Oil companies bid over $500m for offshore exploration rights

US and Nigerian oil companies have bid over US $500 million for the right to explore deep waters in the Gulf of Guinea shared by Nigeria and the small island state of Sao Tome and Principe, Antony Goldman, an African oil analyst with Clearwater Research in London, said on Tuesday. This was far more than the two states had been expecting and should mean a windfall payment of around $200 million for Sao Tome in the first half of 2004, he told IRIN by telephone. "Sao Tome earned $3.9 million from exports last year. That is like 50 years of exports at one go. It is not bad," said Goldman, who had talked to the oil adviser of Sao Tome President Fradique de Menezes following the disclosure of the bids on Monday. "This is not going to change the world, but it is going to change Sao Tome's world," he added. "It does herald a transformation, even if they don't get anything else...I think it will mean quite a lot." The former Portuguese colony of just 170,000 people has until now eked out a living from growing cocoa and selling the deep-sea fishing rights of its offshore waters. Its per capita income of $280 per year makes it one of the poorest countries in Africa. But an oil bonanza could transform Sao Tome rapidly over the next decade. Eight years after pumping its first oil, nearby Equatorial Guinea has a per capita income of more than $4,400. Goldman said ChevronTexaco had emerged as the key player in Sao Tome, offering a signature bonus of $123 million for the hotly contested right to explore block one. This lies just beyond Nigeria's own territorial limits and contains water depths of 1,000 to 2,000 metres. Goldman and oil industry sources in Nigeria said ChevronTexaco had managed to beat a bid of $120 million for block one by Consolidated Oil of Nigeria and 10 other offers for the same favoured acreage ECL International, a Nigerian firm, had meanwhile offered a $100 million signature bonus for block four, the other most keenly contested block on offer, Goldman said. It beat off seven other contestants. Nigeria and Sao Tome had demanded a minimum $30 million signature bonus for each of the nine blocks they tendered jointly in April. Sam Dimka, spokesman of the Joint Development Authority set up by Nigeria and Sao Tome to administer their shared offshore waters, said 33 bids were received from 20 companies for eight of the nine blocks on offer. He declined to reveal the level of signature bonuses offered, but industry sources said most ranged between $35 million and $60 million. Goldman said that if you added all the highest bids for each block together, the total came to around $540 million - more than double the minimum $210 million stipulated. However, he said there was a question mark over whether some of the lesser known Nigerian bidders could really pay up the sums they had offered. Many of them were speculative real estate companies that usually tried to sell on the blocks they bid for at a higher price to a genuine oil company. Goldman said most were not established oil production companies which planned to explore and develop the blocks in their own right, although he noted one bid by a subsidiary of the state-owned Nigerian National Petroleum Corporation. Under the terms of a 2001 treaty, Nigeria and Sao Tome established a joint development zone where their offshore waters overlap. Nigeria, which is already Africa's largest oil producer with output of two million barrels per day, will take 60 percent of all oil and gas revenues accruing from these waters, while Sao Tome will take 40 percent. The Joint Development Authority (JDA) established by the two countries to administer this zone expects to choose the winning bids in the current licencing round by the end of December. It will then spend three to six months negotiating production sharing agreements with each of the preferred bidders. Only when these agreements are signed - probably between March and June 2004 - will the signature bonuses be handed over. But Dimka said the process could be much faster. "The prospects are very good and meet the aspirations of the JDA," he told IRIN. "From all the indices, we are looking at exploration starting in the first quarter of next year." Goldman said that given the extreme depth of the water involved - 1,000 to 3,000 metres - it would probably be four to five years before commercial production began, assuming that commercial quantities of oil were found. Existing seismic data suggested that the Joint Development Zone held between three billion and eight billion barrels of oil reserves, he added. The oil analyst said the only established oil companies with a proven track record of exploration and production to submit bids in the current licencing round were ChevronTexaco, Anadarko, a US oil company with big interests in Algeria, and Statoil, the Norwegian state oil company. However, Anadarko and Statoil were both heavily outbid on the acreage they applied for. Goldman also pointed out that ExxonMobil, the world's biggest oil company, had pre-emption rights which entitled it to buy stakes of up to 40 percent in three of the nine blocks on offer, provided it matched the price offered by other bidders. The Sao Tome online news service Vitrina quoted Sao Tome President Fradique de Menezes as saying in a speech on Monday that his government was aware of the dangers as well as the benefits that an oil boom could bring. "We will be open and transparent in the way we do business in oil and we will implement a plan to manage these revenues that takes into account the Millennium Development Goals of the United Nations," Menezes was quoted as saying. The president was briefly ousted from power by a military coup in July, but was reinstated a week later after the soldiers who seized power gave way to pressure from Nigeria and other African countries for his return. Menezes promised then to crack down on corruption and provide guarantees for the prudent management of Sao Tome's oil wealth. "We will implement the best practice developed by other countries and will try to go even further to ensure that the revenue from oil serves the people of Sao Tome and Principe, both in this and future generations," he said on Monday.