Transnational Corporation of Nigeria (Transcorp) has signed a production sharing contract (PSC) with the Nigerian National Petroleum Corporation (NNPC) for the oil block OPL281, a move that exposes Transcorp to larger production volumes and boost local participation in the oil sector.

“This is a good development as a shareholder of Transcorp,” said Dr.Faruk Umar, the President, Association for Advancement of the Rights of Nigerian Shareholders (AARNS),

According to him, the deal is a sign of good things to come and also attests to the leadership of Tony Elumelu, chairman of Transcorp. Elumelu, Africapitalism proponent, is setting the tone for local oil operators to seek deals that will boost all inclusive participation in the upstream sector, which is largely dominated by international oil firms.

A PSC is an agreement signed between a government and a resource extraction company (or group of companies) concerning how much of the resource extracted from the country each will receive.

Energy business surge

Transcorp had in 2006 won the OPL 281 oil field in a Mini Bid Round organised by the Ministry of Petroleum Resources, paying a reported $35 million to the Nigerian government.

The deal will enable Transcorp continue its drilling plans for the oil block, one that will form core of its energy business and supply gas to its planned energy city located in Delta State. It will include fertiliser and petrochemical plants and its 1000MW capacity Transcorp Ughelli Power Plant.

The company’s CEO, Obinna Ufudo recently told shareholders about the company’s growth plan saying the first phase of the company’s transformation was to grow the business lines including oil and gas, which is solely based on the prolific OPL 281.

“Our oil and gas business will witness a speedy take-off as we expect to finalise negotiations of the production sharing contract of OPL281 with the Department of Petroleum Resources,” he said.

Obinna added, at the time, that once an agreement was reached, the company would embark on “aggressive drilling camping for commercial production.”

With the deal now agreed, Transcorp’s vision to become the leading conglomerate in Nigeria has gotten a boost as not only will its oil and gas business get a foothold, its investment in power and agriculture will subsequently benefit from improved energy supply, particularly the availability of gas.

The company, according to Ufudo, will focus on concluding the rehabilitation of some turbines it has identified as important to improving generating output at its Ughelli plant to 700 megawatts.

Shareholders’ joy

The Advancement of the Rights of Nigerian Shareholders (AARNS) reiterated its confidence in Transcorp to achieve a profit target of N30 billion ($184.6 million) a year.

“With the kind of investments the company is making, the efficiency and determination of the board led by Elumelu and the commitment of management and staff, I am confident that the target would be achieved,” AARNS president, Faruk said.

Faruk also lauded the leadership qualities of Elumelu, whose track record he said has assured shareholders Transcorp will continue being profitable.

Transcorp paid its first ever dividend earlier in the year, breaking a cycle of no dividend payment since its IPO in December 2006. The directors had recommended a dividend of N1.93 billion ($11.9 million) to be paid on the basis of 5 kobo per share.

The new deal is expected to boost the company’s profit and further diversify income streams, which is expected to translate to higher dividend for shareholders.

Other gainers

As shareholders of Transcorp are relishing in the newly signed deal, other companies – with stakes in the OPL 281 – have been eagerly anticipating the deal closure, which will ensure they also commence business.

Tenoil, a company that will provide technical services support base for the exploration programme of the oil block as well as manage the seismic and well delivery programmes on behalf of the project owners, will commence drilling with Transcorp.

The other project owners are Sacoil of South Africa and UK’s EER, who own 20 percent stake each in the oil block. They are sure to enjoy a healthy return on revenue from the oil block believed to contain about 30 trillion cubic metres of gas.