…5 out of 60 marginal licences in use
The Nigerian government has begun processes for the 2024 oil bid round but perennial concerns around a forced merger of bidders, allegations of favouritism and high signature bonus could mar the process.
12 oil blocks and five deep offshore assets from last year’s bid exercise are on the line.
While it has the prospect of growing Nigeria’s oil production and helping shore up dwindling revenues, experts said the 2024 bid round could confront challenges in an environment where investors are leaving the country as well as dealing with host communities and a rising spate of crude theft that have made the oil-rich Niger Delta unattractive for investments.
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According to people close to the process, the regulator’s decision to merge several bidders with different operational plans, financial resources, and development plans together on a field in the last bid round would create uncertainty for the 2024 oil bid round.
“Many of the awardees are still struggling to move to sites for development of assets due largely to funding and regulatory challenges,” a source close to one of the bidders told BusinessDay, pleading anonymity as he does not have the authority to disclose sensitive matters.
He added, “These winners do not know each other, have different plans and programmes and funding strategies, but have all been forced together in a union of strange bedfellows which is frustrating the development of marginal oil fields.”
Marginal fields in Nigeria refer to discoveries made by oil majors that were undeveloped either because of distance from the existing production facility, low reserves (in view of the majors), or likely low production volumes as a result of flow assurance issues.
BusinessDay’s findings showed out of the over 60 companies that got approvals in the last marginal bid round, only about five have started production.
“Out of those who benefited from the last marginal bid round, out of about 60, maybe only about three or four or five have started producing. The ‘Big Boys’ are holding on to these licences as souvenirs, they are not doing anything about them,” Heineken Lokpobiri, minister of state for petroleum resources (oil) said at an evening event organised by The Petroleum Club.
Michael Adesanya, a senior oil executive who participated in the last bid round said the 2020 bid round was a chaotic exercise.
“The Competent Person’s Report exaggerated the value of the assets. Based on that false value, a huge signature bonus was extracted from the awardees.
“That cost front-loading of the assets rendered most of them sub-commercial. So, most of the awardees will not make progress without the government returning their money to them. Unfortunately, that government is not here anymore. I doubt that this government would want to take up that responsibility,” Adesanya said.
Oladeji Popoola, a chief risk officer in a Lagos-based consulting firm, advised that the proposed fresh bid round must be done in a cost-efficient and fair manner to avoid dis-incentivising those that have robust industry experience with proven technical and financial capacity to develop the assets.
“So, how it will be done is the most important. Will it be fair? Will it be cost-efficient? I hope it will not be too expensive, so that we are not dis-incentivising those that have the capacity to play in that place. These are the things that come into play,” Popoola said.
He warned the government to be wary of portfolio investors and middlemen hanging around in the industry so that the fields would not be awarded to them and end up remaining undeveloped years after award.
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BusinessDay’s findings showed the 2024 oil bid round would be the second bid offered under the new oil law, the Petroleum Industry Act (PIA). Nigeria passed the PIA in 2021, with the hope that it would spur investments but this has largely failed to materialise.
“What is critical is the appetite of investors based on the lack of implementation or a rather slow pace of implementation of the PIA,” Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies said.
She added, “Nigeria would work twice as hard to convince investors that its deepwater fields would be attractive”.
A publication by Africa Oil & Gas Report, an energy intelligence journal said Nigeria’s opaque marginal field bid round process escalates the risk of ‘investment scare’ in Africa’s biggest oil-producing country.
“The fact that the agency does not publish a list of these potential awardees, and does not send the letters all at once, but chooses to distribute the letters in batches, sometimes in the wee hours of the morning, has raised concerns about the transparency of the process. It also heightens the risk of assurance of investment inflows,” Africa Oil & Gas Report said.
Nigeria has struggled to pump half of the oil output it produced a decade ago; so, a favourable outcome would grow production.
