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. Last Updated: 07/27/2016

A Small Coup Makes Big Oil Waves

HOUSTON -- A coup last week in the West African island nation of Sao Tome and Principe is reverberating in the corporate suites of the energy industry here, oil company executives said.

Officials from several companies said they were anxiously monitoring events on the potentially oil-rich archipelago, a former Portuguese colony on the equator in the Gulf of Guinea.

ExxonMobil, the world's largest oil company, and Chrome Energy, a small Houston-based oil and gas company controlled by Nigerian investors, have secured options for oil exploration in the waters off Sao Tome, an area just south of oil-rich Nigeria that geologists estimate could hold up to 6 billion barrels of reserves.

ChevronTexaco, Royal Dutch/Shell and Total are among the other big oil companies that have shown interest in bidding for licenses to explore other areas in auctions scheduled for October. This interest has sent expectations soaring in Sao Tome and Principe, a two-island country of 2,600 square kilometers and 160,000 people where the main export crop is cocoa and the average annual income is $280.

"Oil has created dreams of grandeur for a tiny place that has been on the margins of global affairs for many years," said Gerhard Seibert, an authority on Sao Tome at the Institute of Tropical Scientific Investigation in Lisbon. "The army and the political and business elites sense something coming and want a part of it."

U.S. and European companies are not the only potential investors in Sao Tome's nascent oil industry.

Nigeria has a treaty with Sao Tome establishing a joint development zone in waters off both countries, allowing 60 percent of the revenue from the area to go to Nigeria. And Sonangol, Angola's state-controlled oil company, has reached a preliminary agreement to train Sao Tomean oil officials and invest in future projects.

It remains to be seen how the coup leader, Major Fernando Pereira, will treat existing agreements.

He has agreed to talks with representatives from the United States, the Community of Portuguese Speaking Countries and Nigeria, in one of the first indications that tensions could ease.

Still, most Cabinet members, including the oil minister, Rafael Branco, were being held captive Sunday, adding to uncertainty over the effect the coup may have on oil exploration.

The coup has already affected Sao Tome's fragile economy: The World Bank said this week that it would suspend all aid to the nation as long as the coup leaders remained in power.

"Our contracts are with the government of Sao Tome, so we're assuming that they will be honored no matter what takes place," said John Coleman, director of investor relations at Chrome, a publicly traded company whose formal name is Environmental Remediation Holdings Corp. But, he also said, "It's too early to tell what's going to happen."

Marcia Zilensky, a spokeswoman in Houston for ExxonMobil, said the company was "closely following the situation like everybody else." Exxon Mobil has yet to start operations in Sao Tome.

No oil is expected to be extracted from Sao Tome until 2007 or 2008, but the country has nonetheless become a international flash point, leading experts on West Africa to speculate it was only a matter of time before jostling for power ahead of the oil rush would evolve into political instability.

Revenue from licensing agreements alone could reach $200 million in the next two years, an amount about four times the size of the national budget.

"Sao Tome is a microstate with limited capacity to absorb a big influx of cash," said Stephen Harrison, director of the Africa program at the Center for Strategic and International Studies in Washington. "It's also in a neighborhood with two very muscular players, Angola and Nigeria, opening the door for runaway competition for its resources."

President Fradique de Menezes of Sao Tome was in the Nigerian capital, Abuja, when Major Pereira led the apparently bloodless putsch last Wednesday. He accused the mutinous troops of being influenced by "the smell of oil." He has remained in Nigeria.

James Burkhard, an Africa analyst at Cambridge Energy Research Associates, said investors were expecting the coup to collapse in the face of international pressure much in the way a similar power grab in 1995 dissipated after Angola stepped in to mediate between parties.

"The age of oil is upon Sao Tome, so some level of friction is to be expected," he said.