Nigeria has granted licenses to investors for an estimated 57 marginal oilfields in the country’s oil-rich Niger Delta area. Minister of State for Petroleum Resources, Timipreye Sylva made this disclosure, June 1, 2021 in Abuja. The 57 marginal fields offered span land, swamp and offshore.
It was exactly a year after the Department of Petroleum resources opened an unlikely bidding for 57 marginal fields on June 1, 2020, at the peak of the global covid-19 pandemic. In spite of serious reservations about the success of the bidding round due to the impact of covid19 on economic activities and global financial and oil markets, the DPR went ahead with the 2020 marginal fields bidding round.
Sylvia says that at least, half of the successful marginal field investors have accepted the offers and have paid their signature bonuses. The Federal government anticipates signature bonuses on the new acreages to amount to US$500 million. At the presentation of letters to the winners, in Abuja, last week, May 30, 2021, DPR Director, Mr. Sarki Auwalu, said that a total of 591 firms submitted expression of interest forms, out of which 540 were pre-qualified, while 482 were bids submitted by 405 applicants.
“In the end, 161 companies were shortlisted as potential awardees, out of which 50 percent have met all conditions and therefore, are eligible for awards today. We are set to ensure opportunities are extended to other deserving applicants to fill the gap, he said. A key condition was payment of signature bonus for these fields. Although the petroleum minister or DPR Director did not provide a specific figure of income from this source, at 50 percent of leases paying, government is estimated to have received about US$ 250 million as signature bonuses so far.
Some of the lease winners include: Matrix Energy, AA Rano, Andova Plc, Duport Midstream, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS,Shafa and Petrogas.
Others are: North Oil and Gas, Pierport, Metropole, Pioneer Global, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil and Virgin Forest, among others. All the licensees are indigenous companies, according to DPR. NIPCO owned by Indian-Nigerian businessmen acquired Mobil Oil Nigeria Plc then the country’s largest fuel distributor, few years ago.In 2009,MRS which is associated with the wealthy Dantata family acquired the downstream assets of multinational Chevron Oil which included the icon, Texaco fuel retailing brand.
The signature bonuses payment would go a long way to help ease the country’s severe foreign exchange shortages. For several months, official receipts from crude oil exports have been low under an OPEC+ quota regime which limits oil exports and unstable and low oil prices due to Covid-18 disruptions.
But last week oil prices were beginning to look up as the UK Brent crude shot up to over $70 per barrel on the strength of a quick resolution of the third wave of covid-19 restrictions in the UK and a stronger than expected resumption of economic activities. Last February, the Buhari administration had to withdraw its planned issuance of a $400million Eurobond due to an unfavourable European financial market partly due to covid-19 uncertainty. The country is yet is discussions with the World Bank for an additional loan of $1.5 billion which it applied for last year.
Said Anwulu about the licensing round, “despite the daunting challenges of the triple force (oil price crash, global pandemic and production cuts) in 2020, which dealt a severe blow on the world market and global economy, the DPR forged ahead with government aspirations for the industry,” he said.
The 2020 Marginal Fields Bidding round which has now been concluded is the first in almost 17 years, since 2003/2004. And since 2013, The country’s oil and gas industry has been hampered by the political furore generated by the Petroleum Industry Bill,
PIB which was first mooted 10 years ago under the previous Jonathan administration, but could not be passed into law. This has resulted in a lull in entry of new foreign investors into the sector. The Buhari Administration aiming to get more revenue from the country’s oil assets has however moved determinedly to push through some new legislations concerning taxes and royalties payable by operators on the country’s oil acreages.
Several of the new marginal field investors are big players in the downstream oil industry and are apparently, willing to push upwards into the upstream side of the industry. These include AA Rano, MRS, NIPCO, all of whom own large downstream assets. As most of them may later discover, however, the upstream sector is quite a different kettle of fish from the downstream sector where they have been quite successful.
Deal making is expected to become even more intense as some investors get hold of their acreage licensees and look out to cut serious deals for technical partnerships and financing. Signature bonuses could range from US$250,000 to US$5 million per investor, depending on the stake in a particular acreage. It appears that the DPR has paired some investors to some fields therefore, bonuses will be apportioned and paid accordingly.
Some observers were worried about the transparency of the whole process, although they concede that given the circumstances covid-19, lull in global markets, some bidding rules may have to be overlooked. There are charges that expected rigorous vetting and verification of the technical and financial capacity of each investor to develop allotted oilfields were glossed over.
But Anwulu said that the vetting of applications by DPR was carried out in two phases, expression of interest and prequalification, as well as technical and financial phase. He said the phase one ensured that applicants were subjected to screening of basic documentations such as shareholders’ details, directors, management team, procedures and systems, legal and association status, basic technical capability, financial capability and corporate accountability.
“The DPR will continue to follow up and guide the awardees every step of the way. For instance, a guiding template of working agreement has been drafted for joint awardees and discussions have reached advanced stage between DPR and leaseholders on the Farm-out agreement and other technical enablers,” Anwulu said.
Last year, before the opening of the new bidding round, the government had revoked the licenses for 11 marginal fields due to non-performance. The DPR said the government was losing a lot of revenue on those assets in form of taxes and royalties, while an estimated 40 million barrels of petroleum remained unproduced. Whereas on the positive side, several (16) marginal fields won in that round are producing and actually contribute two percent of total daily production of crude oil in the country, according to DPR.
Post-licensing is when the real gritty work of developing the oilfields begin. We should expect some farm-ins from mostly foreign investors, as secondary investors look to take some positions in the country’s upstream business. How well the new investors will succeed in developing the allotted marginal fields is yet a subject of conjecture.