Concerns mount over Nigeria’s proposed oil licensing rounds

… To address credibility concerns, FG plans outsourcing process to external consultants  
 
…fiscal framework, funding, militancy still major issues
 

Uncertainty surrounds what fiscal framework the Federal Government will apply in its forthcoming oil licensing rounds later this year, as the current one is inadequate and a draft one has yet to be approved.

Local oil players are also uneasy about where to secure funding to purchase oil acreages to prevent international oil companies, Chinese and Indian investors snapping up all the assets, even as the threat of militancy clouds assets onshore.

Previous oil licensing rounds have been dogged by lack of integrity in the process and to assuage this concern, Nigeria is in talks to outsource the process to an American firm, a source with knowledge about the negotiation tells BusinessDay in confidence.

Nigeria’s previous oil licensing rounds have suffered integrity deficit as blocks were awarded to predetermined winners who lacked technical and financial competence to put the blocks to use.

“The arrangenment is that the consultant will be paid from application fees paid by prospective bidders,” says the source who didn’t disclose the firm’s name as negotiations are ongoing.

Analysts say banks bruising from over exposure to oil and gas companies, where loans to them constitute between 28 – 40 percent of their loan portfolios, would approach the next bidding rounds without much enthusaism.

“Most banks have since adopted a cautionary stance to oil and gas loans,” says Dolapo Oni, head of energy research at Ecobank.

“Currently, we have about 12.8 per cent of all loans that are non-performing in the banking industry, and the bulk of that is from the power, oil and gas sector. It is pushing the banking industry into a region that they are approaching a crisis, in terms of non-performing loans,” says Oni.

Banks placed bets on oil prices holding around $60 – $70 per barrel when they gave out loans a few years back but oil prices began to plateau in the third quarter of 2015 and now struggle below $50.

“From our experience advising on several marginal field issues and transactions, we are 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 expectations,” say Ayodele Oni and other analysts at Bloomfied law firm.

The current lull in militancy has enabled Nigeria shore up crude oil output closer to 2 million barrels, according to Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC) though OPEC monthly reports released March 14 say the figure for February is 1.5 million barrels.

However, there are fears that a resumption of militancy in the Niger Delta may keep away credible investors, as the horizon is still unclear about the endgame of the militants who have elected to see what becomes of engagements by Yemi Osinbajo, when he stood in for the President recently.

Nigeria’s current licensing round is with the objective of raising capital to finance infrastructural projects, deepen reserves beyond the current 38billion barrels and utilising dormant oil mining leases acquired by investors without technical and financial capacity.

Previous licensing rounds have been bogged by lack of integrity in the process. Presidential or Ministerial discretion has always trumped due process, companies that were awarded blocks couldn’t pay signature bonus and lack of comprehensive data on blocks on offer has been major challenges.

 

ISAAC ANYAOGU