Thought this was a very interesting article about Sao Tome and speaks of ERHC's involvement in whole oil process there. Not neccessarily very pertinent to price right now, just interesting. Posted on another board as coming out in new Fortune just on shelves.FORTUNE September 6, 2004
SAO TOMÉ
WILL OIL SPOIL THIS
AFRICAN PARADISE?
IN THE FOOTHILLS OF SAO TOMÉ'S
volcanic mountains, where dense jungle
meets the edge of a tiny island capital,
samba rhythms emanate from a pink
wooden hut. Locals come here to lunch on
shark boiled in lemon juice and play a few
rounds of a card game called bishka.
"Sure, it's a hard life," says Roldo Pereira,
a retired cocoa-plantation worker. "Sometimes
I go two days without a beer."
Pereira could soon be drinking champagne
every night. Oil has been discovered
in the waters around this former Portuguese
colony of twin islands in the Gulf of Guinea.
And while oil companies won't reveal how
much they expect to pump, estimates from
seismic surveys run as high as 15 billion barrels
in just one zone that has been put up for
bid. That would be the equivalent of every
one of Sao Tomé's 140,000 men, women,
and children winning the lottery.
Outsiders also stand to gain. As the oil
zone borders on waters off Nigeria, Sao
Tomé agreed to give its giant neighbor 60%
percent of future profits.
In April a consortium of ChevronTexaco
and Exxon Mobil announced it would make
a $123 million down payment for the right to
explore just one of the zone's nine blocks.
Since then the island's only international hotel
has been filled with consultants, diplomats, and
businessmen
looking to offer services and expertise.
U.S. government officials are also dropping
by. In addition to its oil, Sao Tomé is
of growing strategic importance to the U.S.
It is halfway between Angola and Nigeria,
Africa's two largest oil producers, and close
by two of its fastest-growing, Equatorial
Guinea and Congo-Brazzaville. Within a
decade the U.S. is expected to be importing
25% of its oil from the continent, much
of it from these countries, which are closer
to the U.S. than the Persian Gulf and
whose oil is of higher quality.
But Africa is not exactly stable, and oil
doesn't seem to have helped. Africans who
live in petroleum-rich states are
poorer on average than those in
other countries and more likely to
suffer repressive governments and
violent conflicts.
Sao Tomé has for the most part
been a peaceful democracy, with
low crime and no religious or ethnic
conflict. But political tensions are
rising. President Fradique de
Menezes was temporarily overthrown
last year in a bloodless, almost
amicable coup. "I didn't want
to hurt anyone," coup leader Major
Fernando Pereira told FORTUNE.
"I just wanted to wake up
the politicians now that we have
oil." Pereira and his supporters
agreed to return to their barracks,
though he predicts another coup "if
the population doesn't start seeing improvements
soon."
The problem is that the Sao Tomé government
doesn't yet have any oil revenue.
"Agreements are still being negotiated,"
says a spokesperson for ChevronTexaco.
"We don't expect to begin exploring before
the end of the year." In the meantime,
the government's annual budget
comes mostly from foreign aid-a paltry
$55 million, about a fifth of the annual
budget of the New York Public Library.
"We are doing what we can," Menezes told
FORTUNE. "But people's expectations are
so high."
Even when the oil revenue begins to flow,
some development experts say, the government
won't be capable of spending the money effectively.
"The
country doesn't have a real administration,"
says Joachim Harnack, the IMF mission
chief for Sao Tomé. "Very few civil servants
have the necessary education or
training." Indeed, there is no university in
Sao Tomé and only one high school.
That may account for some extraordinary
blunders. In 1997, when the government
tried to set up a national oil company,
a tiny, undercapitalized Houston firm with
the unlikely name of Environmental Remediation
Holding Corp. got a 49% share
in exchange for doing what many observers
say was next to nothing. The deal was renegotiated
after the IMF complained of a
"serious governance problem" in Sao Tomé's
oil sector. But ERHC, which has since
been taken over by Nigerian billionaire
Emeka Offor, will still receive preference
in bidding for future licenses.
There are even stranger deals. Earlier this
year a subsidiary of DiamondWorks, a
Canadian company associated more with
mercenaries in Sierra Leone and
Angola than with the oil industry,
was awarded 70% of the revenue
from the sale of crude oil
that the Nigerian government
gave Sao Tomé as part of a
byzantine arrangement. Some
observers say Nigeria hasn't
helped its tiny neighbor, but Nigeria's ambassador
to Sao Tomé, Saidu Pindar, insists
that Sao Tomé is benefiting from Nigeria's
experience with the oil industry. "Before
we created the joint authority, Exxon Mobil
grabbed four of the oil blocks for just $1 million
each," he says. "We helped renegotiate,
and now Exxon Mobil and ChevronTexaco
are jointly paying $123 million for just one
block."
To Terry Linn Karl, author of The Paradox
of Plenty, the threat that oil poses to
Sao Tomé is mostly internal. "Oil generates
money but not employment," she says,
"while oil exports undermine the productivity
of other economic sectors. People become
poorer and more frustrated with
their governments, while their governments
increasingly rely on petrodollars to repress
or co-opt growing opposition."
Experts largely agree with her diagnosis
but disagree on the remedy. After visiting
Sao Tomé in June, the UN Secretary-General's
General's economic advisor on development issues,
Columbia University professor Jeffrey
Sachs, called on donors to make
greater investments in the country's infrastructure.
But Harnack, the IMF mission
chief, says poor countries like Sao Tomé
lack the capacity to rapidly absorb such
beneficence: "The quality of projects will
inevitably be poor, and much of
the money will be wasted."
Sachs admits that corruption
and mismanagement often undermine
public investments. But
he has brought in experts from
his Earth Institute to work with
Sao Tomé legislators to strictly
regulate how the government manages its
oil revenue. In June, Menezes, along with
Nigerian President Olusegun Obasanjo,
signed a declaration obliging authorities to
make public all agreements with oil companies.
But on their own, such declarations
are worthless if the government doesn't have
systems in place to follow through. "It's hard
to say how things will turn out," says Gerhard
Seibert, a Sao Tomé expert at the Institute
for Security Studies in South Africa.
Meanwhile, the U.S. is doing its best to
see that things turn out to its advantage. It
has stationed a military advisor in Sao Tomé
and is funding a feasibility study for a deepwater
port, which could also serve as a military
base. The Sao Tomé army has fewer
than 200 troops, the U.S. advisor says, many
of whom have never fired a weapon, as well
as a navy that lacks a single seaworthy vessel.
That's fine as long as Sao Tomé remains
peaceful. But when the oil money starts
flowing, all bets are off. -David Hecht