INTERVIEW: Chad hits out at Exxon and Savannah Energy in Doba oil field dispute

After having nationalized the bulk of its oil sector, emerging African producer Chad is embroiled in an increasingly bitter dispute with Western oil companies and neighboring Cameroon, on whom it relies to export its crude.

In an interview with S&P Global Commodity Insights, Chad petroleum and energy minister Djerassem Le Bemadjiel accused ExxonMobil of leaving a trail of environmental destruction after it exited the country in December and challenged the legality of ExxonMobil's sale of its 40% stake in the Doba oil field to Savannah Energy.

At issue is Chad's 160,000 b/d of heavy, sweet crude production, popular with Asian refiners, as the country seeks investment to further develop Africa's 10th largest proven oil reserves.

ExxonMobil has been "disrespectful," while London-listed Savannah is not a "serious" candidate to take its place, Bemadjiel said, insisting that the sale had violated agreements signed between Chad and ExxonMobil.

The minister claimed Chad, which relies on oil revenues as its primary source of government funding, had for weeks sought assurances that Savannah had the financial and technical capacity to take over but received none.

"Having someone serious at the place of ExxonMobil is critical not only for Doba project but also for the whole oil sector," he said. "In terms of field experience, operating a big field like Kome, or a pipeline, [Savannah] don't have it."

The British company has crude assets in Nigeria and Niger.

Savannah purchased ExxonMobil's stake in the Doba field and its share of the Chad-Cameroon pipeline in December for $407 million, but Chad challenged the deal. The case is now before the International Chamber of Commerce in Paris.

"The law in Chad is clear, any natural resources that is underground is state owned, you cannot sell it to anybody without [government] approval," Bemadjiel said, adding that he balked when informed of ExxonMobil's departure by email while on a plane.

Doba crude

In late-March, three months after the sale was completed, Chad's parliament followed a presidential decree by voting overwhelmingly to nationalize the assets, including the portion of the pipeline that lies within Chad's borders, known as TOTCO.

In a statement to S&P Global, Savannah said it "complied with all requirements of the law of Chad before completing its purchase" of Exxon's stakes in the assets.

The decision to nationalize the assets was "in direct breach of conventions to which [Savannah] and the Republic of Chad are, amongst others, party...[and] subject to the jurisdiction of an ICC tribunal," Savannah added. Nationalizations are incredibly rare in Africa today.

Savannah also claimed to have boosted production by 9% in Q1 from a year ago after taking over the assets, although Chad has taken credit for the rise.

Doba, with a gravity of 25.8 API and a sulfur content of 0.09%, is known in the market for yielding a large percentage of low sulfur vacuum gasoil, fuel oil and residue.

Platts, part of S&P Global, last assessed Doba crude at $73.06/b May 26, at a $3.60/b discount to Dated Brent.

The dispute has also cooled ties between Chad and Cameroon, through which Doba crude flows via a 1,070 km pipeline to a floating storage and offloading vessel anchored off the Atlantic coast.

In April, Chad recalled its ambassador to Cameroon, citing "entrenched disagreements" over the sale.

Chad and Cameroon are among seven Central African countries in talks to build a 6,500 km network of pipelines, oil refineries, gas terminals and power stations to overhaul the region's energy security.

Uncapped wells

Among Bemadjiel's most startling allegations was that ExxonMobil had failed to fulfil its financial and environmental obligations by leaving hundreds of wells unplugged.

"Discussions were going on with Exxon for what they call a clean break," the minister said. "We have to audit the last five years. And also on the field, they have many wells that they should abandon. You have to go into the well that is not producing, set up a cement plug to avoid the crude coming and contaminating the aquifers. ... They left today 520 wells that are not abandoned at all."

Plugging each one would cost up to $800,000, he said. "And the worst part is that they have provisioned money every year and they deduct it from the tax for abandonment and rehabilitation."

When asked to comment, ExxonMobil directed S&P Global to a previous Savannah statement that did not relate to the specific allegation. The US supermajor has previously said that Savannah would take on its environmental responsibilities in Chad. According to a report by Africa Intelligence, Chad had been trying to make ExxonMobil pay a hefty leaving fee.

Nationalization risks

Some opposition groups in Chad have criticized the nationalization, with political instability, oil price shocks and COVID-19 hurting economic growth. In April the government was dealt a blow when Cameroon bought part of Savannah's stake in COTCO, the Cameroon section of the cross-border pipeline, legitimizing the ExxonMobil-Savannah sale.

On May 26, Chad purchased Petronas' upstream and midstream assets in Chad and Cameroon, including a 29.77% stake in COTCO, subject to certain conditions, further complicating the dispute. The Malaysian company had agreed to sell its interests to Savannah, but the deal broke down in December.

Chad's government insists it remains open to foreign investment, but will ensure "laws are respected", adding that many companies have investment in its oil sector without incident. Bemadjiel said the nationalization was not "planned".

However, Olufola Wusu, a Nigerian lawyer and energy specialist, said the move might repel investors at a time when Africa is battling energy poverty.

"If they are not sure that you will play by the book as regards the rules of your own country, then there's a problem," Wasu told S&P Global. While governments are within their rights to levy penalties on companies if they are found to have broken rules, he said, "I think the world has moved away from expropriation."

All that is left is for the parties to negotiate, Wusu added. "There's always the potential for tempers to flare, but both parties need to sit down at this point in time and talk."