Congo (former Zaire) President Joseph Kabila has canceled an agreement with Tullow Oil PLC for two exploration blocks in the country's remote, environmentally sensitive interior, awarding them instead to companies owned by a relative of South Africa's president.
Drilling rights for Blocks 1 and 2 on the Congolese side of Lake Albert, bordering Uganda, were granted to Caprikat and Foxwhelp, two firms that are registered in the British Virgin Islands and owned by Khulubuse Zuma, a nephew of South African President Jacob Zuma.
"We are geared up to partner with the [Congo] government in order to fast-track the development of these highly prospective gas and oil concessions," Zuma said, adding, "The contract should be viewed in the context of a developing strategic alliance between [Congo] and South Africa and is an important first step in the establishment of a wider industrial partnership between the two countries in the oil and gas sector."
The Congo's Ministry of Mines, which confirmed the awards, is seeking a $6 million signature bonus from the two BVI companies, while Tullow Oil registered its displeasure at the unexpected turn of events.
"We are reviewing our options but have no doubt about the legal validity of our claims to these blocks," a Tullow spokesman said. "The award of these licenses to an unknown [BVI]-registered company does nothing to help Africa build any sort of reputation for transparency," he added.
"The last few weeks have shown the world the effect on the environment of an oil industry-related accident so to award exploration licenses in a very sensitive environmental area to a company with no oil and gas experience is absurd," the spokesman said.
"Furthermore, no legitimate company will farm in to blocks with unknown BVI companies so I fail to see how these blocks are going to be developed for the benefit of the people" of Congo, he said.
Analyst BMI agreed with that assessment, saying that the award "raises serious questions" over the Congo government's motivations and the future prospects of its underdeveloped oil and gas industry.
"Moreover," BMI said, the award "further highlights the above-ground political risks faced by companies operating in the country in spite of the potential for significant hydrocarbon reserves."
In 2006, Tullow signed a contract to explore blocks 1 and 2, paying a signing bonus of $500,000 for a 48.5% stake in each block. Tullow had been hoping to integrate work on the two Congo blocks with its operations in neighboring Uganda, where it has begun drilling appraisal wells and expects oil production to start next year.
However, as Kabila declined to approve the agreement with Tullow, he also declined to approve another agreement made in 2008 when South Africa's Divine Inspiration Group (DIG) paid $2.5 million for the rights to Block 1.
In addition to the two new agreements made in late June, the Congo also awarded Block 3 to South Africa's SacOil, a 50-50 joint venture of the Encha Group and DIG.
SacOil Director Andrea Brown said her firm plans to start work immediately and is looking to invest a total of $100 million over the next 4 years.
Block 5 went to a consortium comprised of Soco International 38.25%, Dominion Petroleum 46.75%, and Cohydro 15%, while Polar Petroleum DRC, which registered in Congo in April, is seeking a memorandum of understanding for Block 4.
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