DJNW reporting that finally Presidential decrees have been issued.
Good news and bad news.
Soco and Dominion have their blocks confirmed
Blocks 1 and 2 are stripped from Tullow and Heritage and given to Caprikat
DJNW:
The decree, which was supplied to Dow Jones Newswires by non-governmental website "www.leganet.cd", was signed Friday by President Joseph Kabila but published in the gazette dated Tuesday.
More complete piece:
LONDON (Dow Jones)--Congo's government has declined to ratify U.K.-listed Tullow Oil PLC's (TLW.LN) licenses for two key oil exploration blocks, instead awarding them to companies owned by a relative of South African President Jacob Zuma.
The presidential decree from Kinshasa confirmed long-stalled licenses for some U.K. and African oil companies, but replaced Tullow and its partners with Caprikat Ltd. and Foxwhelp Ltd., owned by the South African businessman Khulubuse Zuma.
The decree, supplied to Dow Jones Newswires by non-governmental Web site www.leganet.cd and signed Friday by President Joseph Kabila, show blocks 1 and 2 of the Albertine Graben were awarded to an alliance between Caprikat and Foxwhelp.
Attempts to reach Kabila's office for comment were unsuccessful Thursday.
The move is a setback for British-Irish independent Tullow which, along with partners Heritage Oil PLC (HOIL.LN) and state-oil company Congolaise des Hydrocarbures, or Cohydro, had been awarded the licenses by the government in 2006. The licensees were still awaiting ratification by President Kabila. Tullow owns a 48.5% stake in each of the two blocks.
The blocks are located along Lake Albert. Tullow has made huge discoveries on the Uganda side of the lake--the resource base is in excess of 800 million barrels of oil--which it plans to turn into an integrated project with China's Cnooc Ltd. (CEO) and French oil major Total SA (TOT).
Total had already looked at joining Tullow on the Congolese side if the awards had been ratified.
Heritage referred calls to Tullow, which it described as the operator in the partnership. Cohydro couldn't be reached.
A Tullow spokesman said: "We are reviewing our options but have no doubt about the legal validity of our claims to these blocks."
But he said the awards of key blocks to unknown companies will raise questions about the transparency of the country's oil sector.
"This is a sad day for the DRC," the spokesman said. "The award of these licenses to unknown British Virgin Islands-registered companies does nothing to help Africa build any sort of reputation for transparency."
Khulubuse Zuma hailed the decree as a landmark decision that establishes a strategic alliance between Congo and South Africa.
"The contract ... is an important first step in the establishment of a wider industrial partnership between the two countries in the oil and gas sector," he said in a statement.
Kabila also ratified rights to two other blocks in eastern Congo that had been awaiting his approval since December 2007. He confirmed a license shared by U.K. independent companies Soco International PLC (SIA.LN) and Dominion Petroleum Ltd. (DPL.LN), and another license issued to South Africa's South Africa Congo Oil [Pty] Ltd. on another block. Cohydro is a partner in both blocks.
Dominion and Soco declined to comment. South Africa Congo Oil could not immediately be reached.
The decrees come as Congo-Kinshasa is ramping up the development of its oil resources after the recent appointment of new petroleum minister, Kabila loyalist Celestin Mbuyu.
Next month, Soco expects to spud a well in another onshore block, Nganzi, the first onshore drilling in 40 years in the African nation. Eni SpA (E), which has announced an agreement to help Congo develop its oil, has expressed interest in entering the block, according to people familiar with the matter.
Despite Congo sitting on a significant oil and gas potential, years of civil strife kept the country's production at about 20,000 barrels of oil a day.
One thing I'm sensing on the Africa oil scene right now is governments' realising the power they have going forward in a world market deprived of politically friendly oil, to the point they can manipulate everything to their advantage. This has been a trend elsewhere of course, notably Libya, sucking in oilcos on punitive terms for seemingly(but mistakenly in the event) easy oil. Today's news is indicative of the trend of government wielding their new found power over a hoard of oilcos eager to establish a foothold in DRC.
I think Uganda's apparent rock solid stance that HOIL pay CGT for their sale, even though their contract will almost certainly absolve them of any liability to pay such tax, is a mark in the sand for oilcos whose strategy is to build value and sell in Africa. Interestingly, I read somewhere today that ENI might re-enter the HOIL/Uganda fray. If you recall, there was rumour that ENI were offering the government $250m to see their bid through. The point though is that these shenanigans are avoided by a complete takeover of the company holding the assets of interest. Presumably, ENI didn't like HOIL's other stuff (probably Kurdistan)but maybe they might be re-considering? For us and Soco, I feel that management's best exit for the African holdings is likely to be a full takeover of the company and since those interested in Vietnam with an equal interest in Africa is likely to be the Chinese, I guess a bid for the whole of Soco will come from that direction, very possibly well before much advancement is made on the Africa explo front...getting the licences is half the battle!
It's also worth thinking about Vietnam authorities invoking their tax laws regarding transfer of assets. I know the company have been adamant that the sale of Soco VN is not a transfer of assets, just a corporate deal, but who knows how the worldwide contagion of government snatching of taxes spreads in these difficult times? Strikes me that a clean sale of everything lock stock and barrel is the most likely preferred outcome and events in both Asia and Africa need to come together before this is realised. Maybe mid 2011?
For us and Soco, I feel that management's best exit for the African holdings is likely to be a full takeover of the company and since those interested in Vietnam with an equal interest in Africa is likely to be the Chinese, I guess a bid for the whole of Soco will come from that direction, very possibly well before much advancement is made on the Africa explo front...getting the licences is half the battle!
It's also worth thinking about Vietnam authorities invoking their tax laws regarding transfer of assets. I know the company have been adamant that the sale of Soco VN is not a transfer of assets, just a corporate deal, but who knows how the worldwide contagion of government snatching of taxes spreads in these difficult times? Strikes me that a clean sale of everything lock stock and barrel is the most likely preferred outcome and events in both Asia and Africa need to come together before this is realised. Maybe mid 2011?
Yes. I have also increasingly been coming round to that view over the last year - and my reading of it is the company are more inclined to that course than perhaps they once were. Of course the VN side has always been expected to be a whole company sale of a subsidiary - but, with Thailand in the departure lounge and Nganzi seeing active drilling this year, then there is certainly an emerging opportunity to sell out entirely. For any buyer, of course, there would be considerable upside opportunity remaining - especially in further exploring the TGD area and in the newly-confirmed Block 5 in DRC, but also other opportunities in Cuvette etc on a longer timeframe.
As to who might be buyers, I think ENI are very firmly in the frame and perhaps TOTAL too (as well as the Chinese). Success in TGD will provide someone with a core business in Vietnam that may be capable of producing 100,000+bopd net (depending on how things work out) and thus justify even a major entering a new country.
On timing (as ever) one cannot tell when a buyer will meet the threshold that management will have in mind. However, if they were to go down the route of a formal auction then mid 2011 sounds a perfectly decent guess - though it could be sooner if either TGD-2X fails (or suggests the fan interpretation is wrong) or if VN licence processes permit a follow-up well to be drilled on the fan before the monsoon season.
It isn't going to be dull.
ee
This, IMHO, is an error of judgement by DRC ruling government.
DRC's oil in Lake Albert region will be left to "rot" in the ground as the export options to any Operator here are quite limited. No one in their right minds will build a pipeline to DRC's Atlantic coast. Whoever produces DRC crude (assuming Tullow dont) will need to use whatever Ugandan infrastructure is available in order to transport across lake into Tullow et al owned blocks using Tullow et al infrastructure to get crude into the proposed export oil pipeline to coast.
Currently Tullow and their Ugandan partners (CNOOC/Total) are planning to develop the Ugandan side of Lake Albert and all lake infrastructure on Ugandan side will be owned by the consortia. The consortia may allow access to non-owned/non operated DRC crude to their infrastructure but only if they have any spare capacity (i.e. DRC oil will have to wait for its turn) and at a tariff that, well, suits Tullow et al. Either way (for DRC government) Tullow et al will make the risk free big money on DRC LA crude exports.
DRC would have been better off leaving the LA blocks with Tullow as there would have been some hope then of the crude coming to export market in the next 10 years as Tullow et al would hav efactored in contribution from thsi side of LA when deciding on what will be the optimum export capacity of the whole region to use when sizing infrastructure...etc. Now if DRC award these blocks to these other copanies then that contribution from DRC "factoring" would be eliminated, and spare capacity wont be available to DRC for a long while. If DRC proceeds to permit these other companies to develop it will 15 yrs minimum before a crop of oil is produced and exported across the lake........and at an Ugandan LA side infrastructure tariff that will border on usury.
JPGH
This, IMHO, is an error of judgement by DRC ruling government.
DRC's oil in Lake Albert region will be left to "rot" in the ground as the export options to any Operator here are quite limited. No one in their right minds will build a pipeline to DRC's Atlantic coast. Whoever produces DRC crude (assuming Tullow dont) will need to use whatever Ugandan infrastructure is available in order to transport across lake into Tullow et al owned blocks using Tullow et al infrastructure to get crude into the proposed export oil pipeline to coast.
I can see the argument here, JPGH, but I also think that it is premature to rush to conclusions like this. Obviously Tullow considered that "they were the only game in town" and that they had a very strong argument for having the blocks. They certainly did, from a technical standpoint, for all the reasons you mention - but IMO what has happened is that they may have been trumped by concern from the DRC that Tullow is too close to Uganda and that DRC doesn't want to be doubly dependent on either of them.
I would perhaps suggest that any finds in the Lake Albert area may ultimately be piped down to the DRC production hub in Lake Edward, from whence a route to the coast may be via Rwanda and Tanzania? In short there could well be other options, depending on the outcome of drilling etc (all of which are some time off in DRC)
Formal news of the decree now out this morning and the RNS indicates a commitment to two wells on block 5 in the first 5 year term.
rgds
ee
ee,
LA crude, whether Ugandan or DRC in "origin" is shoe polish in texture and will carry a large tariff to flow to coast for export. There will only be a single pipeline to coast from here, through Tullow blocks taking in either a Kenyan route to coast or a longer route traversing Lake Vicitoria to coast via Tanzania. A pipeline passing near (overland, 200-300 km from DPL blocks) Lake Edward is not featuring on the development horizon (yet) unless DPL come up with a potentially large discovery with their drill, currently in progress, or follow on drills in LE.
Obviously it is too soon to draw conclusions here as maybe, as you say, TLW are too close to Ugandan authorities for now. Maybe DRC crude will end up being purchased (at a favourable "netbacked" price) by Uganda for local refining therby allowing Uganda to route more of their own crude to coast for export.
I still think it is a dangerous path that DRC has chosen here that risks them being left with the choice of a go-it-alone prohibitive route to coast or being shafted by both TLW et al / Uganda should they opt to route crude to coast via Uganda. They would have been better off with an intermediary e.g. a decent sized Oil Co with local experience, to look after their (and Oil Co's) interests.
JPGH
I still think it is a dangerous path that DRC has chosen here that risks them being left with the choice of a go-it-alone prohibitive route to coast or being shafted by both TLW et al / Uganda should they opt to route crude to coast via Uganda. They would have been better off with an intermediary e.g. a decent sized Oil Co with local experience, to look after their (and Oil Co's) interests.
Oh - I don't disagree for a second that the path is dangerous. Taking ANY decisions in that area is dangerous - because it is so remote from the coast. I suspect that these considerations and the complexity of the game being played are the main reasons for the extraordinary time it has taken to get to this point.
I suggested it was "premature" though in part because we have yet to see who partners up on DRC blocks 1 and 2. For all we know at this point, we may have ENI, TOTAL or the Chinese all primed and ready to farm in to the blocks - or to take stakes in the companies who have got the licences. What ultimately will matter is whether the actual work is being done by credible parties....and if the present licence holders retain a 10% free carry (or whatever) then they have some skin in the game if political strings need pulling by South Africa or others.
We'll see, over time.
cheers
ee
Smack bang in the middle of the two lakes...
http://www.google.com/hostednews/afp/article/ALeqM5jgRbnwZEIL-hzBKoaePcKinH1GWg
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I picked up this yesterday which is (off commodity as it were ) but clearly not off topic, and bad enough to be taken up by the Canadian government .
http://www.mineweb.co.za/mineweb/view/mineweb/en/page31?oid=106972&sn=Detail&pid=31
Canadian Prime Minister Stephen Harper brought to the attention of the G8 the expropriation of First Quantum Minerals' Kolwezi Tailings copper project by the DRC government last September
Last September, the government shut down First Quantum's Kolwezi mine after claiming the Vancouver-based junior copper miner violated parts of its contract. Police sealed off the US$765 million project, which was still under construction.
In May First Quantum Minerals had its mining rights around its Frontier Mine withdrawn by the DRC Supreme Court. The high court ordered that exploration and mining rights for Frontier and Lonshi, an exploration property, be turned over to state-owned company Sodimico, the original owner.
An earlier link.
http://www.financialpost.com/news/Harper+take+Quantum+case/3183129/story.html
“This type of behaviour and disregard for the rule of law should not go unnoticed,” the official said. “The government is very concerned about the action taken against First Quantum.”
Last September, First Quantum had a $765-million project in the DRC expropriated and its rights handed to another company whose principal is connected to DRC president Joseph Kabila.
As the National Post reported last week, the company is concerned the project will now be sold to a third party, with all profit flowing to insiders.
Two other First Quantum projects in the DRC are under threat and the company has lost more than $1-billion in market capitalization because of the uncertainty. Nearly 90% of First Quantum’s shareholders are Canadian.
Old news from a month ago. There is a dispute over whether the work programme has been carried out and therefore First Quantum have been taken to the local courts to annul the contract on the basis of failure to perform. FQ claim they have not missed any deadlines although they accept they are only about 70% built and were expected to be finished 1Q2010. The mine is in the south central area of the country towards the Zambian border and elements of the dispute have been awaiting international arbitration for months.
SOCO's legal position is completely different, with some specific contractual protections, and there is also not the slightest suggestion that the work programme hasn't been delivered.
Nevertheless, it does emphasise the importance of getting things 100% right when dealing with the DRC (or any governments for that matter) - and I think one can fairly conclude from the fact that the SOCO/Dominion block 5 got ratified by the President (whereas other agreements did not) that the government is pretty happy with SOCO at present. No doubt an experienced diplomat on the board helps too.....
ee
ee
Dont forget though that the IFC were also involved with FQM so its not as if the DRC are shy of tussling it out with the authorities.
Nevertheless, agree that good relations and a diplomat will make it easier on SIA.
Dont forget though that the IFC were also involved with FQM so its not as if the DRC are shy of tussling it out with the authorities.
Well yes - but the question of who has provided funding isn't really relevant to the question of whether or not they have performed as the contracts required.
What it does indicate is that it would be unwise to fail to do as one promises.....
Anyway - somewhat OT for here, given the different legal and contractual situation....
Cheers
ee
Hi ee,
FQ claim they have not missed any deadlines although they accept they are only about 70% built and were expected to be finished 1Q2010.
I can't imagine that any reasonable person would consider slippage in a complex engineering project (i.e. building a mine) reasonable grounds to remove the licence! Just as SW10's law applies to drillng a well a similar law applies in spades to mine construction. I cannot imagine that FQM would have signed up to a licence that didn't use legally understood terms such as "reasonable endeavours" in relation to timescales, with specified penalties in the event of missing those timescales - for reasons within their control. I cannot consider that licence removal and forfeiture of massive CAPEX would be a reasonable penalty for missing a target.
Of course, without sight of the actual document I can't be certain that this is correct but I'd be very surprised if it wasn't.
As an investor in Soco, I don't imagine you'd be too pleased if Soco had their licence removed because they failed to fully develop a discovered field within a nominal timetable.
The truth of the matter is undoubtedly, as you indicate, that maintaining the closest possible links with all relevant officials up to presidential level is crucial, as is ensuring that those links are kept happy and that one has a great intelligence network to remain alert to threats.
Soco has done very well in navigating tricky political waters in Vietnam. I believe its political & diplomatic nous is one of the company's greatest (and least understood) strengths. It is also a key reason why I became convinced that Soco should be a core holding of mine after the 2009 AGM. I hope Soco can continue to pull off the same diplomatic trick in DRC - but the sooner the projects are drilled and they or the company sold on the better. ;0)
Cheers,
Mark
The truth of the matter is undoubtedly, as you indicate, that maintaining the closest possible links with all relevant officials up to presidential level is crucial, as is ensuring that those links are kept happy and that one has a great intelligence network to remain alert to threats.
Old hands following the oil biz have known forever that relationships are the be all and end all in Africa and bongoland beyond. However, that doesn't mean every relationship-based deal is infallible. I'd be amazed if FQM didn't have previously excellent relationships with those people that matter. The trouble is that regimes and more particularly the folks within them change all too frequently, requiring fresh relationships. Of course, mining in DRC has long been a big money spinner for both government and local war lords, so it's not that surprising that the proclamation a couple of years ago that all mining licences were going to be re-examined, has resulted in this FQM episode.
Oil exploitation is relatively new to DRC, so it's not in the same category and therefore, won't, at least in the near term, be subject to the same treatment as has resulted for FQM. You've got to demonstrate a recoverable resource first anyway ;-)
The time to worry is some point later on after hopefully drilling success but as I suggested the other day, management is likely mindful to exit pre-development before any potential FQM-like problems occur.
Indeed davjo, they undoubtedly will. Mind you, there'll probably be another episode similar to Hoil in Uganda with a tax (aka pension fund) demand. Then again, selling the whole company (plc) would overcome that I guess.
Hi Mark,
I can't imagine that any reasonable person would consider slippage in a complex engineering project (i.e. building a mine) reasonable grounds to remove the licence! Just as SW10's law applies to drillng a well a similar law applies in spades to mine construction. I cannot imagine that FQM would have signed up to a licence that didn't use legally understood terms such as "reasonable endeavours" in relation to timescales, with specified penalties in the event of missing those timescales - for reasons within their control. I cannot consider that licence removal and forfeiture of massive CAPEX would be a reasonable penalty for missing a target.
As I said, this is all somewhat OT as the legal situation is significantly different with SOCO. However, I don't think one should assume that the work programme was the only factor which led to the legal action - there was undoubtedly a wish to reopen contracts that may have been too favourable ....and a convenient pretext had been provided. I don't think either of SOCO's blocks carry terms that the government are unhappy with - otherwise they wouldn't have received the decree on block 5.
I believe its political & diplomatic nous is one of the company's greatest (and least understood) strengths. It is also a key reason why I became convinced that Soco should be a core holding of mine after the 2009 AGM. I hope Soco can continue to pull off the same diplomatic trick in DRC - but the sooner the projects are drilled and they or the company sold on the better. ;0)
Yes I agree with all of that. In fact I think that the West African links are rather better (and more important/necessary) than the VN ones. With the DRC projects, there are very sound arguments for "leaving more on the table for the next guy" than they will be doing in VN - so, as dj and others have recently noted, a whole company sale becomes more likely in 2010/11.
ee
Just found this link here that may be of interest. http://www.businessweek.com/news/2010-03-29/congo-plans-oil-pipeline-from-central-basin-to-atlantic-in-2015.html.
Maybe Tullow willingly did not resist/object too much to giving up LA Blocks 1 & 2 containing more of the difficult to produce/transport waxy crude if they seeking a biogger prize i.e. a successful bid for upcoming license blocks discussed below.
March 27 (Bloomberg) -- Democratic Republic of Congo plans to begin work on a 1,500-kilometer (930-mile) oil pipeline from its central forests to the Atlantic coast as early as 2015, the Ministry of Oil said.
The pipeline would deliver crude from potential oil discoveries in Congo’s 800,000-square-kilometer central basin, to the western port of Matadi on the Congo River.
“We think the cost will be $3.5 billion,” Oil Ministry representative Joseph Pili Pili said by phone from the capital Kinshasa today.
Surveys done by Brazil’s HRT Petroleum Corp. have found three prospective sites in the region with the potential for nearly 3 billion barrels of oil, Pili Pili said. The ministry hopes to offer those blocks for exploration in a bid round as early as December, he said.
we shall see
JPGH
Hi JPGH,
This is the "Reptilian" project previously referred to here in the Congo K thread. SOCO have a potential interest in one of the blocks there too......
ee
ee,
...........oops, asleep at back of class. forgot this was already discussed here.
I have heard Kashagan size numbers for the potential oil in place in this basin. Might put SIA's Vietnamese assets in the shade once the true potential begins to emerge.
JPGH
I have heard Kashagan size numbers for the potential oil in place in this basin. Might put SIA's Vietnamese assets in the shade once the true potential begins to emerge.
Well I think that the view from SOCO Towers is pretty similar to that. Certainly the vibe has recently been that Vietnam was just the hors d'oeuvres to a very substantial main course in DRC. There is clearly stacks and stacks of work to be done before that stage is reached though - and on Kashaganesque timelines.......so not one that SOCO will take very far, IMO (but far enough for some very substantial moves in the share price!)
