As oil income falls, FG considers selling marginal oil field licences

The Federal Government is holding a bid round for marginal fields in a few weeks’ time which is expected to help raise capital and shore up fallen oil income.

Africa Oil & Gas Report, an energy intelligence publication by a respected analyst, Toyin Akinosho, first reported that Timipre Sylva, Nigeria’s minister of state for petroleum resources, has received the approval of the president to hold the marginal field bid round. Officials of the Ministry of Petroleum Resources contacted were yet to verify the information.

Meanwhile, an oil and gas investment expert told BusinessDay that he was getting requests from some clients on prospective oil fields that may be a good buy, indicating that investors may already be taking positions based on their knowledge of government plans.

The current fall in oil prices is pushing the Federal Government to think up other ways to raise revenue besides depending on monthly crude oil sales.

Forty-five fields were already in the basket at the Department of Petroleum Resources (DPR), the industry regulatory agency.

There are also additional 11 fields revoked by the DPR due to the inability to use them. These include Movido-Ekeh, Goland-Oriri, Independent Energy-Ofa, Associated-Tom Shot Bank, Bayelsa-Ayala, Sogenal-Akeni, and Delsigma-Ke.

Read Also: Marginal oil fields: How to meet FG’s low-cost order through ‘third party cost savings’ – Leesi Gborogbosi

Others are Bicta-Ogedeh, Guarantee-Ororo, Eurafic-Dawes Island and Sahara-Tsekelewu.  This will bring to 56 fields located on land, swamp and shallow water terrains from which investors can choose.

Marginal fields are those 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.

Though marginal fields in Nigeria have an average economic life of between eight and 15 years and can produce between 4,000boepd to 30,000boepd per field, they give local players the best opportunity to participate in the oil and gas sector, develop expertise and grow local content.

But operators have not always been prolific producers. A total of 30 marginal oil field licences have been awarded since the policy was introduced and only around 30 per cent of the fields have reached commercial production. Marginal field production only makes up 3.05 per cent of crude oil output between 2015 and 2016, say analysts at Bloomfield law firm.

According to the DPR, the marginal field companies produced about 2.14 per cent of the nation’s total production in 2018. The depletion rate was about 2.7 per cent, with a life index of 36.83 years and a national reserves portfolio of 1.61 percent. The reserves hold a potential for production that lies within the medium-term range.

The government has threatened several times in the past to revoke the oil field licences of operators who fail to develop fields but has often restrained from carrying out the threat in view of the difficult operating environment and the volatile nature of oil prices.

“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,” Ayodele Oni and other analysts at Bloomfield law firm said.

Nigeria has not also held marginal field bid rounds since 2003. Twenty-four fields were awarded to 32 companies, some of them two to a field, in 2003.

In the midst of the coronavirus pandemic, the Federal Government is experiencing a cash crunch. It has reviewed the budget and cut out needless expenditure.

Nigeria’s credit ratings have been downgraded and the naira has been devalued.

In view of social distancing guidelines, any licensing round could be held digitally but that will open the process to accusations of irregularities as many will be unable to participate.

The intelligence publication reports that the signature bonus for each field will vary as widely as the economics of extraction. The DPR had, in the last three years, been working with a consulting firm to evaluate all the fields and allot commercial values.