Jan 29, 2013
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New Delhi: OMEL, the famed joint venture of ONGC and steel czar Lakhsmi Mittal, has relinquished an oil block in Nigeria and will give up the only other asset it is left with in the African nation unless it is relieved of a USD 6 billion downstream investment commitment.
ONGC Mittal Energy Ltd—JV of ONGC Videsh and Mittal Investment Sarl—had in 2005 won exploring rights in OPL-279 and OPL-285 blocks after committing to invest $6 billion in an 180,000 barrels per day greenfield refinery, a 2,000 MW power plant or a railway line from east to West of Nigeria.
Bad deal. Reuters
It paid a signature bonus of $50 million for OPL-285 and $75 million for OPL-279.
At the end of the first phase last year, OMEL has relinquished one of the blocks (OPL 279) while in another, OPL 285, it is willing to go ahead only if the Nigerian government would waive the requirement to set up attendant downstream facilities, official sources said.
Initial exploration has established only sub-optimal quantities of hydrocarbons in both the blocks and OMEL is reluctant to enter Phase-II as downstream investments attached to it impose unsustainable financial burdens, they said.
As per the MoU for the blocks, the Nigerian government was to offer OMEL 120,000 barrels a day (6 million tons a year) crude oil lifting rights on a commercial basis, two deep water exploration blocks that would attract a signature bonus structured to reflect an appropriate carried participation in a proposed 180,000 bpd refinery and assurances of LNG off take.
Further, upon commercial discoveries of hydrocarbons in the two blocks and assured uplift of crude, the Indian combine would invest USD 6 billion in Nigeria on construction of railways, 2000 MW coal/gas based power plants, commercial agriculture and upgrade the Petroleum Training Institute in Delta State.
The Nigerian government had the right to decide the order of priority.
However, the downstream commitments have not been stuck to and OMEL has therefore requested the Nigerian National Petroleum Company (NNPC) for waiver of investment obligations attached to PSC of the blocks for entering into Phase-II, the sources said.
This downstream commitment has been found to provide a negative return as per a study conducted by Foster Wheeler on behalf of OMEL.
In November 2008, OMEL had got French energy major Total as technical partner offering 25.67 percent and 14.5 percent stakes in deep offshore licence OPL-285 and OPL-279 respectively. The Nigerian company EMO Exploration and Production is also partner on both of the blocks.
Mittal Investments Sarl is the private investment company of the Mittal family and ONGC Videsh Ltd (OVL), the overseas investment arm of ONGC. OVL holds 49.98 percent stake in OMEL while Mittal Investments has 48.02 percent. SBI Caps has the remaining 2 percent.
Nigeria was the first place where the much-hyped JV between the Indian flagship and the holding firm of Mittal had secured an overseas energy asset.
For each block, the first exploration period, which ended in 2012, encompasses the commitments of acquisition and processing of 500 sq km of 3D seismic and the drilling of one exploration well.
In the second five-year exploration period, which is optional, the work commitments will cover the acquisition of a further 500 sq km of 3D seismic and the drilling of two wells.
Covering an area of around 1,170 sq km, OPL-285 is located 80 km offshore, near the Bonga field, in water depths ranging from 400 to 900 metres.
OPL-279 is located some 100 km offshore, near the Ehra and Bosi fields, in water depths ranging from 800 to 1,800 meters. The licence covers an area of around 1,125 sq km.
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