Signing of first oil exploration agreement delayed

The signing of Sao Tome and Principe’s first offshore oil contract, which will trigger an immediate windfall payment of nearly US $50 million, has been delayed until January, government officials said on Wednesday. The government of this small twin-island state was to have signed an agreement on Wednesday to allow a consortium comprising ExxonMobil, ChevronTexaco and the Nigerian-Norwegian oil company EER to drill for oil in Offshore Block One of the Joint Development Zone which it shares with Nigeria. However, the officials said the oil companies had asked for the signing ceremony to be postponed until 10 January. The reason behind the multinationals' request was not made public. Block One, which is believed to contain large oil reserves in deep water 1,000 to 2,000 metres below the surface of the Atlantic Ocean, was assigned to the consortium in April following an auction of nine offshore blocks in the Joint Development Zone in 2003. The group led by ExxonMobil offered to pay a front-end signature bonus of US$123 million for the right to explore this block and is expected to start drilling during the first half of 2005. However, under the terms of a treaty signed in 2002, Nigeria has the right to 60 percent of all revenues from oil and gas exploration and production in the Joint Development Zone, which covers formerly disputed offshore waters. Sao Tome, a former Portuguese colony of just 140,000 people with a per capita income of just US$326 per year, will take the remaining 40 percent. That means it will be entitled to $49.2 million of the signature bonus for Block One - a fortune for this tiny country, which until now has depended on foreign exchange income of less than US$8 million per year from cocoa exports and the sale of fishing rights to the European Union. But officials cautioned that before Sao Tome pockets its first oil money, it will have to repay its share of the $18 million it has cost to administer the Joint Development Zone over the past two years. It will also have to repay Nigeria a large chunk of the $15 million which it has borrowed from Abuja in recent years, they added. However, more oil money should be on the way shortly. Petroleum Minister Arlindo Carvalho said earlier this week that Sao Tome and Nigeria hoped to sign exploration and production sharing agreements for one or two more blocks in the Joint Development Zone during the course of 2005. Last month, Nigeria and Sao Tome invited fresh bids for five of the nine blocks that were initially offered to international companies in 2003. The offers were opened on 15 December and contained promises of much larger front-end signature bonuses than had been forthcoming previously. Block Four attracted bids of up to $175 million, while Block Two commanded a top bid of $135 million. The three other blocks attracted much more modest offers of between $37 million and $45 million Oil companies hope that Sao Tome could become as big an oil exporter as nearby Equatorial Guinea, which produces 350,000 barrels per day and is still ramping up its offshore oil and gas production. However, the country will have to live off its signature bonuses for several years before production revenues start flowing into government coffers. Oil experts predict that even if big crude reserves are discovered in Sao Tome’s deep offshore waters, it will take at least four or five years to bring them into commercial production. One World Bank official who visited Sao Tome recently warned the government that the process could take up to seven years. He predicted that the country would only ship its first export consignment of crude oil in 2012.