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Lagos oilfield investors row over cash call deal

Crude oil

A few weeks after investors shared the first income from the Aje oil field, offshore Lagos, a dispute has arisen among the partners, calling the future of the project into question, FEMI ASU writes

Several weeks after the sharing of the income from the first export from the Aje oil field, located offshore Lagos, a disagreement has emerged among the joint venture partners over cash call.

One of the partners, Panoro Energy, an independent exploration and production company with assets in Nigeria and Gabon, disclosed this in an update.

A top official of one of the partners confirmed the dispute in a telephone interview with our correspondent, describing it 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.

Other partners are New Age Exploration Nigeria Limited, EER (Colobus) Nigeria Limited and PR Oil & Gas Nigeria Limited.

Panoro 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.

It said, “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.”

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.

It said, “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.

Our correspondent gathered that as of the time of sharing the first income, there was no disagreement over cash call, with a source adding, “This is happening post the first income.”

The source said, “The second income is coming, and Panoro knows that if they are not in sync with the provisions, they may not get their pro rate share of the next income.

“Panoro is less than 20 per cent of the paying interest, and that has no impact at all on the project. So, if Panoro is not paying, there are relevant provisions in the agreements that would have meant that the rest of the paying partners will have paid the pro rate share of Panoro. So, project wise, everything is going on as we planned.”

The PUNCH had reported on October 20 that partners in the OML 113 earned their first income, following the sale of the first oil produced from the Aje field.

A London-based energy firm, MX Oil, one of the partners, said it had received $1.2m from the sale of the first oil production, adding that the money was received by PR Oil and Gas Limited, the holder of its investment in OML 113.

Panoro’s net share of proceeds from the sale before payment of royalty and taxes was $3.5m, the company said in its third quarter report last month.

Aje is an offshore field located in OML 113 in the Dahomey Basin, western part of Nigeria. The field is situated in water depths ranging from 100 to 1,000 metres, and is about 24 kilometres from the coast.

It contains hydrocarbon resources in sandstone reservoirs in three main levels: a Turonian gas condensate reservoir, a Cenomanian oil reservoir; and an Albian gas condensate reservoir.

The JV partners had in October 2014 taken the final investment decision to develop the first phase of the field.

Yinka Folawiyo Petroleum 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.

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