Monday, August 15, 2005

Vanguard - Cover Stories : Senate probes N280bn Halliburton contract

By Emmanuel Aziken & Hector Igbikiowubo
Posted to the Web: Monday, August 15, 2005
*Crude oil prices top $67p/b

ABUJA —THE Senate has launched a probe into the $2 billion (about N280 billion) gas to liquid project awarded by the Chevron/NNPC joint venture to Halliburton, the American-based multinational service company that was recently accused of paying $180 million bribe to past Nigerian officials.

The US thirst for gasoline and fears of a hurricane have pushed the oil market further into uncharted territory, with prices breaking the $67 mark at the weekend.

Besides, the Senate investigation under the aegis of its Committee on Upstream Petroleum, is also focusing attention on the Nigerian National Petroleum Corporation (NNPC’s) utilisation of the 450,000 barrels of crude allocated to it daily for domestic utilisation. The NNPC which is spearheading agitation for the increase of the domestic prices of petroleum products has acknowledged importing a significant proportion of products utilised in the country.

The Senate investigations, according to letters dispatched to the NNPC, ChevronTexaco and the Department of Petroleum Resources (DPR), followed petitions on contracts received by stakeholders. The DPR is being drawn into the investigation to ascertain the quantity of crude it has been allocating to the NNPC for domestic consumption.
The letters were signed by Senator Lee Maeba, chairman of the Senate Committee on Upstream Petroleum.
In its letter to ChevronTexaco entitled: “Request for Information on the Escravos Gas to Liquid (GTL) Project,” the Senate Committee requested information on the contract awarded to Halliburton.
The letter reads:

“The Senate Committee on Petroleum Resources, Upstream has received several petitions from the public with respect to the Escravos Gas to Liquid (GTL) project.
“You are, therefore, requested to submit all information on the project which include but not limited to:

lEvidence of due process leading to the award of the contract.
lCopy of the contract to Halliburton Services Inc. including commercial value of (the) project
lTechnical/Commercial evaluation report of all bids received
lDetails of Final Investment Decision (FID) reached with the NNPC
lAny other information to prove transparency of the process…”
Halliburton was, in 2004, the subject of an investigation that centred on the alleged payment of an estimated $180 million of bribe to past Nigerian government officials.

In its letter to Dr Funso Kupolokun, Group Managing Director of the NNPC dated August 2, 2005, on the same project, the Senate Committee requested information on the project and also information on the utilisation of the 450,000 barrels of crude given the NNPC for domestic consumption.

Crude oil prices top $67 p/b

On the local front, the Shell Petroleum Development Company operated Joint Venture in Nigeria’s upstream petroleum sector paid over $3.5billion (about N469 billion) in taxes and royalties to both the state and Federal Governments in year 2004, indicating a quantum leap when compared to the previous year’s figures.

US light crude closed $1 up at $66.80 a barrel, after hitting $67.10 earlier, while in London Brent crude closed $1.12 higher at $66.50. Worldwide petrol and gasoline prices are at unprecedented levels. US refinery stoppages came just as car sales and demand hit highs. The latest surge has been partly triggered by more than a dozen breakdowns at US installations, the latest of which hit a ConocoPhillips refinery in Illinois.

And fears Tropical Storm Irene, which could intensify to hurricane strength, is heading for the US Gulf Coast have added to worries about supply interruptions. Last week, US government figures showed a 2.1 million barrel decline in US stockpiles during the first week of August.

Shell pays $3.5bn tax

The SPDC joint venture also accounted for 43 per cent of Nigeria’s total crude oil production, while topping gas production by six per cent during the period under review.

Specifically, last year, the SPDC joint venture paid $2.2 billion (about N294.8 billion) as Petroleum Profit Tax to the Federal Government, representing an 83 per cent increase compared to $1.2billion (about N160.8billion) paid in 2003.

The joint venture also paid $904 million (about N121.136 billion) as royalty payments, indicating over 40 per cent increase compared to $608 million (about N81.472 billion) paid in year 2003. “The SPDC also made a statutory contribution of $68.9 million (about N9.23billion) to the NDDC (of which Shell share was $21 million).”

The SPDC joint venture also paid Pay As You Earn (PAYE) tax to state governments where its staff are resident as well as education tax to the Federal Government coffer. Although the amount paid by the joint venture as PAYE tax and education tax could not be ascertained from the report, there are indications that it may exceed $350 million (about N46.9 billion).

Oil production during the period also averaged one million barrels per day (p/d) compared to 910,000 b/d in 2003, indicating a 10 per cen increase and the highest level achieved since 1980.
The increase in production is due to a higher contribution from the EA field which accounts for 150,000 b/d, lower production deferments and the reactivation of some previously shut-in oil wells.

This improved working environment saw the joint venture’s crude oil output accounting for 43 per cent of Nigeria’s total output in 2004. Similarly, gas sales recorded an average 1,242 million standard cubic feet per day, against 1,171 million standard cubic feet p/d sold in 2003.

The report also revealed that during the period crude oil theft peaked at 60,000 b/d and low periods of 40,000 b/d, recorded from 71 incidents, indicating a 20 per cent drop from 88 incidents in year 2003.

The report also showed that the joint venture increased the use of local contractors in support of the Federal Government’s drive for improved Nigerian content, pointing out that contracts valued at $727 million (about N97.4 billion) was awarded to Nigerian companies. “20 per cent from the Niger Delta).”

Responding to questions on the report, Shell's Director of External Affairs, the Reverend Precious Omuku, explained that contrary to reports about a tax default by some oil companies, there was an assumption on the part of oil companies that the Federal Government would let them enjoy some of the oil windfall.

“When the oil price gets to $30, according to the MoU, government can begin to be generous to the industry by letting it use certain percentage in the upside by giving you some of the windfall. But you can not take it unless government gives you. There was an assumption that government would give. But government did not give. That is what they were referring to. It wasn’t a default on tax,” he said.
On the issue of gas supply to proposed IPPs for the Niger Delta, the Shell director explained that a gas supply programme was required, adding that this will take sometime to put in place.

“They can build those thermal plants very quickly. They can even buy them off the shelf. But you need a programme to gather the gas to supply to them. So the two must shake hands. That is what we mean when you hear we can not supply all of them in the time span.

“But given time to develop all your gas projects, you can supply them. There isn’t a dearth of gas, it is the timing. We need an alignment of the two. Everybody would have to bring money to the table. It has cost us in the past like two billion dollars in gas development.
When I say us, I mean the joint venture and that money has to be found in order to grow that kind of venture. Among the stakeholders, there is no lack of commitment to any of the IPPs,” he said.

├ľn shortage of gas supply to the Egbin thermal power plant, he said contrary to claims, there was no competition between LNG and domestic supplies, adding that the power utility company has suddenly become more efficient.

“What has happened is that NEPA suddenly became more efficient and started demanding for more gas beyond the contract level that we have with the NGC and so there is a tightness in the supply. We have had very good consultations with NEPA and NGC and there is this level of growth and the industry is ramming up to get to that level of supply. There was no failure really or preference to supply to the NLNG.”
He also reiterated the joint venture’s commitment to the flare-out target noting however, that the target is predicated on a particular level of funding.