Stakeholders in Lagos oil fields heading for collusion over agreement terms
Less than one month after the Lagos State Government has celebrated joining the prestigious oil club, indications have emerged that a new disagreement between exploration partners on cash call may hobble the business.
Business Hilights recalls that the not too good development is coming few weeks after investors shared the first income from the Aje oil field, offshore Lagos.
Though the state government has not shown any sign of wading into the legal confusion, the problem seems to be coming from what a stakeholder described as some misalignments based on diverse interpretations of the relevant agreements.
Yinka Folawiyo Petroleum Company Limited, a wholly-owned indigenous firm and operator of the Oil Mining Lease 113, where the field is located, had on May 3 announced the commencement of crude oil production on the field, with first lifting in September.
The group was granted the Oil Prospecting Licence 309 in June 1991 as a sole risk contract under the Federal Government’s Indigenous Allocation Programme, which was put in place to encourage the development of a locally-owned and operated Nigerian upstream oil industry.
Other partners in the deal include Panoro, New Age Exploration Nigeria Limited, EER (Colobus) Nigeria Limited and PR Oil & Gas Nigeria Limited.
Panoro had announced that “it is currently in disagreement with its joint venture partners in OML 113 in Nigeria and intends to initiate arbitration and legal proceedings to protect its interests.”
According to the company, it holds 6.502 per cent participation interest in OML 113 through its fully-owned subsidiary, PPAL.
“PPAL has received default notice from the technical advisor on behalf of the operator of OML 113 in relation to a disputed cash call that Panoro believes to be invalid due to an incorrect application of Joint Operating Agreement provisions.
“PPAL has received legal advice that the disputed cash call is baseless, and, therefore, there are no grounds to issue the default notice to PPAL purporting to hold PPAL in breach of its obligations under the JOA.”
Experts say, in a joint venture arrangement, each of the partners contributes funds, otherwise called cash call, according to their equity holdings in the joint venture company or asset, and also lifts crude oil in that proportion.
Panoro said PPAL had asked the JV partners to agree to rescind and cancel the claim for the disputed cash call and the purported default notice, but such undertakings and agreement had unfortunately not been forthcoming.
“Panoro is still proactively trying to resolve the issue in order to preserve shareholder value. At this stage, no agreement has been reached and no assurance can be given that any agreement will be reached.
“As the cash call and default notice remain in dispute, PPAL intends to commence arbitration proceedings pursuant to the JOA. In addition, to protect its rights prior to commencement of the arbitration proceedings, PPAL has applied to the High Court in London, UK for interim relief in order to protect its rights under the JOA.”
Panoro added that it would seek to recover all losses, costs, expenses, compensation and damages in law and equity caused directly or indirectly by the JV partners’ breach of their contractual and equitable obligations.
The company said it would also continue to take all necessary action to retain its equity participation in OML 113 and to preserve shareholder value.
The JV partners had in October 2014 taken the final investment decision to develop the first phase of the field.
