Breaking News: Lopongo, Canistracci Oil reach oil deal

After weeks of intense and secretive negotiation in Geneva and Locarno, Switzerland, the government of Lopongo and Canistracci Oil reached an agreement on a plan to explore and develop oil reserves and fields in the Western part of the country, "Qui Lopongo" learned from exclusive sources privy to the deal. An official announcement is expected tomorrow before the opening of the European stock markets. Neither the company nor the local authorities intend to release the details of the agreement, but our sources provided a full account of agreement:

• Canistracci Oil will pay upfront an exploration fee of $300 million, una tantum, for the right to conduct oil surveys in four designated area in the department of Port Durame.


• Within one year from the beginning of the operation, Canistracci will report the result of the survey to the government of Lopongo.


• Canistracci retains the right to start drilling and extraction in the designated areas.


• Oil revenues will be divided according to a 20/20 rule: Lopongo will receive royalties of $20 per barrel plus 20% of the difference between market price (based Brent spot price) and $20.
  In case market price will rise above $100, Canistracci will pay a royalty of 45% for the difference between market price and $100.


• Canistracci Oil will establish an administrative office in Banda, and operative offices in Port Durame and in the four designated exploration areas.


• Canistracci Oil will invest in the pipeline infrastructure between the extraction areas and the terminal of Port Durame; Lopongo will build and own the facilities of the oil terminal in the city, and will provide adequate port facilities for the unloading operation of Canistracci Oil equipment.


• The government of Lopongo will provide security for the personnel and equipment in transit between Port Durame and the designated areas; Canistracci Oil is authorized to provide its own security services for the four designated areas, the port terminal, and the pipeline construction site.


• The agreement is exclusively between Canistracci Oil and the government of Lopongo. The authority of the government will supersede any administrative burden required by the Department of Port Durame. Canistracci Oil has no obligation in respect of the Deaprtment of Port Durame.

The future of Port Durame?
The agreement provides a broad framework to establish and operate oil operation in Lopongo, and it is expected to have a major impact on the economy of the country. The exploration fee of $300 million will create, for the first time in several years, a budget surplus for year 2009 -- for 2008, the government is expeced to run a deficit of about $260 million. With oil reserves that preliminary estimates suggest in the order of 1 billion barrel, and a potential production capacity of 100,000 barrels per day, Lopongo fields might generate revenues of $1.8 billion, and about $900 million of additional state revenues that will more than double the current level of $770 million revenues expected in 2008.

The agreement, reached after protracted negotiating sessions and a frustrating collapse in oil prices (at $50 today in London) will also have important political repercussion, insofar the government of Banda has achieved full control of oil revenues with the total exclusion of the local authorities in Port Durame. Reactions by general Mobuto Labomba, governor of Port Durame, are expected soon.

Oil talks stall

After a few days of intense negotiations, talks on exploration rights in Eastern Lopongo stalled on Monday night. The parties decided to adjourn and reconvene the meeting in 10 days, after secretive discussions in Lopongo capital Banda failed to produce a deal between the government and the French-Italian petroleum giant Canistracci Oil.
According to people close the parties, there would be a few roadblocks to prevent an agreement. The fall in oil prices in recent weeks have complicated the financial aspects of the deal: when president Kwanto Sei Bruto first considered Canistracci Oil approaches, crude prices were hovering at $105-$110 per barrel; by Tuesday, Brent prices had dropped below $59. Canistracci Oil offered a deal around current market values, while Lopongo government is insisting for a target price of $85-$90.
A second, thorny issue is represented by the share of revenues for local administrations. Canistracci Oil is calling for an inclusion of Port Durame's authorities in the deal, in order to minimize local opposition to its operations. Kwanto Midevi, minister of economic development, strongly opposes the request, but Mobuto Labomba, governor of the Port Durame province, made clear he would resist any deal not including a share of revenues for its district.
Finally, Canistracci Oil is asking for a some latitude in ensuring its own security procedures, included the deployment of company's security guards. The government would prefer to maintain control of the security forces in the strategic region.
Canistracci's representative will return to Europe for further consultations, but are expected to return to Banda in the second week of November for trying to strike the deal that thus far has remained elusive.

Lopongo government to discuss exploration with French oil giant

A delegation of top managers from the French-Italian oil giant Canistracci Oil will meet Lopongo officials in Banda next week, to discuss exploration rights in the eastern part of the country, according to a spokesman of the company. On Friday, rumors about a move by Canistracci Oil sent the stock up 7% at the Paris Bourse, where the CAC index closed the day up 4.7%.

It is not clear yet what this negotiation implies for the political equilibrium in Lopongo. A few months back, ouvertures by British and American oil interests were rebuffed with a strongly worded statement by president Kwanto Sei Bruto. The president's statement marked a sharp departure from the generically pro-Western stance that Lopongo government held for several years.

According to some analysts, a deal with Canistracci Oil will reaffirm the historical bond between Lopongo and France. The relationship between the two countries became lukewarm a few years back, when president Sei Bruto rejected a French request to host a French Foreign Legion military base on Lopongan soil. Other observers interpret Sei Bruto's move as part of the ongoing, hidden power struggle with the Makeni-dominated political leadership in the East, which may favor the British and American oil interests already established across the border in Nigeria.