This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 LAGOS 000082 
 
SIPDIS 
 
STATE PASS TO EXIM AND TDA 
 
E.O. 12958: N/A 
TAGS: EPET EINV PGOV PINR PREL NI
SUBJECT: EXXON AND CHROME FIRST TO BID ON JDZ BLOCKS 
 
SENSITIVE BUT UNCLASSIFIED, PLEASE TREAT ACCORDINGLY. 
 
¶1.   (U) SUMMARY.  The development of natural resources 
in the Nigeria-Sao Tome and Principe Joint Development 
Zone (JDZ) took another step forward after a joint 
regulatory body gave ExxonMobil the go-ahead to 
exercise preferential rights in the Zone. An American- 
Nigerian company will have a similar opportunity after 
ExxonMobil, followed by winners of the twenty companies 
that tendered non-preferential bids in October 2003. 
The Joint Development Authority operating in Abuja is 
preparing for the robust development of petroleum and 
other natural resources in the JDZ, and diversification 
into other commercial enterprises.  END SUMMARY. 
 
¶2.   (U) On December 30, the fifth Nigeria-Sao Tome 
Joint Ministerial Council meeting announced that 
exploitation of the Joint Development Zone may begin in 
the foreseeable future as the Council agreed to give 
ExxonMobil the opportunity to exercise its preferential 
rights to bid on specific blocks in the JDZ. ExxonMobil 
has thirty days to submit its bids, after which 
Environmental Remediation Holding Corporation (ERHC), a 
Houston-based firm now doing business as Chrome Energy 
Corporation (CEC), will exercise its preferential 
rights. 
 
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CHARTING THE COURSE 
------------------- 
 
¶3.   (U) Work on the JDZ began in 1999 when the heads 
of state of Nigeria and of Sao Tome and Principe agreed 
to negotiate a formal treaty regulating the development 
of a zone of overlapping maritime boundary claims 
between the two countries.  Negotiations began in 2000, 
and a treaty was signed and ratified by both countries 
in 2001 covering a Joint Development Zone of almost 
35,000 square kilometers.  The treaty will be in force 
for 45 years with a review after 30, and Nigeria and 
Sao Tome and Principe will share resources on the basis 
of a 60/40 ratio, respectively. 
 
¶4.   (U) Disagreements between the countries over 
elements of the treaty stalled further development of 
the JDZ until the Nigeria-Sao Tome and Principe Joint 
Development Authority (JDA) announced the opening of 
the 2003 JDZ Licensing Round in April 2003.  Nine 
blocks were offered, and bids were due by October 18. 
A summary of signature bonuses offered in the bids (see 
below) was issued on October 27. 
 
¶5.   (SBU) Sam Dimka, head of Corporate and Public 
Affairs for the JDA, told Econoff that twenty companies 
submitted 33 bids for eight of the nine blocks offered. 
Most were for the northern-most blocks which are 
generally considered to hold the most promise; no bids 
were received for Block 08, one was received for Block 
09, and the single bid for Block 07 did not conform to 
bid requirements set forth in the published Guidelines 
for Investors, according to Dimka. 
 
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THE COST OF DOING BUSINESS 
-------------------------- 
 
¶6.   (SBU) Winning bidders will be offered production 
sharing contracts (PSC) by the JDA.  (A PSC is a 
contract whereby one party, usually an international 
oil company, takes all of the risks and bears all the 
cost of finding and producing petroleum.  After 
recouping such costs, the contractor shares production 
with a national oil company.) The JDA will evaluate 
bids first according to specified technical criteria 
and then commercial criteria. A key element of the 
commercial evaluation will be the signature bonus 
offered by the bidders.  The signature bonus is a 
premium each bidder agrees to pay in a lump sum within 
30 days of signing a PSC with the JDA.  The Guidelines 
for Investors stipulated that a signature bonus of at 
least $30 million was required per block. (The JDA's 
Dimka told Econoff that the bid for Block 07 included a 
signature bonus of less than $30 million so the bid was 
deemed non-compliant.)  ChevronTexaco reportedly 
offered $123 million for Block 01. Dimka estimated that 
Sao Tome and Principe alone will receive between $100 
million and $200 million by mid-2004 from the signature 
bonuses.  Bidders are also to offer production bonuses 
for specific future production thresholds. 
 
¶7.   (U) In addition to the bonuses, each bidder was 
required to pay a $15,000 application fee per block, as 
well as a $10,000 bid processing fee per block. 
Companies had the opportunity to purchase data and non- 
exclusive seismic surveys on the blocks at commercial 
rates from firms including PGS, WesternGeco and 
Veritas. 
 
------------------- 
PREFERENTIAL RIGHTS 
------------------- 
 
¶8.   (U) Third Party Interests must be settled before 
the JDA offers contracts on the bids.  ExxonMobil and 
Environmental Remediation Holding Company, now 
operating as Chrome Energy within the Chrome Group of 
Nigeria, had been conducting exploration activities 
under agreement with the Democratic Republic of Sao 
Tome and Principe (DRSTP) prior to negotiation of the 
JDZ treaty.  Both companies were subsequently given 
preferential bidding rights under the treaty. 
 
¶9.   (U) ExxonMobil has first opportunity to bid on 
three blocks, and may hold stakes as high as 40 
percent, 25 percent, and 25 percent respectively in the 
blocks.  The company has 30 days after it was notified 
by the JDA to exercise its rights (until about January 
30, 2004).  Subsequently, Chrome Energy will be given 
15 days to exercise its rights to six blocks.  The 
maximum stake Chrome may own in its blocks varies from 
15 to 30 percent.  Chrome may bid on blocks already bid 
by ExxonMobil, but the two companies cannot hold a 
combined interest greater than 40 percent in any one 
block. 
 
¶10.  (U) Dimka told Econoff that these preferential 
bids must also include a signature bonus at least equal 
to the proportion of its preferential right in a block 
when compared to the highest bid for that block in the 
2003 licensing round.  For example, if ExxonMobil 
submits it's first preferential bid on a block for 
which ChevronTexaco submitted the highest signature 
bonus, ExxonMobil's signature bonus must match at least 
40 percent of ChevronTexaco's offer. 
 
---------------------------- 
LOOKING FOR FAST DEVELOPMENT 
---------------------------- 
 
¶11.  (SBU) Representatives of the two countries and the 
JDA have publicly stated that the amount of the 
signature bonus will not be the sole determinant of a 
winning bid.  Considerations such as experience, 
financing, and commitment to local content will be 
closely evaluated.  The JDA's Dimka told Econoff that 
the Authority will choose companies that show a 
capacity and intent to develop and produce oil in the 
Zone quickly and efficiently.  The JDA, he said, is 
concerned that some bidders, particularly smaller 
companies indigenous to West Africa, have submitted 
bids in hopes of gaining rights they do not plan to 
develop but instead would transfer later at hefty fees. 
Dimka said the JDA is not interested in licensing such 
"land grabs." 
 
---------------- 
MULTIFACETED JDA 
---------------- 
 
¶12.  (SBU) Dimka also told Econoff that the JDA is set 
up as a "one-stop resource" shop for the companies that 
will ultimately develop the JDZ, as it is both the 
exploratory body offering licenses and the regulatory 
agency implementing the Zone's Petroleum Regulations 
and collecting taxes, royalties and fees.  Dimka said 
knowledgeable and talented individuals from both 
countries staff the JDA.  He noted the JDA's Chairman, 
Dr. Taju Umar, holds a PhD in Geology and was formerly 
associated with Nigeria's Department of Petroleum 
Resources. Dimka himself worked in the public affairs 
office of Nigeria's former Advisor to the President for 
Petroleum Matters, Dr. Rilwanu Lukman, including while 
Lukman served as Secretary General of OPEC. 
 
¶13.  (SBU) According to Dimka, the JDA will be 
financially self-sufficient, and will develop and 
manage resources in the Zone other than oil, such as 
fishing and non-petroleum minerals.  Dimka said the JDA 
will invest in other commercial interests, such as 
service industries and airlines.  Dimka also said the 
JDA is committed to ensuring the security of operators 
and facilities that will be established in the Zone, 
and will coordinate that effort between the two 
countries and private security firms. 
 
------------------------------ 
BOON FOR SAO TOME AND PRINCIPE 
------------------------------ 
 
¶14.  (SBU) Dimka told Econoff that while this venture 
will benefit both countries, the potential windfall it 
may create for the Democratic Republic of Sao Tome and 
Principe (DRSTP) is enormous.  He did note that the 
DRSTP must develop its infrastructure and commercial 
centers significantly in the near future to handle the 
influx of business the JDZ will bring.  For example, he 
said recent meetings held in DRSTP used all available 
hotel space, and that several new large hotels are 
needed.  He also noted that international oil companies 
and Nigerian banks are interested in negotiating land 
purchases now with the expectation that they will 
establish future operations on the islands. 
 
HINSON-JONES