Government nets $49m from signature of first oil exploration deal

The twin-island state of Sao Tome and Principe has finally signed its first offshore oil exploration and production sharing agreement, triggering a front-end bonus payment of US$49 million - 10 times as much as the small country's annual export earnings from cocoa. 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 Aliko Dangote, a wealthy businessman from northern Nigeria 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 on Tuesday. The consortium has 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 million - a windfall for this former Portuguese colony of just 140,000 people. Nigeria will receive $74 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 the nation's oil wealth into arms purchases or their own pockets. Seismic data from Block One has encouraged oil experts to believe that exploratory drilling will reveal large commercial reservoirs of oil under the seabed. The Atlantic Ocean is up to 1,800 metres deep in this block, but new technology has made it possible for to extract oil and gas profitably at these extreme depths. 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 Vitrina http://www.cstome.net/vitrina 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.