Marginal Fields: local companies voyage to first oil

17 years after the last bid round, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), completed the last marginal field bid round the process with fewer complaints or litigation as against the norm.

With the award party over, the real work begins as the goal to increase oil reserves and revenues must align with local content capacity building at a time oil majors are reviewing their portfolios ahead of energy transition. Dipo Oladehinde writes.

Nigeria’s marginal fields sub-sector has been the cornerstone of the country’s upstream local content development strategy since early 2000, as previous rounds gave birth to what are now strong local and regional African exploration and production (E&P) companies.

The 2020 marginal oil field bid round started in June 2020 and by May, 2021, 161 companies were shortlisted as winners of the 57 marginal fields put on offer, which spanned onshore, swamp and shallow water.

Some of the companies, which emerged winners from the exercise included: Matrix Energy, AA Rano, Andova Plc, Duport Midstream, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS and Petrogas.

Others were: North Oils and Gas, Pierport, Metropole, Pioneer Global, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil and Virgin Forest, among others.

The Department of Petroleum Resources (DPR) had at the time put the total value of the 57 marginal oil fields at not less than $500 million.

According to the Chief Executive Officer (CEO) of NUPRC, Gbenga Komolafe, the commission is targeting June for marginal field awardees to begin the Field Development Plan (FDP).

Komolafe, who stated this while appearing on “The Morning Show” of the ARISE News Channel recently, said the plan includes all activities and processes required to optimally develop a field.

He noted that over 600 companies had applied to be pre-qualified for the bid rounds of 57 marginal fields, which began on June 1, 2020. Commenting on the first successful bid programme which was completed by the defunct DPR in May 2021, but was hindered by bureaucratic challenges, thus ensuring that actual drilling for oil did not effectively take off well over a year after the awardees were officially handed award certificates, Komolafe said although the NUPRC inherited a complex situation, it would resolve all issues by the first half of this year.

He said: “It’s critical because one of our cardinal objectives is to ensure that we increase the national oil production, and of course, we realise that the fields will help in enhancing that.

“We took the issue frontally. It’s really been very challenging to handle the issue in the sense that the model used poses serious challenges to bringing the matter to an end quickly. “But I want to assure Nigerians and indeed the awardees that we have been able to, as I speak, try to bring the issue to a manageable state and devise a strategy for bringing the challenge to a close.”

He disclosed that there has been over 80 per cent compliance in terms of payment.

“In fact, one of the challenges we’ve had is that even forming the SPVs, they are still having challenges working together because of the nature of the model used,” the NUPRC CEO added.

“But by and large, I want to say that, as a commission, we will learn from this experience, and I want to assure Nigerians that the next marginal bid will not be bogged down by these kinds of challenges we experienced in managing the fallout of the 2020 marginal field.”

“Before the first half of the year, we want to see a situation where some of the awardees will be proceeding to the field development plan.

“At the moment again, we have recorded close to 90 per cent of the co-awardees forming their SPV, and at that stage, it is the very comfortable stage when the commission can go ahead to issue Petroleum Prospecting Licences (PPLs).”

They identified high bid participation fees and signature bonus, inadequate data about the fields, difficulties in accessing finance from lenders, and lack of technical how-how on the side of the awardees.

Understanding marginal fields

A marginal field is an oil field that has been discovered and left unattended for not less than 10 years from the date of its first discovery.

A major area of attraction to the bidders is the commercial viability of the marginal fields and where the best opportunities lie, which, in addition to the fiscal terms, will be a function of reservoir characteristics, proximity to infrastructure, capital and operating expenditure requirements, and production profile.

Without the Petroleum Industry Bill (PIB), the 1969 Petroleum Act, which the government depends upon, gives the petroleum minister what has been described as broad and subjective authority to award oil mining and prospecting licences. In past bid rounds, the use of discretionary power in the allocation of oil fields led to serious distortions and sub-optimal outcomes.

By the extant Petroleum laws, the President of the Federal Republic of Nigeria is empowered to designate any discovered oil fields abandoned or unattended by existing licence holders for a period of 10 years or more as a marginal field.

Once the asset is designated a marginal field, the delineated area is farmed out from the wider oil mining lease (OML), which effectively means the existing leaseholders cede these designated fields to the awardee of the marginal field.

Although the initial pre-qualification and subsequent submission of technical and commercial bids under the round were the exclusive preserve of indigenous companies, upon award of the fields, windows for foreign participation, up to a ceiling of 49 per cent ownership, are provided.

Read also: Marginal fields in focus as Nigeria’s oil production disappoints

Rule of law

In a chat with journalists recently, Komolafe had emphasised that the regulator would ensure that law and due process were followed in the award of licenses to operators, stating categorically that under his leadership, no marginal field operator would be allowed to ‘trade’ in papers issued by the organisation.

He stated that the rule of law would be strictly followed in the issuance of final licences to the winners, stating that no amount of pressure would make the commission award final documents without due process.

He further said: “It is better you have a regulator that abides by the rule of law than to have a genius as a regulator. If you have a judge in court and he decides to rule on the basis of his ingenuity, then, it becomes a ground for appeal.”

He added: “If you have such a judge, he is a problem judge; he would be abusing discretion. I am going to ensure that our rules and processes give effect to the law. Awards of acreages will be carried out on the basis of fairness, transparency and competitiveness.”

He acknowledged that some of the companies that had fully paid their bonuses were insisting that they could not raise funds without collecting the licences.

Role of PIA

However, commenting on the issue at a recent marginal field conference in Lagos, Komolafe, pointed out that the Petroleum Industry Act (PIA) has provided a safety net for financiers to provide funds for the development of oil and gas in Nigeria, as the marginal field operators can leverage on this to raise funds for their operations.

He said the PIA under Section 95 (5) has also made provisions for: “Holders of license or lease by way of security, to assign, pledge, and mortgage its interest, in whole or in part under the applicable license or lease provided the consent of the commission is obtained”.

Represented by the commission’s Head of Basinal Assessment and Lease Administration, Edu Iyang, the CEO listed the various options open to the marginal field operators and investors to raise funds for marginal field development as “private equity, capital market, strategic alliance and debt financing.”

The NUPRC CEO noted that the commission was improving due diligence protocols to enable investors and operators access information prior to taking investment decisions and encouraging synergies in the use of shared facilities.