4/27/2018 Bumi Armada to the fore in ZabaZaba battle | Upstream

Outlook: Eni chief executive Claudio Descalzi

Photo: ENI

Bumi Armada to the fore in

ZabaZaba battle
Malaysian player tipped to land FPSO contract for Eni project off Nigeria, but local
content and legal issues still to be overcome
Iain Esau
London 26 Apr 2018 23:00 GMT

Malaysia’s Bumi Armada has emerged as the unexpected frontrunner to land a major contract to
provide a floating production, storage and offloading vessel for Eni’s ZabaZaba project off Nigeria in
OPL 245.
However, a formal contract award is still some way off being concluded due to ongoing wrangles
over local content and pricing, while OPL 245 is also at the heart of investigations into alleged
corrupt practices by Eni and partner Shell.
From the fourth quarter of last year, the battle to land an order to provide ZabaZaba’s 150,000
barrels per day FPSO was a two-horse race between Bumi and a group comprising Bluewater
Offshore and Saipem.
In early November, Upstream was told that Bluewater-Saipem had the edge, a position underpinned
by a report carried in Nigeria’s influential This Day newspaper a few weeks later that said the Dutch-
Italian partnership had submitted the lowest bid of $5.42 billion.
However, later negotiations over local content, among other issues, are thought to have brought into
question Bluewater-Saipem’s pole position.
Now, said a well-informed source, Eni has confirmed that Bumi is its “preferred bidder” — although
he quickly cautioned that it is by no means a done deal.
“A lot of things have to fall into place before (a formal award) sees the light of day. There’s local
content, there’s pricing, there are still a lot of things to iron out. It’s far from over.”

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It is understood that Eni is still in talks with Nigeria’s authorities about reducing the local content
requirement on ZabaZaba in order to boost project economics, although details are sketchy at this
time.
“The higher the local content, the higher the price, which means the less the probability of the
(project) being viable,” said one Nigeria watcher. “I believe that is an ongoing topic of conversation”
between Eni and the Nigerian Content Development & Monitoring Board (NCDMB).
Whether Eni can make any headway is unclear with the NCDMB maintaining a strict view on local
content issues, with NCDMB executive secretary Simbi Wabote saying recently he wants projects
like ZabaZaba to have more local content than Total’s Egina FPSO scheme.
The aim is to fabricate 50% of FPSO modules in Nigeria and full integrate the topsides in-country.
Underscoring its position, the board last month issued a public notice on the “consequences of non-
compliance with the provisions of the Nigeria Oil & Gas Industry Content Development Act 2010”.
The notice said the consequences, among others, could include NCDMB not processing operator’s
bid documents, disqualification from future bids, contract or project suspension, declassification
from pre-qualification lists, prosecution and publishing the names of non-compliant companies.
This Day reported in November that Bumi’s commercial bid came in at $7.62 billion, but is is
unclear if this has now been reduced.
ZabaZaba’s FPSO would be a converted VLCC that, in addition to oil, will handle 200 million cubic
feet per day of gas, 240,000 bpd of injected water and would be able to store 1.7 million barrels of
crude.
Once Eni decides on its preferred bidder, it will have to secure partner approval from Shell ahead of
taking a final investment decision, potentially this year.
First oil is likely to flow in late 2021, rather than Eni’s original 2020 target.
However, this schedule is liable to change because of a long-running corruption scandal about how
Eni and Shell gained control of OPL 245 in 2011 for $1.3 billion.
Prosecutors in Italy, Nigeria, the Netherlands and the UK have been continue to carry out probes. A
huge trial is set to start in Milan next month, while there is a trial pending in Nigeria and an
investigation underway in the Netherlands.
Italian prosecutors allege that bribes were paid in an effort to secure rights to the block in 2011.
A number of top executives from both companies — including Eni chief executive Claudio Descalzi
and former Shell Foundation chairman Malcolm Brinded — will face trial.
Both Shell and Eni deny any wrongdoing, saying the $1.3 billion they paid for OPL 245 was
transparent, legal and went directly into an escrow account controlled by Nigeria’s government.
Milan’s prosecutor alleges that about $1 billion of the payments were funneled to a Nigerian
company called Malabu Oil & Gas (which had a disputed claim on the block) and former oil
minister Dan Etete, who courts in the UK and US have said controlled Malabu.
Shell admitted that it knew that some of the funds would go to Malabu to settle its claim, but said
that its own due diligence could not confirm who controlled the company.

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Eni said it never dealt with Etete or knew he controlled Malabu, but Nigeria’s government promised
to settle all other claims on the block as part of their deal.
The Milan court cannot rescind rights to OPL 245 while Nigeria’s Minister of Petroleum, Emmanuel
Ibe Kachikwu, has said the companies should continue to develop it.

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