Congo Wants to Sell Gertler’s Oil Blocks on Ugandan Border

(Bloomberg) -- The Democratic Republic of Congo is forming a plan to take back two oil blocks from sanctioned Israeli billionaire Dan Gertler and sell them to another company.

The Congolese government has talked to Tullow Oil Plc about purchasing a stake in the Lake Albert licenses along the country’s border with Uganda, said four people with knowledge of the discussions. Total SA and Eni SpA had also showed some interest, two of the people said.

Tullow declined to comment. Eni said in an emailed statement that it isn’t interested in the blocks. A spokeswoman for Total said the company has left Congo and isn’t interested in the licenses.

The blocks could have been be a natural fit for Tullow and Total, which already share rights to adjoining areas on the Ugandan side of the lake where more than a billion barrels of oil have been discovered. The Congo licenses have long been regarded as having the potential for large discoveries, but proper exploration has been held up for years by legal and political wrangling.

Any deal would be difficult because Gertler is subject to U.S. sanctions, the people said. The American government accused the Israeli billionaire in 2017 of amassing a fortune through “opaque and corrupt mining and oil deals in the Democratic Republic of the Congo” and using “his close friendship with DRC President Joseph Kabila to act as a middleman for mining asset sales.” Gertler has repeatedly denied all accusations of wrongdoing.

Complex Negotiations

Congo’s production sharing agreements for oil blocks 1 and 2 are with two of Gertler’s companies, Caprikat Ltd. and Foxwhelp Ltd. Both are sanctioned, as is the company that manages them, Oil of DRCongo. In May, Congo’s oil ministry extended the rights to the permits until June 2021.

To start the transfer process, state-owned oil company Sonahydroc would first take over the Congolese government’s 15% interest in each of the two blocks, according to two of the people and an August letter sent by former interim oil minister, John Kwet Mwan Kwet, to Congo’s president, Felix Tshisekedi, which was seen by Bloomberg News. Gertler’s companies would then fully relinquish their 85% stake in the blocks to Sonahydroc.

A new partner would then take those 85% holdings in the blocks, setting up a joint venture with Sonahydroc, according to the letter and the people. That arrangement with the state oil company could let Congo avoid an open tender process, which would be required if the permits fully reverted to the state, said one of the people. Congo has set up a monitoring committee to handle “the complexity of the negotiations,” according to the letter.

Sonahydroc declined to comment, while Congo’s Oil Ministry did not respond to requests for comment.

Compensation Payment

Gertler’s company Oil of DRCongo said by email that it has spent 150 million euros ($167 million) to explore and develop the blocks. The Oil Ministry letter gave a lower figure of $135 million, while an archived version of the website of Gertler’s Fleurette Group from 2017 said they’d spent only $100 million.

If the proposed transaction were completed, Gertler’s company could receive compensation of as much as $150 million, two of the people said.

“Oil of DRCongo is ready to listen positively to proposals from potential partners upon the condition that they have the capability, experience and intent to invest in the DRC without hesitation or question,” the company said by email. The blocks hold about 3 billion barrels of oil in place, according to the Fleurette Group’s 2017 web page.

Tullow has a long history in the Lake Albert region, starting to drill on the Ugandan side in 2006 and eventually discovering about 1.7 billion barrels of contingent oil resources. The London-based company signed a production sharing agreement for the two blocks in Congo in 2006, but never received the required authorization from Kabila. He gave the licenses to Caprikat and Foxwhelp in 2010, prompting Tullow to initiate legal action, which was later withdrawn.

Congo and Uganda still need to agree on a pipeline project to ship oil from the Lake Albert deposit in the center of Africa to a port, most likely traveling from Hoima in western Uganda to Tanga, Tanzania, according to the oil ministry letter.

©2020 Bloomberg L.P.

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