(formerly IRIN News) Journalism from the heart of crises

Oil minister resigns as controversy dogs award of second offshore block

[Sao Tome & Principe] President Fradique de Menezes.
AP

Arlindo Carvalho has resigned as Minister of Natural Resources of the tiny island state of Sao Tome and Principe amid allegations of irregular procedure and high-level corruption in the award of offshore oil exploration rights.

This row is continuing to delay the award of fresh acreage in offshore waters shared with Nigeria.

Carvalho quit on Monday, citing the existence of private interests in the oil business which had resulted in previous governments signing unfavourable accords with the Nigerian-controlled oil company Environmental Remediation Holding Corporation (ERHC).

Obligations entered into by previous administrations were having a negative impact on current negotiations to award new offshore blocks for exploration, he added.

Two weeks earlier, President Fradique de Menezes sacked his personal adviser on petroleum issues, Patrice Trovoada.

Menezes accused Trovoada of using his official post to further his own private business interests. The president said in a statement there was "a clear situation of conflict between his own interests and those of the country".

Another of Menezes' former advisers, Manuel Rita, has also been forced to quit after revelations that he owned shares in ERHC.

Menezes, meanwhile, has been accused of taking money from interests close to the Nigerian-controlled company in the past.

This row simmers on and has forced the president to take a back seat in deciding how offshore blocks should be allocated to competing oil companies, as he prepares his campaign to run for a second five-year term in 2006.

Menezes announced at the weekend that he would stand down from Sao Tome's National Petroleum Council, which is charged with recommending which bids should be accepted.

The president said that in future he would simply exercise a watchdog role over the award of exploration rights at arm's length from the process of detailed decision making.

Sao Tome and Nigeria signed a first contract awarding exploration rights in their Joint Development Zone to a consortium led by US oil giants ChevronTexaco and Exxonmobil on 1 February.

The deal triggered a front-end bonus payment of US $123 million, of which Sao Tome is due to receive $49 million.

However, the award of a further five offshore blocks to companies, which took part in a second licensing round last year, has been delayed by a row over the status of ERHC.

The US-registered company is controlled by Sir Emeka Offor, a wealthy Nigerian businessman who is widely reported to have enjoyed close links with Nigeria's former military ruler Sani Abacha.

Offor owns 35 percent of ERHC and is chairman of the company. It has no tangible oil assets and has never drilled a single oil well.

However, in 1997, ERHC negotiated a deal with Sao Tome which gave it preference rights to equity stakes in six different blocks in the Joint Development Zone, including all five currently up for grabs.

That agreement, signed by former president Miguel Trovoada, was renegotiated by Menezes in 2003, two years after he was elected president. But it still leaves ERHC with preferential rights to equity stakes varying in size from 15 to 30 percent in the different offshore blocks.

The present row focuses on opposition allegations that ERHC has been given unfair advantages in the current bidding process for offshore acreage.

As a result, the critics say, Sao Tome is likely to receive less money up front from any oil exploration and production agreement in which the company becomes involved.

Antony Goldman, an oil analyst with Clearwater Research in London, said Menezes had been able to wring some concessions out of ERHC when he renegotiated its agreement with Sao Tome.

But he said the deal was still "ruinously unfavourable" to the government.

"Sao Tome tried to extricate itself from the deal, but just couldn't. I think they are stuck with the deal," he told IRIN.

ERHC has formed a series of partnerships with three different US oil companies with a respectable track record of exploration and production to bid for all the blocks currently on offer.

International oil companies had been expecting Nigeria and Sao Tome to award these blocks in January, but four months later, the deals are still held up by political wrangling.

Goldman said the crux of the problem was block four, where EHRC and is partner Noble Energy have offered a front-end bonus of $57 million along with pledges to take an ambitious drilling programme.

Its rival, the US oil company Anadarko, has offered a much higher bonus of $91 million, but has committed itself to drilling fewer wells over a longer period of time, he said.

The Joint Development Zone was established in 2001 and is administered by a bi-national authority based in the Nigerian capital Abuja.

Under the terms of the agreement, Nigeria will receive 60 percent of the revenues from any oil and gas found in the deep offshore waters, while Sao Tome will receive 40 percent.

The Joint Development Zone is widely believed to contain an extension of Nigeria's existing offshore oilfields. ChevronTexaco is expected to start exploration drilling in 2007.

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