ONGC-Mittal gives up oil block in Nigeria

ONGC-Mittal Energy Ltd, the famed joint venture of ONGC and steel czar Lakshmi Mittal, has relinquished an oil block in Nigeria after the African nation refused to relieve it of a USD 6 billion downstream investment commitment.

OMEL - a joint venture of ONGC Videsh and Mittal Investment Sarl - had in 2005 won right to explore for oil and gas in offshore OPL-279 and OPL-285 blocks after committing to invest USD 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.

It paid a signature bonus of USD 50 million for OPL-285 and USD 75 million for OPL-279.Sources said the company had in 2012 relinquished deepsea block OPL-279 after prospective hydrocarbon zones did not offer any viable commercial development.

It offered to continue with the other block OPL-285 provided Nigeria relieved it of the USD 6 billion commitment. As the waiver was not agreed by Nigeria, OMEL transferred its 64.33 per cent stake in the block to partners Total of France and EMO, a local Nigerian company. Prior to the transfer, Total held 25.67 per cent interest and EMO the remaining 10 per cent.

After this relinquishment, OMEL is left with just the Al-Furat project in Syria with China National Petroleum Company International. However the oil and gas field has been shut since late 2011 after the European Union imposed oil trade sanctions on Syria due to geo-political developments.

OMEL had in February 2007 singed production sharing contract (PSC) for OPL-279 and OPL-285.

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 had 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 per cent and 14.5 per cent stakes in deep offshore licence OPL-285 and OPL-279 respectively. OMEL held 45.5 per cent stake in OPL-279 while the Nigerian company EMO Exploration and Production 40 per cent.

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 per cent stake in OMEL while Mittal Investments has 48.02 per cent. SBI Caps has the remaining 2 per cent.

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.