The Federal Government is set to notify winners of the marginal field bid round after President Muhammadu Buhari endorsed the list of winners, but operators are concerned about possible forced mergers of winners, BusinessDay has learnt.
Nigeria’s upstream regulatory agency, the Department of Petroleum Resources (DPR), had forwarded the list of winners to the president who has since last week endorsed the winners in his capacity as minister of petroleum.
It is not clear whether winners will be announced publicly or if they would be notified. The DPR throughout the process had conveyed information directly to the bidders.
Analysts say a possible reason is the highly politicised nature of the process. The government tries to avoid accusations of trying to favour some people, Chuks Nwani, an energy lawyer, told BusinessDay.
Some operators who spoke to BusinessDay, however, expressed concern about proposed forced mergers of bid winners.
The operators, who spoke on the condition of anonymity, said forced mergers could bring bickering, comparing it to “forcing people who are not dating to get married”.
One bidder said the mergers of bidders could improve the chances of a field being developed considering that the merged entities could be better able to raise capital, but it could also increase the chances of a conflict.
Officials of the DPR did not provide confirmation after many attempts to reach them.
The government agency has in the past been concerned about the inability of winners of previous marginal bid rounds to raise the required capital to develop the fields they won in open bids.
In the current bid round, 11 fields that were added to the basket containing already 46 fields up for bids were revoked and repossessed from previous winners who could not develop them.
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.
Read also: FG to realise $600m from marginal oil fields; Sylva
Long fraught with concerns, Nigeria’s 2001-2003 Marginal Fields Licensing Round, the first to be organised by the federal government, awarded 24 licences to 31 indigenous companies.
A total of 30 marginal field licences have been awarded since the policy was introduced in Nigeria. Out of the current licensees, only around 30 percent of the fields have reached commercial production. While a bid round was proposed for 2013, it never held.
After a three-and-a-half-month-long exercise which began in June, the DPR concluded the nine-step 2020 marginal fields bid round from pre-qualification to negotiation between leaseholder and bid winner.
The marginal field bid round is one of the options the Federal Government is exploring to raise revenue apart from monthly crude oil sales as prices decline.
Over 600 applications were received for fields including potentially lucrative ones, like Egbolom with reserves of about 220 million barrels which was expected to attract a minimum of $5 million as a signature bonus (an amount of money paid by bid winners on their marginal fields), while Usoro field on OML 100 and Ugbo field on OML 40 were also among the top contenders for investors.
“Nigeria desperately needs revenue from this marginal bid round, the presidency needs to act quickly and allow successful investors kick off operations at the earliest moment,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, had told BusinessDay.
This year, the DPR, in order to improve revenue levels unlike previous bid rounds, introduced a signature bonus that varies for each of the 57 fields planned for auction.
Simon Anderson, an energy sector analyst, writing for Wood Mackenzie, said it is estimated that the total resources on offer are around 800 mmbbl oil and 4.5 tcf gas. The 25 largest oilfields have the potential to unlock $9.4bn of investment over the first five years and generate over $38bn in revenue over the life of the fields.
According to DPR guidelines, after winners are announced, it will proceed to the concluding stage, the negotiation and signing stage whereby the leaseholder and the marginal field winner(s) will enter into negotiations regarding the terms and conditions of the Farm-out Agreement.
“The parties shall endeavour to reach an agreement within 90 days,” the DPR said.
More than any other time in its history, Nigeria desperately needs revenue from the marginal field bid round as the country is facing a challenging financial situation worsened by the pandemic-induced unstable oil prices which have plunged the economy into a recession.
