Seven Energy International Limited (“SEIL”), the integrated oil and gas development and production and gas distribution company with interests in Nigeria, issues the following announcement clarifying its relationship with the Nigerian Petroleum Development Company (“NPDC”), a subsidiary of Nigerian National Petroleum Corporation (“NNPC”).
There have been reports in the Nigerian press on the perceived lack of transparency by the NNPC in accounting for oil revenues. Unfortunately, NPDC’s Strategic Alliance Agreement with Seven Energy has been mentioned amid various allegations made against NPDC. We are fully supportive of a drive for accountability and transparency within the Nigerian Government, and the petroleum sector, and in this context we feel it is important that we communicate clearly the facts regarding our agreement with NPDC. There are several key issues that are important to clarify:
1. Impact of our agreement on NNPC and revenues of the Nigerian Government: Under the terms of the Strategic Alliance Agreement with NPDC, since October 2010, our subsidiary, Septa Energy, has funded all of NPDC’s 55% cash call obligations for the Seplat/NPDC joint venture on OMLs 4, 38 and 41. These have amounted to over $500 million, which has been invested directly in the development of OMLs 4, 38 and 41. As a result of this investment, production from these licenses has increased from approximately 20,000 barrels of oil a day in October 2010 to an average of over 51,000 barrels of oil per day during 2013. Our funds have been used for the workover and drilling of over 30 wells, upgrading of gas compressors and facilities, repair work to pipelines and a new logistics base and maintaining a full operating team to run and support the work on these licenses. By all measures, this has been an enormous success and, by our calculations, has more than doubled the net revenues NNPC/NPDC would have received from OMLs 4, 38 and 41 (even after taking into account our costs) whilst at the same time significantly increased the royalties and taxes the Nigerian Government receives from these licenses, had any investment not taken place.
2. Payment of all applicable taxes: Our lifting entitlement is calculated after accounting for Royalty and Petroleum Profits Tax (“PPT”), so that we only lift an after tax entitlement volume. By definition and by operation of the agreement, all of our entitlements and lifts permit us to lift only what is contractually due to us after full deduction of all taxes associated with the oil production. In addition, Septa Energy is subject to Company Income Tax on its profits in Nigeria.
3. Transparency and documentation: All of our cash calls and lifts of our crude oil entitlements are fully reconciled and documented with NPDC; all our expenditure and every barrel that we have lifted is fully accounted for and matches precisely the terms of our agreement. Both NPDC and Seven Energy maintain records of each cash call and each lift, and perform regular full reconciliations that are documented and available for inspection by our respective auditors. This approach has been absolutely fundamental to our relationship with NPDC and ensures that we have complete and accurate accounts that allow our auditors to match our revenues and costs to our contractual entitlements and obligations.
4. Circumstances as to how we entered into the Strategic Alliance Agreement: The Strategic Alliance Agreement was the result of a three-year, documented dialogue we had with NNPC and the Federal Ministry of Petroleum Resources that began in 2008 and pre-dates the current administration. This dialogue was based on our established credentials in the gas development area in particular. OMLs 4, 38 and 41 contain significant quantities of gas and are in a key location that is close to the Escravos-to-Lagos pipeline. Our discussion was predicated on the Nigerian Government’s desire to accelerate development of gas fields for the domestic market. A key part of the next phase of development of these fields is to boost the gas production and reserves, an area in which we have particular expertise. The development plans involve the expansion of gas facilities and pipelines to transform the Oben area into a gas processing hub that is expected to be a major provider of gas for the power sector in particular. We entered into the agreement to develop a long-term, mutually beneficial partnership with NPDC, which we hoped would facilitate the development and funding of gas projects, and allow us to deploy our capital and technical resources.
5. Legality of the Strategic Alliance Agreement: Because of the constraints of NNPC to fund cash calls, service contracts and modified carry arrangements have been in place in Nigeria for many years with many of the super-majors, and our contract structure and terms are based on established precedents in Nigeria (and other countries) that have operated for years. We have undertaken legal reviews of the Strategic Alliance Agreement and we are confident of its legal status and robustness.
6. Commitment of capital to Nigeria: To date, Seven Energy has raised equity capital of over $750 million, and invested over $1.2 billion of capital in Nigeria. Aside from the NPDC relationship, in Akwa Ibom State alone, we have invested over $600 million, and constructed over 100 kilometres of gas pipeline infrastructure and 200 million standard cubic feet of gas processing capacity (the largest independent gas processing capacity in sub-Saharan Africa). Our investors and funding partners include some of the most reputable local and international financial institutions.
Unfounded criticism and allegations based on incorrect information undermine the hard work that has gone into building a business that has already become one of the leading indigenous developers of gas in Nigeria, based on assets and investments. However, we do not intend to allow this to deter us from continuing to build what we believe will be a very successful long-term business which will have an enormous impact on the development of gas and power infrastructure and meeting the energy needs of Nigeria.