment, causing serious damage to human and aquatic life. Due to the incessant breakage of the pipeline, immense tracts of the mangrove forests have already been destroyed.
“It is even more devastating on humans. Spills have caused deaths, destruction of farmlands, destruction of fishing industry, destruction of the local economy, destruction of tourism facilities and cultural areas.
“Animal studies indicate that contact with Nigerian crude oil could be hemotoxic and hepatotoxic and could cause infertility and cancer. The oil spills in the Niger Delta region have acute and long-term effects on human health,” a person with knowledge of the workings of the facility told THISDAY.
In addition, the pipeline integrity is said to have been further compromised by frequent third party interferences over the years due to crude theft. In 2021, Mohammad Abubakar, Minister of Environment disclosed that Nigeria recorded 4,919 spills between 2015 and March 2021 and lost 4.5 trillion barrels of oil to theft in four years.
Oil companies, particularly the Local and Indigenous Producers using the TFP as their evacuation route will face an uphill task trying to increase production. This is because the issues the outdated pipeline has will be further exacerbated with any planned increased production and pressure.
“Imagine turning on your tap water and trying to use a very old hosepipe with leakages at multiple points to supply water to your garden or to your overhead tank. It is very ridiculous.
“There are significant line losses due to the combination of crude theft and high water cut of most of the well at this time,” the person argued.
Also, due to the overall process and integrity challenges with the pipeline, oil companies that use the TFP experience more than 40 per cent reconciliation or loss of crude pumped into the pipeline as against less than 1 per cent for those using alternative methods of evacuating their oil such as the barging method, it was understood.
Besides, due to the fact that most injectors do not have functional custody transfer units to ensure accurate measurements of injected crude into the pipeline, it further creates more issues with the accurate accounting for produced crude oil for those using TFP method of evacuation.
“With this catalogue of monumental woes, why on earth is anyone still using the Trans Forcados Pipeline or advocating the use of the pipeline without first discussing a well-drawn out plan of facility overhaul and management of change with the potential users as is traditional in any service provision of this nature with far reaching consequences in case of failure ?
“ In addition to TFP integrity issues, there have been several shuts -ins of oil wells due to challenges with FOT Forcados Terminal. Forcados loading buoy was blown up in 2016 leading to a 17-month shutdown. Also the problems with FOT’s Single Point Mooring (SPM) system resulted in 108 days of pipeline shutdown in 2022.
“An alternative is imperative and the Nigerian government is already going in this direction based on the new guidelines for barging operations effective April 1, 2023 as issued by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA),” the source explained.
To this end, it was learnt that barging and trucking permits and renewals have been issued lately to companies like Sterling, Amni, NDPRA as well as Millennium Oil and Gas.
Back & Forth
While the dispute lingers, Nigeria which has borrowed massively in recent years to fund even its recurrent expenditure, remains the biggest casualty. As it is today, due to the disagreement, there’s no production taking place in the facility due to no barging permit that should have been procured by the Operator – NEPL
But in trying to resolve the matter, a number of exchanges between the NNPC subsidiary and Neconde have taken place even though not much progress had been made.
For instance, in a letter obtained by THISDAY titled: “ OML42 Crude Evacuation: Restoration of Flow through TFP to Forcadas Terminal”, emanating from the NEPL, the NNPC subsidiary told the firm that it had gone ahead with the switch in mode of transportation despite Neconde’s protestations.
“Please be advised that project activities for the restoration of OML 42 (JV, Odidi, Egwa) crude oil evacuation through the TFP have been implemented. Accordingly, by the close of business on March 31, 2023, OML 42 crude will be diverted via the TFP to Forcados Oil Terminal. The engineering team has confirmed preparedness to this effect.
“This action is in compliance with directives from the National Security Council and other Authorities to cease barging operations before March 31, 2023. You are invited to witness the activity via the different media to be communicated,” a letter signed by Ibe Zimako on behalf of the NNPC unit. Neconde expects that as an Investor with international and Local Finance partners these sort of decision should be discussed with them.
However, in a response, Neconde reminded NEPL of its much-mouthed importance of good JV governance and stakeholders relationship and management, stressing that it was rather disappointing therefore to receive a mail ‘casually’ informing it of NEPL’s preparedness to switch the evacuation of OML 42 crude oil to Trans-Forcados pipeline (TFP/FOT) in 24 hours.
“You will recall (just in case you forgot), that OML-42 asset is owned 55 per cent by NEPL and 45 per cent by NECONDE (the only company, in the entire Nigerian upstream JV, with that level of equity interest)..
“NEL (Neconde) as an OML licence holder has full rights to determine how, and where its equity crude is taken to for sales,” the firm stated.
On November 28, 2022, Neconde recalled that NEPL wrote to both the NUPRC and NMDPRA without prior notice or engagement with NEL and without the consent of NEL, seeking their approval for the diversion of crude evacuation to TFP/FOT.
At the tripartite meeting with the Chief Executive of NMDPRA on January 6, 2023, Neconde said that the NEPL head committed to improving the governance and joint collaborative decision making for the JV.
Based on the action items from that meeting, Neconde said it wrote to NEPL on February 13, 2023, requesting for a meeting to further work on the switch and come up with timelines and modalities that will ensure that the necessary detailed diligence and management of change process is in place.
However, Neconde stated that the NNPC subsidiary ignored the letter and did not call for the suggested meeting or workshop.
“This sadly has been the treatment meted out to NEL by NEPL with regards to all JV governance. NEPL, apparently went ahead to execute a project to redirect partners crude without notice to nor consent of the equity partner. This is in blatant violation of the right of NEL as a licence holder and 45 per cent equity partner.” Part of the communication obtained by THISDAY stressed.
While admitting that NEPL, as the operator has rights enshrined in the JOA, which NEL does not contest, the firm noted that as an equity partner, it has written several emails to NEPL requesting for operational, financial , product and other relevant JV reports to no avail.
This in some quarters may have been treated differently if it was a private company taking such unilateral decision, it could be termed “ an intention to divert Crude “ as Neconde wasn’t carried along in the unilateral decision even though they kept asking.
Contempt Charges
To resolve the matter which appeared to have gone beyond peaceful settlement between the parties involved, Neconde approached the court to wade into the matter. But that too has become problematic, as the NNPC subsidiary has apparently flouted the order of the court.
In asking the court to begin contempt proceedings against NEPL, Neconde Energy Limited accused the Managing Director of NEPL, Ali Muhammed Zarah of alleged disobedience of the interim order of court made on March 29, 2023.
Other contemnors in the matter were: the Executive Director, Production and Asset Management NNPC Exploration and Production Limited, Mustapha Yusufu and the Asset Manager OML 42 —NNPC E&P Limited,- Zimako Ibe.
The applicants in their application brought pursuant to section 72 of the sheriffs and civil process Act CAP. S6 LFN 2004, filed by their lawyer, Uche Valentine Obi (SAN), stated that the alleged contemnors flouted a subsisting court order made by Justice Daniel Osiagor of the Federal High Court, Lagos State.
According to sources , the order restrained the respondents from changing, altering or replacing the crude oil evacuation arrangement in place for OML 42 crude oil through pipelines from the asset to Keremor Manifold and vessel barging operation to Ugocha export Terminal.
It also stopped the NNPC subsidiary from diverting or rechanneling the crude oil to Trans-Forcados export Terminal through the Trans-Forcados pipelines or any other means pending the hearing and determination of the motion on notice for interlocutory injunction filed in suit number no: FHCL/CS/550 2023.
Besides, the order requires that NEPL should not perform any act that could mean impeding, diverting, rechanneling the flow, evacuation or export of crude oil produced at OML 42 or otherwise failing, neglecting, withholding, delaying, the timely and adequate presentation and follow up of the mandatory application for renewal of the barging permit as Operator of OML 42 ,which is the primary cause of the shutdown of the Asset at the moment .
Aside restraining the NNPC unit from changing, altering or replacing the crude oil evacuation arrangement in place for OML 42 crude oil, it further stopped them from acting contrary to the terms enshrined in the binding Master Service Agreement (MSA) executed by it in favour of the plaintiff.
It said the document granted the sole right to handle and evacuate the entire crude oil produced at OML 42 through Ugocha Export Terminal for a period of 15 years pending the hearing and determination of the motion on notice.
‘’In defiance of orders of this court, the contemnors instructed its personnel, workmen drawn largely from the contractor, Pipeline Infrastructure Nigeria Limited, to continue with the injuncted works at the Keremor manifold .
“This was with a view to concluding it expeditiously and achieving its planned switch and diversion of OML 42 crude oil over the weekend so that it could claim that the injuncted acts had been already concluded and thus undermine the orders and foist a fait accompli on the court and render its orders impotent and academic.
‘’It is in the best interest of justice that each of the respondents contemnors be committed to prison until they purge themselves of their contemptuous conduct,” the local firm added.
Will the gladiators sheathe their sword in the interest of the generality of the country? Shouldn’t the NNPC subsidiary be more concerned about ramping up production using whatever mode of transportation which bears the highest profit, as is envisaged in the current Financing arrangement that was jointly signed on by the parties and activated less than 1 years ago , rather than the rigidity being currently displayed? These questions remain unanswered.
