NIGERIA-SAO TOME JOINT DEVELOPMENT ZONE LICENSING

UNCLAS LAGOS 002563

SIPDIS

STATE FOR AF/W
STATE FOR EB/ESC/IEC/ENR/BLEVINE
STATE FOR DS/IP/AF
STATE FOR INR/AA
STATE PASS DOE FOR DAS JBRODMAN AND CGAY
STATE PASS TREASURY FOR ASEVERENS AND SRENANDER
STATE PASS DOC PHUEPER
STATE PASS TRANSPORTATION MARAD
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ
STATE PASS EX-IM FOR JRICHTER
STATE PASS OPIC FOR CDUFFY
STATE PASS TDA FOR BTERNET

E.O. 12958: N/A
TAGS: EPET EINV NI ENERG
SUBJECT: NIGERIA-SAO TOME JOINT DEVELOPMENT ZONE LICENSING
ROUND CLOSES

--------------
SUMMARY
--------------


1. (U) The Nigeria-Sao Tome and Principe Joint Development
Zone (JDZ) call for bids for five deep offshore oil blocs
closed December 15, with 26 firms bidding. The GON expects
to announce final results on December 31. High interest is
centered on Bloc 4, with Houston-based Environmental
Remediation Holding Corporation (ERHC),Nigerian firm
Conoil, and U.S. firm ECL International considered among the
strongest contenders. End summary.

--------------
JDZ 2004 Licensing Round Bids
--------------


2. (U) Last month, the Nigeria-Sao Tome and Principe Joint
Development Zone (JDZ) opened a call for bids for the award
of five deep offshore oil blocs in the zone. Bidding in this
second JDZ licensing round closed December 15. Edmund
Daukoru, Presidential Adviser on Petroleum and Energy, said
the awards of oil blocks 2 through 6 would be concluded by
31 December, 2004, when winners will be announced. (Note:
The GON awarded rights to develop bloc 1 to a consortium
involving ChevronTexaco, ExxonMobil and Norway's Equity
Energy Resources for $123 million in 2003. End note.)
Overall, 26 oil companies submitted bids for the five oil
blocks on offer.

--------------
Intense Bidding for Bloc Four
--------------

3. (U) There is considerable interest in bloc 4, which
covers 857 sq km, and is considered the most lucrative bloc.
Leading competitors for block 4 include Houston-based
Environmental Remediation Holding Corporation (ERHC),now
50% owned by Nigerian operator Chrome Energy. (Note: Chrome
is expected to exercise a preferential right for bloc 4, as
the company secured working interests in six blocs two years
ago. End note.) U.S. firm ECL International offered the
largest signature bonus of $175 million, and so must be
considered a leading competitor. (Note: Signature bonuses
are one important component in the GON's evaluation of a
firm's offer.) However, the spotlight has been on Nigerian
firm Conoil's offer of a signature bonus of $150 million
(N20 billion). This is a ground-breaking offer for an
indigenous firm, which historically have been small and
undercapitalized. The GON is attempting to increase
national content in the energy sector; awarding bloc 4 to
Conoil would meet this objective, while still ensuring the
GON gains a significant signature bonus. U.S. firm Vintage
Oil and Gas also bid on Bloc 4, offering a $135 million
bonus; indigenous oil companies Anardako Petroleum and
Hercule Oil/Centurion Energy bid $90 million and $81
million, respectively, in signature bonuses.
--------------
Bids For Additional Blocs
--------------

4. (U) Energy Equity Resources, Filtim Huzod Oil and Gas
Limited, and a consortium composed of Kuwait-based I.C.C.
and Iranian firm Oil Exploration and Operations Company
(OEOC)bid for blocks 3, 5 and 6. Signature bonuses offered
by these companies ranged between $37 million and $45
million.
Browne#