Delay in government approvals stalls investments in Benin embayment
Investment running into billions of dollars that could have poured into Nigeria’s Benin embayment and the economy is being held back by the perceived unwillingness of the government to step up its game and free up the area to capable indigenous oil and gas firms.
The Benin embayment is part of an extensive basin on the Nigerian coastal line. Also referred to as the Dahomey embayment, it is rich in hydrocarbon, and was left fallow for decades because of lack of investment.
The embayment is home to the Aje Field, which is reported to have close to 200 million barrels of oil and multi-TCF gas reserves as well as the Ogo Field, among others.
The policy of government had opened the embayment to investment leading to the activities of Crownwell Petroleum, Panoro Energy and others operating in the area.
In recent years, however, inaction by government on approvals for companies has meant that less investment is being made on wells, which have the capacity to significantly buoy Nigeria’s Gross Domestic Product (GDP) and improve the lives of several Nigerians. There a number of cases to illustrate this point.
The Zabazaba Deepwater Oilfield in Oil Prospecting Lease (OPL) 245 is said to be a business case.
The $13.5 billion deep water oilfield, with proven reserve of 560 million barrels and production volume of about 150,000 barrels of oil per day is yet to be finalised and has remained largely dormant for years.
This represents about $4 billion in revenues at today’s oil price.
The delay prompted a group called the Niger Delta Indigenous Movement for Radical Change Group (NDMIRC) to write President Muhammadu Buhari in 2017, urging him to give approval which will facilitate the final investment decision (FID) on the project.
According to NDMIRC, the Zabazaba project is capable of generating over eight million jobs for Nigerians.
This is a ray of hope for those who have lost their jobs and other Nigerians seeking for employment. Unfortunately, the government is still delaying the project.
For the past 11 years, Nigeria has also not been able to hold oil licensing round. Despite many promises by the current government, the country has not overcome the regulatory and bureaucratic bottlenecks which hinder the licensing round.
In the meantime, Nigeria continues to lose billions of dollars in potential investment as investors direct their attention to more stable oil bearing-countries including those making new discoveries.
Similarly, in 2013, London-listed Lekoil farmed into Afren’s stake of OPL 310, thereby acquiring a 30 per cent economic interest translating to 17.14 per cent equity participation but recent moves by Lekoil to get approval from the government to increase its stake to enable it make further investments in the block has been stalled by government’s slow approval process and dilly-dallying.
Back in 2015, when Afren ran into financial trouble, Lekoil bought the Afren subsidiary that held the latter’s 40 per cent remaining economic interest for $13 million, thereby adding another 22.86 per cent in equity.
The deal boosted Lekoil’s economic interest to 70 per cent and its equity interest to 40 per cent.
So far, Lekoil has spent more than $120 million on OPL 310 but is unable to continue development without ministerial consent to the second equity transfer.
“We put $50 million into drilling one exploration well and sidetrack, resulting in the Ogo oil discovery and gross recoverable reserve of 774 million barrels of oil equivalent (on a proven and portable basis),” Chief Executive Officer, Lekoil, Lekan Akinyanmi, said.
With estimated production volumes of 120,000 boepd, at today’s oil price, the Ogo field alone stands to generate over $3 billion in annual revenues.
As an original indigenous operator awarded acreage under the 1993 marginal fields round, Optimum Petroleum was constrained from farming down more than 40 per cent to Afren but the deal it signed allowed Afren to sell on without Optimum’s permission, subject to ministerial consent, contends Akinyanmi.
Lekoil sought consent in January 2016, well ahead of OPL 310 license expiry date and in the wake of continuous government inaction applied to the Federal High Court in March 2018 for a declaration that consent is deemed to have been granted to it to increase its stakes.
In a similar case between Oil World and Owena Oil & Gas, action was taken to preserve the unexpired term of OPL 241, prompting rapprochement between partners and eventual extension of that license.
At present, Lekoil is seeking protection under the remits of the law which provides for an extension if “causes beyond the control of the licensee” result in delay and hopes to claw back at least three years.
In the meantime, Optimum has demanded restoration of OPL 310 on the basis that Afren drilled no wells.
But the authorities have not been of help in resolving the matter leading to loses for the country at large.
The courts have been slow in discharging or even hearing the case, while the government on its part has failed to give the necessary approvals, leading to a stalemate.
“First the court went on recess, then the judge returned from vacation and adjourned the court, then Optimum moved to join itself to the case which still has not been heard,” Akinyanmi said.
Currently, Lekoil is pushing for government to decide on the matter while seeking both relief and an extension.
The company is simultaneously negotiating with Optimum. But government has to move on its part as such delays and indecision negatively impact investor sentiments.