The Ministry of Mines last month revoked the petroleum development license it granted to the Chinese company, Petrotrans, that allows the latter to develop the natural gas reserves found in the Calub and Hilala localities in the Ogaden basin.
Reliable sources told The Reporter that the ministry cancelled the petroleum development and production sharing agreement signed a year ago with senior executives of the company at the Sheraton Addis. Sources said the ministry cancelled the petroleum development agreement on the ground Petrotrans failed to commence work on the gas fields found in the Somali Regional State according to schedule.
According to sources, the company was supposed to be given two written warning letters. “The petroleum development agreement was cancelled without prior notice. It is unfair,” sources said.
Our repeated attempts to get the response of the Minister of Mines, Sinknesh Ejigu, were not successful. Informed sources told The Reporter that disgruntled executives of Pterotrans are contemplating to sue the ministry in an international court.
In July 2011 the Ministry of Mines awarded the Calub, Hilala and Genale natural gas fields and eight exploration blocks found in the Ogaden basin to a Chinese oil and gas company, Petro Trans Company, which won the bid the mininstry put up to privatise the gasfields.
SikineshEjigu, the minister of Mines and chairman of PetroTrans, Mr. John Chin, signed a petroleum development agreement and four exploration and production sharing agreements at the Sheraton Addis. The petroleum development agreement bestowed PetroTrans the right to develop the natural gas reserves in the Calub and Hilala localities found in the Somali Regional State. The gas fields with an estimated reserve of four TCF (trillion cubic feet) are found 1200 km south-east of Addis Ababa.
The production sharing agreements granted the right to PetroTrans to prospect for oil and gas reserve in blocks 3 and 4, 11 and 15, 12 and 16, and 17 and 20 in the Ogaden basin. The gas fields as well as all the exploration blocks were previously held by the Malaysian oil and gas giant Petronas, which pulled out of Ethiopia in 2010. The Ministry floated all Petrona’s concessions in Ethiopia except the Gambella block, found in west Ethiopia near the Sudanese boarder.
In addition to the Calub and Hilalagasfields, 0.7 TCF of gas was discovered by Petronas in the Genale block. A non-commercial crude oil reserve with one meter thickness was also discovered near the Hilalagasfield, 80 km east of Calub.
Following the withdrawal of Petronas from Ethiopia, the Ministry of Mines in March 2011 invited seven companies to bid for Calub and Hilala gas fields and the eight exploration blocks deemed promising for oil and gas discovery. The total area of the exploration blocks is 93,000 sq.km while the Calub and Hilalagasfileds cover 283 sq.km.
The seven local and international oil companies shortlisted by the ministry bought the bid document and four of them submitted their technical and financial proposals to the ministry. The companies that returned the bid documents were PetroTrans, South West Energy Ltd, an Ethiopian oil and gas company, Cobramar of Seychelles and National Oil Company (NOC), a local petroleum which has a chain of fuel stations across the nation. NOC was established by the Ethiopian-born Saudi billionaire, Sheik Mohammed Hussien Al-Alamoudi.
The ministry said the best proposals were submitted by PetroTrans. According to the ministry, the company agreed to pay the Ethiopian government an upfront payment of 130 million dollars and will invest up to four billion dollars on the gas development project. “When you compare the proposals of PetroTrans with the proposals offered by the other companies it is incomparable. PetroTran’s proposal by far exceeds the others,” Sinkenesh said at the signing ceremony. “Our main objective is to quickly develop the natural resource. Our priority concern is the development plan. And what has been presented by PetroTrans is the best development plan.” Siknesh stressed the need to proceed with the gas development and exploration projects according to schedule.
The statement issued by the ministry said PteroTrans will develop the Calub and Hilalagasfileds within three years time by building the necessary gas transport infrastructure and processing facilities. The company will also make appraisal and exploration activities in all its concession. The company will drill more wells around Calub and Hilalagasfileds. It will conduct seismic survey and drill exploration wells in all the exploration blocks.
“The company will do geological and geophysical work, drill appraisal and exploration wells as well as a dedicated export pipeline system. The specific route, size and location of pumping stations and terminal shall be mutually agreed as the route will be decided latter,” the ministry said. “The company will pay to the government of Ethiopia 130 million dollars for the pre-development costs incurred for Calub and Hilala fields and Genale gas discovery. It will also invest from 2.5 to 4 billion dollars for appraisal, exploration, pipeline construction and liquefied natural gas (LNG) facilities.” PetroTrans Company Ltd. was established in 1997, founded by Mr. John Chin. Petrotrans has been mainly involved in the Upstream Oil & Gas Industry, as well as Oil & Gas financing and leasing.
The company will build a gas processing plant that will change the gas into liquid that will be transported by a pipe line to the port of Djibouti (Berbera is an option). From the port the LNG will be transported by especial vessels designed to haul LNG. This was exactly what Petronas proposed to do in 2006 with an outlay of 1.9 billion dollars investment. Petronas paid the Ethiopian government 80 million dollars for the Calub and Hilala gas fields and one million dollars signature bonus for each PSA signed with the ministry.
The exploration period is eight years divided into four years of initial exploration period and two extension periods divided into two years each. The development and production period is 25 years.
PetroTrans agreed to pay to the government 35 percent income tax, five percent royalty fee. The Ethiopian government will have a five percent share on the project.
Studies indicate that 5 to 7 million tons of petroleum products including LPG, diesel, kerosene, and gasoil, could be produced per annum from the two gasfileds.
In the past the Ethiopian government had signed several agreements with different companies which pledged to invest millions of dollars in the gasfeilds. The American company Secor, the Russian companies Methanol Joint Stock and StroyTrans Gas, the Jordanian company SITech International, and Petronas are the companies that signed memorandum of understanding and petroleum development agreements to develop the gas fields. Secor that signed the agreement in 2000 vanished into thin air after signing the agreement with the defunct Calub Gas S.C. Methanol and StroyTrans Gas that signed MoU in 2002 with Calub S.C. and the Ministry of Mines demanded that the government should come up with the fund required to execute the project while they would provide the technology. SITech International which pledged to invest 1.7 billion dollars in 2003 was unable to raise any significant capital. In fact the company came up with a fake financial report. The company was unable to commence work on the project until 2006. AlemayehuTegenu, former Minister of Mines, revoked the petroleum development license given to SIL and decided to tender the project.
The gas fields were first discovered by an American company called Tenneco in the 1940s. Tenneco, which drilled three wells in Calub and one in Hilala, was forced to withdraw because of the 1974 revolution that toppled Emperor Haile-selassie.
The Soviet Petroleum Exploration Expedition (SPEE), which drilled additional wells in Calub and Hilala in the 1980s and early 90s, confirmed the gas reserves. SPEE drilled seven wells in Calub and three in Hilala, 80 km from Calub. In 1998 the Chinese petroleum company, Zhoungyan Petroleum Exploration Bureau (ZPEB), contracted by the Ethiopian government, made eight of the wells in Calub ready for production. ZPEB was paid 5.6 million dollars for the well completion work. In 2001, the World Bank suspended the 66.3 million dollars loan it agreed to give to the Ethiopian government for a small scale gas development project in Calub.