As the Federal Government prepares to reflate the Nigerian economy badly battered by the coronavirus pandemic with the flag-off and release of guidelines for the 2020 marginal oil field bid round, key industry stakeholders have expressed concern about the timing of the programme.
Although the last exercise took place in 2003, there is growing anxiety at the moment that the best of investors from across the world may be cut off from the exercise due to the harsh realities of the COVID-19 pandemic.
In addition to the restrictions on global travels among others barriers, the timing of the project may affect several potential investors because of the rigours usually associated with marginal field bid rounds.
Only recently, Justice Chukwujekwu Aneke, of the Federal High Court, Lagos, had rejected an application to stop the Federal Government from auctioning 10 marginal oil fields which licenses were revoked.
Justice Aneke had dismissed an application for interlocutory injunction filed by the operators of affected marginal oil fields which intended to restrain Federal Government from auctioning them. The affected operators are Associated Oil & Gas Limited, Dansaki Petroleum Limited; Bayelsa Oil Limited; Bicta Energy and Management Systems Limited: Del-Sigma Petroleum Nigeria Limited; Sogenal Energy Limited; Independent Energy Limited; Sahara Energy; African Oil & Gas Limited and Goland Petroleum Limited.
As at last month, over 600 firms have indicated interest to jostle for about 57 marginal oil fields put on offer by the Department of Petroleum Resources.
Indeed, government’s latest move to throw open the fields for investors may have been fuelled by persistent drop in international crude oil prices now creating some level apprehension over the implementation of the 2020 budget.
With Brent crude-down from $88 in October 2018 to about $42 in 2020, some experts have submitted that oil bid round wcould generate an estimated N112 billion into government coffers even as the Department of Petroleum Resources (DPR) had earlier revoked 11 licenses in April 2020.
According to the 23-pages guidelines released by the Department of Petroleum Resources (DPR), the exercise which will be conducted electronically in five stages which included; Expression of Interest/Registration, Prequalification, Technical and Commercial bid submission and Bid evaluation.
For potential investors, there are at least 57 Marginal Fields located on land, swamp and shallow water terrains in the bid basket.
The Marginal Fields bid round is expected to take a maximum of six months after the official announcement of kick-off while bidding forms will be provided by the Department of Petroleum Resources (DPR).
But, stakeholders appear divided over the recent decision of the Federal Government to throw the oil fields open at a time the world economy is going through difficult times.
While partner, Bloomfield Law Practice, Dr. Ayodele Oni, believes that the Federal Government was in order with the bid process, the publisher, Oil and Gas Report, Toyin Akinosho, and Profs Wunmi Iledare and Adeola Adenikinju, feel argued that the timing of the exercise was inappropriate in view of the global economic meltdown.
Another pertinent shortcoming that has often characterised past oil bid round is the allocation of oil blocs to families, cronies and political associates of government officials to the detriment of those with technical capability to run the fields.
The Nigerian government introduced the Marginal Field program in 2001 with the objective of opening up the upstream sector of the industry to wider indigenous participation, with a view to creating a robust industry that will positively impact the capacity of indigenous exploration and production companies to contribute to Nigeria’s oil production reserves.
It can be said that the Marginal Field program was borne out of the government’s initiative to promote local participation of Nigerian oil and gas companies in the upstream sector.
The Guidelines provides that only indigenous oil and gas companies (“IOCs”) are allowed to apply for or operate Marginal Fields, however, these IOCs are permitted to have foreign technical partners with equity participation of not more than 40 per cent.
In 2003, 24 marginal fields were allocated to 31 indigenous companies as part of the marginal fields licensing around. Suffice to mention that out of the 24 fields, Seven are currently producing, contributing approximately 1 percent of Nigeria’s daily oil production. These companies include; Brittania-U Group, operator of (OML90), New Cross Petroleum Limited – (OML 38), Waltersmith (OML 56),Midwestern Oil (OML 56), Pillar Oil(OML 56), Frontier Oil and Energia.
The remaining companies are undergoing several challenges which are germane to marginal field operators. This will be discussed later on.
Exactly a decade after the award of the first marginal field program, another licensing round was announced in 2013 with 31 fields on offer. Sixteen (16) of these fields are located onshore, while the remaining are located in the continental shelf.
Publisher Africa Oil and Gas Report, Mr.Toyin Akinosho, said the huge indebtedness of indigenous oil and gas firms to banks in the country would be a major disincentive for them to actively participate in this year’s marginal bid round.
He argued that this was not the right time for Government to flag-off a marginal bid exercise, considering the precarious financial situation of most local oil companies.
Chief Executive Officer of Seplat Petroleum Plc had at the Nigerian Association of Petroleum Exploratinists (NAPE) second Webinar Series titled ‘‘The New Normal Post COVID-19 for the Oil and Gas sector in Nigeria put the debt profile of Nigerian oil and gas companies to banks at $3 billion, heightening the heavy burden on financial institutions.
According to the DPR guidelines, the application process shall attract non-refundable chargeable fees as follows, Application fee of N2 Million Naira per field, Bid Processing Fee of N3Million Naira per field, Data prying fee of $15,000 per field, Data Leasing fee of $25,000 per field, Competent Persons Report of $50,000 and $25,000 for Fields Specific Report.
All application fees and processing fees are expected to be paid into the Treasury Single Account (TSA) while Signature Bonuses are expected to be paid into the Federation Account.
Akinosho said a lot of indigenous exploration and production companies which are heavily indebted to the banks are finding it difficult to service their debt obligation, adding that this is the same market the bidders will go to in order to raise funds.
The publisher who is also a geologist and a fellow of NAPE, faulted the regulator-DPR for not doing enough to support marginal field operators by not having regular interface with investors to know their problems.
‘‘What has happened in the past and that should not happen with this current bid round was that the regulator was didn’t have a systemic hand holding of companies who won bids to develop the field. They were all left alone as against what happens in other climes, especially in Angola where the regulator ensures that it does all it can to ensure that bid winners develop their fields.’’
He said the officer who is in charge of acreages in DPR must not just sit in the comfort of his office but rather be on the field and monitor these bid winners to know their action plan for the assets.
He lamented that some asset owners have not visited their fields 10 years after winning the bids, adding that such assets ought to have be revoked from them long ago because it clearly shows that they are rent seekers.
‘‘At the regulatory level, there has not been much of follow-up on the work programme for some of these fields and we end up having some of these challenges. If Government says marginal fields are meant to build the capacity of indigenous oil and gas companies, then attention must be paid to them’’.
Akinosho, alleged that must of these assets owners are not really interested in developing the assets but hoping to reap where they did not sow by living expensive lifestyles by just receiving and spending sign on-fees that foreigners bring into the country in form of Foreign Direct Investment (FDI)
But, partner, Bloomfield Law Practice, My. Ayodele Oni, opposed the stand of Akinosho, saying there was not untoward about the timing of the bid round.
He said ‘‘I am of the view that, since the Nigerian government does urgently need the money, it make sense to go ahead with the bid process, notwithstanding the fact that oil prices have dropped. This is better than having the fields remaining un-utilized, left un-worked and then going to borrow funds from third parties, on terms which may not be friendly’’
He argued that his position is based on the fact that oil prices have stabilized over $30/ barrel (closer to $40) and the signature bonuses and such other fees could be useful.
This, he said, is in addition to the fact that marginal fields operators are traditionally allowed to produce the technically allowable output, regardless of issues around production quotas.
‘‘An example of the usefulness of incomes form such processes, was the report that the federal government of Nigeria paid its counterpart funding for the Siemens deal, from the Signature Bonuses Account. Hence, such funds always come in handy, rather than borrowing under onerous terms.
Further, from my experience advising on several marginal field issues and transactions, I am of the reasoned view, that wrong technical and financial partnership is one of the key ingredients for the failure observed in the operations of many of the licensees that have performed below expectation’’
The bidders, he said, also want to be sure that evacuation facilities and terms are reasonable. The lack of right partners and other technical and commercial issues have led to the failure of previous bid winners.
Director, Center for Petroleum, Energy Economics and Law(CPEEL), University of Ibadan, Prof. Adeola Adenikinju, said the country should avoid the mistakes it made with the privatization of PHCN ,where political considerations thumped economic considerations in the sale of electricity assets.
According to him, marginal fields should not be sold on the basis of who could pay for the assets, but those who have the pedigree, tractable experience in managing energy assets.