The Nigerian government is gearing up to invite bids for seven deepwater oil blocks in January amid falling investor appetite.
Coming at a time when multinationals are balking under shareholder threats and investors no longer find the country attractive, analysts say the plan faces challenges.
While it has the prospect of growing Nigeria’s oil production and helping shore up dwindling revenues, the bid round could confront challenges in an environment where investors are leaving the country and financing for oil and gas projects are running dry, especially in Africa.
Oil majors Shell, ExxonMobil, Total and Chevron, among others, are planning multibillion spending spree on projects around the world but these companies have not included projects in Nigeria as part of their spending plans.
Years of poor fiscal and regulatory frameworks as well as challenges dealing with host communities and a rising spate of crude theft have made the oil-rich Niger Delta unattractive for investments.
Read also: FG begins bid round for seven deepwater oil blocks January
Nigeria’s major drilling campaign in the Kolmani oilfield was financed entirely by the country partly because the Nigerian National Petroleum Company Limited struggles to convince its partners to jointly finance projects when it routinely fails to pay its share of oil production.
Amid the situation, the petroleum sector regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), issued a release last Wednesday inviting bids for the first in a series of bid rounds, aimed at further development of this prospective petroleum basin.
The seven offshore blocks, covering an area of approximately 6,700 square kilometres (km2) in water depths of 1,150 metres to 3,100 metres, are put on offer, the commission said.
This would be the first bid offered under the new oil law, the Petroleum Industry Act. The last major bid round was held in 2007, when 45 blocks were offered from onshore and deepwater fields. The bid round organised in 2020 was for marginal fields, which only contain insignificant volumes of oil.
An official from the NUPRC who pleaded anonymity told BusinessDay that the mini bid round aims to address the country’s low production as well as its inability to meet OPEC quota, amid complaints that some of the country’s oil wells are not being utilised.
“Basically, the bid aims to shore up production and increase revenue,” he said.
He added that the bids are open to both local and foreign investors in line with the PIA provisions, hence those interested just need to have the capacity, competency, funds, license and other necessary requirements.
“All these things will be assessed before the contracts are awarded to avoid people taking allocation and dumping it; it is going to be competitive because both national and private operators as well as new entrants are open to bid as long as they have the necessary requirements,” he said.
Nigeria has struggled to pump half of the oil output it produced a decade ago; so a favourable outcome would grow production.
“Offshore blocks provide stability of production and export,” said Etulan Adu, an oil and gas analyst based in Lagos. “Our daily crude oil production will increase and more revenue for the economy.’
Jide Pratt, country manager at Trade Grid and an energy analyst, said while the development will increase rig count and production volumes, it faces hurdles.
“International oil companies are divesting from shallow water fields and sadly, previous bid rounds have been marred with accusations that blocks were allocated based on political relationships with companies rather than competence and capacity,” he said.
Nigeria passed the PIA in 2021, with the hope that it would spur investments but this has largely failed to materialise. A recent World Bank report said despite the passage of the PIA, confusion remains regarding the management and governance of the oil sector.
“What is critical is the appetite of investors based on the lack of implementation or a rather slow pace of implementation of the PIA,” Adu said.
There have been recent calls for African countries to set up a fund to finance their energy projects as financing dries from Europe and America amidst climate concerns.
The African Energy Chamber, which represents energy companies on the continent, has expressed concern at the unwillingness of Western countries to invest in Africa. Investments into the oil sector in the continent have fallen sharply since the COVID-19 pandemic.
According to S&P Global Platts, the outlook for the sector in Africa is looking bleak, as oil majors cut spending on the continent. Nigeria would work twice as hard to convince investors that its deepwater fields would be attractive.
In the past, the subscription of oil offers has not always translated to production.
The NUPRC said in its release that this mini bid round intends to build on the successes of the last bid round that was held in April 2007, during which a total of 45 blocks, drawn from the inland basins of Anambra, Benue and Chad; the Niger Delta Continental Shelf; onshore Niger Delta and deep offshore were put on offer.
