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Confusion over bid rounds for 57 oil fields

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PHOTO: RIGZONE

• DPR assures investors of fairness
• N’ Delta demands right of first refusal

About 57 marginal fields being auctioned by the Federal Government, may end up in the wrong hands or remain underdeveloped unless the country overhauls its legal framework and sets the right terms that would offer projected value from the oilfields.

Many of the industry players who spoke with The Guardian feared that the country’s obsolete regulations, especially the non-passage of the Petroleum Industry Bill (PIB), were worsening transparency and fostering uncertainties. They noted that a harsh operating environment coupled with prevailing realities in the international oil market would create an elusive outlook for licensing rounds.

Nigeria had targeted increasing its proven crude oil reserve to 40 billion barrels by 2020. Instead, it declined from 37.45 billion barrels in 2014 to 36.97 billion barrels in 2019. The production target of 4 million barrels per day by 2020 also dropped from 2.3 million barrels in 2014 to 1.6 million barrels in 2019.

The award of Oil Prospecting Licence (OPL) 245 to Malabu Oil and Gas Limited exposed the level of corruption that takes place during the award of oil blocks. The country thereafter waited for about 17 years without a licensing round. Minister of State for Petroleum Resources Timipre Sylva however disclosed the country’s readiness to offer about 57 marginal fields while preparing for a major licensing round.

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Marginal oil fields are fields where oil has been discovered, but not commercially viable to the owners. Based on extant regulations, if the land is left undeveloped for 10 years, Nigeria’s president could reclaim it and offer it up for auction since it could be viable to other oil companies.

While the Department of Petroleum Resources (DPR) said concerns being raised by stakeholders could be addressed and that the non-passage of the PIB would not affect the outcome of the bid rounds, some stakeholders expected the Federal Government to have waited for the passage of the PIB by the middle of this year as earlier promised.

According to them, the Federal Government, having waited for 17 years to organise bid rounds for the fields that have been abandoned, ought to have waited a little longer for the passage of the PIB, which is expected to tackle crucial concerns about operational activities bordering on the development of the sector.

Without the PIB, the 1969 Petroleum Act the government depends upon gives the petroleum minister what has been described as broad and subjective authority to award OMLs and OPLs. In past bid rounds, the use of discretionary power in the allocation of oil fields led to serious distortions and sub-optimal outcomes.

Litigations trailed the revocation of the licences for some of the fields, as the awardees failed to meet government’s criteria for keeping the licences 15 years after they were given the franchise. There is hope that some of the awardees that did not go to court may have the chance to reclaim their fields under the ongoing bid round.

Though the government claims that the marginal oilfields, which are expected to be taken up by indigenous producers are less impacted by the low crude oil prices as they might not need to do so much on the fields before commencing production, it is not clear whether the government will be able to command significant value for the fields, as investors may struggle to raise adequate financing to support participation in the bid round amid the global economic crisis and looming local economic recession.

The Guardian had earlier reported that exposure of indigenous operators to the banking sector hovered around N3.4 trillion. Nigeria’s marginal oil fields account for less than five per cent of the country’s total oil production output.

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An investor’s guide to marginal oil field acquisition prepared by the government says Nigeria has an estimated 2.3 billion barrels of crude oil reserves in over 183 fields classified as marginal.

According to the DPR, only nine marginal fields are currently producing from the 30 fields awarded during the last bid rounds, while 11 operators lost their licences to operate marginal fields over failure to meet government’s criteria to keep the licences 15 years after they were given.

DPR Director Auwalu Sarki, in his response to some of the concerns raised by stakeholders, said fields that were under litigation were not included among the 57 currently being offered to investors.

According to the DPR guidelines, wholly-owned indigenous oil companies and investors with substantial Nigerian interest operating as oil exploration and production businesses would participate in the bid for the 57 oil fields put up for auction.
Also, companies whose promoters are either indebted to the government, or are currently holding oil assets not operated in a business-like manner would not be pre-qualified to participate in the bid.

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On the move for bid rounds for marginal fields before the PIB is passed, Sarki said the country had existing legislations in the Petroleum Act, among others. “The bid round is not a field block round. The non-passage of the PIB has insignificant impact and would not affect the outcome of the bid rounds.

“The marginal bids would be competitive. There are no price tags for the oil fields. The offer and bid price will determine the competitiveness. The investors will price the fields themselves. Selling them will help both investors and government,” he said.
Technical Adviser at the Nigeria Extractive Industries Transparency Initiative (NEITI), Dauda Garuba, feared that the licensing round could be compromised by loopholes in the sector’s regulations, especially lack of transparency that may deprive the best bidders.

“There is need for a level-playing field, so that those who are in competition would appreciate that they lost out not because winners were close to government officials. We need a transparent mechanism to be in place,” Garuba said.

With the current legal framework and downturn in the sector, he predicted that people might not be eager to participate in the bid round. “Interest will be very low. You may not get good candidates for the round. And even if you do, they may doubt the integrity they are actually interested or just want to buy and sell. That should not be what Nigeria is looking for,” Garuba said.

The President of Oil and Gas Trainers Association of Nigeria (OGTAN) and a former president of the Nigerian Association of Petroleum Explorationists (NAPE), Dr. Mayowa Afe, said there was no right or wrong time for the bid round, as the oil and gas industry has not seen major activities in recent times.

“A lot of professionals have been waiting for this bid round for a long time. As a result of the COVID-19 pandemic and capacity to pay, we might see mergers among players for the fields.

“As regard the legislations, the rules and regulations can be improved upon. Passing the PIB will only help to address concerns raised. However, the industry cannot be static in waiting for the PIB. We are hoping that the PIB will come through before the end of the year. The National Assembly is working with the Executive. We are hopeful that the PIB will sail through. The PIB can go alongside the marginal fields’ bid rounds,” he said.

But an oil and gas expert, Michael Faniran, expressed worry about the bid round, saying the guidelines did not meet expectations in terms of capacity to attract investments.

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He said: “Why the rush in taking the bid round when the PIB is being considered? Operators do not need to be begged. They will align with the process. How can someone bid for something for which he does not have sufficient information? They should allow civil societies to monitor the process for transparency. Let’s get the framework for the PIB before going for the bids. Most of the fields have been lying fallow.

“What they have encouraged is to ensure that people who do not have capacity to operate the fields, obtain the rounds and sell to another operator. To protect the integrity of the process and ensure full returns for Nigeria, control of the awards process should be transferred to strong and independent institutions. DPR, which already has regulatory authority in all matters pertaining to upstream licensing, is the most obvious choice.”

He said further: “Past licensing rounds in Nigeria were not tied to any comprehensive asset development strategy or broader economic development plans. Nigeria needs to develop a strategy for managing its natural resource base for current and future generations, and tie each licensing round to that strategy.

Angola, for instance, selects blocks carefully on the basis of articulated, well-planned development strategies.

“The quality of assets on offer, supported by sound data, is often the lead factor determining what prices governments will fetch for their acreage. Bidders in future rounds must have full access to a repository that acts as the single source of authenticated and certified data. DPR should press operators withholding data on marginal fields for full turnover.”

Although Patrick Okigbo, Founder and Principal Partner at Nextier, supported the development, he said if Nigeria’s decades-old history with licensing marginal oilfields were anything to go by, the proposed auction would be another wanton waste of the nation’s resources.

Okigbo specifically said the move would not deliver the expected increase in revenue and proven crude oil reserves or increase in daily crude oil production unless government makes the process more transparent.

To improve the outcome of the licensing process, Okigbo said, as a pre-requisite, President Buhari should declare that he would not invoke his discretionary powers as Minister of Petroleum Resources during the process. According to him, such a move would rebuild the trust and confidence of serious investors.

“Before the commencement of bidding activities, Nigerians should insist on evidence of the following four key deliverables. One, a comprehensive national economic development plan and how the expected signature bonuses would be used to implement the plan.

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“Two, a national data repository that would be used as the single source of verified data for all parties interested in the bid. Three, there is a need for widely published information on the asset value, to eliminate any arbitrage opportunities resulting from information asymmetry.

“Four, the terms governing the licensing round should be open, transparent, clear and easy to understand, so that the interested public can track how the government is managing the process on their behalf. Very importantly, the pre-qualification criteria should be empirical to eliminate bias,” he said.

Okigbo also said during the bidding process, the selection criteria should be stringent, to limit the pool of bidders to only firms with the requisite financial and technical capabilities. While in the post-bid phase, firms must post performance bonds to be drawn down by the government if they fail to commence work on the oilfield.

Adeoye Adefulu, an energy expert and Partner at Odujinrin and Adefulu, called for transparency in the selection of bidders, noting that the country must apply local content rule and prioritise Nigerian indigenous operators in the award of oil fields. He said: “The work obligations that would be imposed on the successful bidders must be clear and published, and must be monitored and enforced rigorously by the regulator.”

He said considering the prevailing situation, government must look towards a long-term position instead of the immediate bonuses that may come from the fields. He noted that taxes and royalties would create long-term gains for the country despite the prevailing situation market outlook.

Some successful marginal field players like Seplat Petroleum Development Company Plc have also expressed interest in acquiring more assets.

Seplat’s chairman, Dr. A.B.C. Orjiako, recently said the company was continuously looking at acquisition opportunities. “We concluded a very successful acquisition last year, despite the collapse of oil price globally and despite the hardship in the global economy. We remain focused on acquisitions.

“We have continuously said that we are very committed to price sensitive acquisitions. That means we do not overpay. So, as the industry changes, it means that the prices that buyers are willing to pay will continue to change and we would adapt and continue to do our acquisitions.”

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Stakeholders comprising Pan Niger Delta Forum (PANDEF), Gbo Kabaari Ogoni and Ijaw National Congress, want the Federal Government to give the right of first refusal to Niger Delta state governments and people.

PANDEF’s national publicity secretary, Ken Robinson, said: “PANDEF will again urge the Federal Government, as a matter of urgent priority, to grant Niger Delta indigenes and Niger Delta states who are interested the right of first refusal in the bid for the marginal fields.

“We suffer the consequences of pollution as a result of exploitation and exploration activities. Our rivers, our farmlands, our means of livelihood have been decimated. Our young people are unemployed. We insist that this is an opportunity. There are suitable people in the Niger delta with technical, financial capacity to muster funds.

“The right of first refusal should be given to the people of the Niger Delta and governments, to bid for these marginal fields. Anything short of this will be considered an attempt to continue to oppress, marginalise and sideline the people of the Niger Delta region in a sector where they should be frontline participants.”

Similarly, Gbo Kaabari Ogoni leader, Ledum Mitee, said the sale of the marginal fields without due consideration of the interest of the Niger Delta people would be tantamount to Nigeria kneeling on the necks of the people of oil-producing communities.

On his part, a former Ijaw National Congress president, Alabo Charles Harry, said if the government wants to create an equitable Nigeria and create justice, then majority of these marginal fields should be allocated to the people of the Niger Delta.

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