Half of marginal field bidders cannot pay signature bonuses

Only half of the about 161 companies that qualified to bid for marginal fields are able to pay the signature bonus, a development that could derail Nigeria’s plan to raise $500m from the exercise.

Sarki Anwualu, CEO of the Department of Petroleum Regulation (DPR) the government agency that regulates the petroleum industry, said on Monday that only half of the companies eligible for the award were capable of fulfilling all the conditions.

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.

The agency had been seeking to raise $500 million from the signature bonuses to be awarded for 57 marginal oilfields in the bid round processes for the oilfields which began in June 2020.

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The total signature bonus per field ranges from $5Million to $20Million, but since no single field is assigned to a single company, the signature bonus demanded from each company correlates with the percentage interest in the field offered to the company.

At least 80 different companies were awarded fields in pairs because the need to raise funding trumped the concern that forced mergers could create problems.

The Federal government is in a bind as some of the funds realised from the bid exercise may have even been spent.

Timipre Sylva, Minister of State for Petroleum Resources, last month said the DPR rescued Nigeria from a financial crisis by remitting funds to the Federation Account Allocation Committee (FAAC) in April.

Sylva said that since the DPR collected royalties on behalf of the federal government, it was able to fill the vacuum left by the NNPC in contributing to the federation account with revenues from marginal field programmes.

“I can’t say what the figure is, but the DPR has always contributed to the federation revenue because they collect royalties, so they’ll continue to contribute.

“But as to filling the gap, it’ll not always be there because NNPC has not said after not being able to contribute in May, it’ll stop entirely. NNPC has not announced it again. So, we cannot say for how long DPR is going to keep paying,” he said.

With DPR missing its own revenue target, it does not seem that it would be filling this vacuum for long.

To raise the required revenue from the marginal field bid, the DPR had merge, several bidders, joining people with different operational plans, financial resources, and development plans on a field to be able to pay the fees.

Some analysts expressed concern that it is likely to lead to conflicts and to slow down the government’s plans to get more out of its hydrocarbon resources.

“It would, to my mind, be forcing people with different plans and strategies to do business together,” said Ayodele Oni, energy lawyer, and partner at Lagos-based Bloomfield law firm.

However, this move had not panned out. Nigeria’s marginal field programme has been beset by financial challenges, mostly with bidders unable to raise the required money to pay signature bonuses and develop their fields.

Edu Inyang, DPR’s head of Basinal Assessment and Lease Administration said that in the 2003 exercise,24 oil fields were awarded to 31 indigenous companies but 18 years after the 2003 marginal field bid rounds, only 30 percent fields were able to achieve full production.

Inyang explained that the exercise was aimed at increasing indigenous participation in the upstream sector; attract investment, create jobs, increase oil and gas production volume among others.

According to him, some of the challenges that marred the 2003 exercise include the late conclusion of the farm-out agreement, poor alignment among the co-awardees, and disputes leading to litigation, noncommitment to work programmes lack of synergy between bidders and companies who own the field.