The Nigerian National Petroleum Company Ltd (NNPCL) and its partners have appointed NNPC Eighteen Operating Limited as operator of OML 18 to replace EROTON Exploration and Production Limited.
The move which has been confirmed is to curtail further degradation of the asset and revamp production of oil and gas.
The NNPC announced the latest decision in a statement issued on Monday and said to protect the Joint Venture (JV) investment in OML 18, the non-operating partners, NNPC Limited (55% interest) and OML 18 Energy Limited (“OML 18 Energy” – 16.20% interest), jointly owning 71.20% equity, decided to remove EROTON as operator of the JV in line with the provisions of the Joint Operating Agreement (JOA).
The statement said that NNPC Limited and OML 18 Energy further appointed NNPC Eighteen Operating Limited as operator of the JV.
The change in operatorship, according to the NNPC, has been notified to the Nigerian Upstream Regulatory Commission (NUPRC) and communicated to EROTON.
It said while the key business reasons that made the change in operatorship are compelling, production has declined from 30,000 barrels per day to zero.
The statement reads in part, “The persisting inability of Eroton to meet the fiscal obligations of the Federal Government led to the sealing of Eroton’s head office in Lagos by the Federal Inland Revenue Service (FIRS) for more than twelve months due to non-payment of outstanding taxes to the Government.
“Eroton is also not able to remit to the JV parties the proceeds of gas supplied to its affiliate, NOTORE.
“A number of audits and investigations, including by the Economic and Financial Crimes Commission, NURPC’s work programme audit and others have been undertaken or are ongoing.
“Some of these audits are regulatory steps that could lead to licence revocation under the relevant laws if drastic steps are not taken by non-operating partners.
“NNPC Limited in particular, as majority shareholder with a unique stewardship responsibility to the Federation, is committed to assuring that the energy and financial security of the Country is uppermost in its business decisions.
“Removing an operator in these circumstances is therefore inevitable in order to protect the JV from Governmental or third parties action from entities, including Eroton’s lenders and other service providers.”
OML 18 is an oil-producing block covering 1,035 square kilometres located south of Port Harcourt and contains eleven (11) oil and gas fields with about 714 Million Stock Tank Barrels (MMSTB) of oil and condensate and 4.7 trillion cubic feet (tcf) of natural gas reserves.
Eight fields have been developed, but only four are currently producing: Cawthorne Channel, Awoba, Akaso, and Alakiri.
In 2014, EROTON acquired the 45% interest previously owned by Shell – 30%, Total – 10%, and NAOC – 5%, in the then NNPC/SPDC/Total/Agip OML 18 JV.
Following the equity acquisition, EROTON became NNPC’s partner in the OML 18 JV and Eroton was designated as the Operator in accordance with relevant provisions of the Joint Operating Agreement (JOA) between the parties.
Subsequently in 2018, Eroton farmed-out part of its equity to OML 18 Energy Resource Limited – 16.20% and Bilton Energy Limited – 1.80%.
From 2016 to date, OML 18’s net crude oil production has significantly fallen from approximately 30,000 bpd to zero production, despite consistent compliance to the joint venture’s funding obligations by the JV partners over the same period.
In recognition of the impact of the challenges in crude evacuation via the Nembe Creek Trunk Line (NCTL), the operator proposed, and partners approved an Alternative Crude Oil Evacuation Process by barging.
“Eroton is unable to execute this alternative, leading to the current zero production status of the asset.
“NNPC Eighteen Operating Limited has taken control of the operational and production assets in the block and is currently engaging the relevant stakeholders, including workers unions, communities, amongst others to restore operations to its full capability and secure value for all partners and the Federation,” the statement added, how EROTON Breached JV Agreements with NNPC, Sahara Energy.
There are concerns over the way and manner the block is operated by EROTON, mostly bothering on transparency of procurement processes, confidence in reported production numbers, transparency of matching cash call payments and administration of JV partners’ funds.
It was gathered that in a bid to determine a true and impartial state of affairs and in accordance with clauses 2.2.11, 4.1.1, 6.6 -6.8 of the Joint Operating Agreement, the Management of NNPC Ltd appointed two Auditors – Messrs KPMG and Tamuno George & Co in July 2020, to carry out a forensic audit on the JV operations.
The forensic audit covered areas of budget process and implementation, governance and compliance and possible collusion with third parties.
In the Audit Report of Tamuno George & Co of July 2020, the Audit Firm discovered that the expenses incurred by the company were excessive and over inflated.
For instance, the Audit Report revealed that two travel and tour contracts awarded to Dees Travels & Tour, and Silhouette Travels and Tours at N300,000,000 both totaling
N600,000,000 on call-off basis from 1st Nov 2019- 31st May 2020 appear exorbitant and negates the accounting processes of the company.
The Auditors stated further that travel and tour expense paid for in 2019 (N798,631,103.78); 2018 (N389,495,871.86); and 2017 (N382,984,561.02); whose invoices were provided by EROTON to prove genuineness of travel and to expenses from vendors could not be supported with official receipts.