The government’s consideration of selling marginal oil field licences amid dwindling revenue and the ravaging coronavirus pandemic could be a late decision, according to oil sector governance experts, but the plans hold huge prospects for fiscal buffers.
The current fall in oil prices is pushing the Federal Government, which is currently experiencing a cash crunch, to think up other ways to raise revenue besides depending on monthly crude oil sales.
BusinessDay had earlier reported government’s proposed plan to hold a bid round for marginal fields in few weeks’ time, which is expected to help raise capital and shore up fallen oil income. The government has not held marginal field bid rounds since 2003, and oil sector governance experts have lauded the current initiative.
“The marginal oil field licence sale holds huge prospects for the Nigerian economy in building fiscal buffers and further driving indigenous participation in Nigeria ‘s oil and gas sector which we are yet to structure proper economic gains from,” Adeola Adenikinju, a professor of Energy Economics at the University of Ibadan, told BusinessDay.
Forty-five marginal oil fields were already in the basket at the Department of Petroleum Resources (DPR), the industry regulatory agency, BusinessDay learnt.
There are also additional 11 fields revoked by the DPR due to inability to use them. These are Movido-Ekeh, Goland-Oriri, Independent Energy-Ofa, Associated-Tom Shot Bank, Bayelsa-Ayala, Sogenal-Akeni, Delsigma-Ke, 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.
But the experts who spoke exclusively to BusinessDay called on the government to learn from the excruciating experience of the oil shocks volatility and commence the process of economic diversification while building fiscal buffers for the economy.
“We are exposed to all forms of volatility because we’ve failed to reform the oil sector. Better late than never. We must utilise this opportunity to build the horizontal and vertical aspects of our economy. By that I mean that we must increase the local value of our oil resource,” Adenikinju said.
He said, for instance, that this is an opportunity to ramp up Nigeria’s domestic gas industry which holds huge prospects for fertiliser, pharmaceuticals, medicine, plastics and other products.
“We must use this opportunity to grow our economy by properly diversifying with our oil rich resources through reforms which can cascade into other aspects of the economy,” he said.
Marginal fields are those discoveries by oil majors that were underdeveloped either because of distance from existing production facility, low reserves in view of majors or likely low production volumes as a result of flow assurances issues.
Though marginal fields in Nigeria have average economic life of between eight and 15 years and can produce between 4,000boedp 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.
A total of 30 marginal licences have been awarded since the policy was introduced and only around 30 percent of the fields have reached commercial production.
According to DPR, the marginal field companies produced about 2.14 percent of the nation’s total production in 2018.
Henry Ademola Adigun, an oil sector governance expert, told BusinessDay that this is the appropriate time for indigenous oil firms to explore the opportunities in the proposed sale since the emphasis is more on local content participation and attracting more revenue to the government.
“This is a huge opportunity to be explored. The gains may not be so imminent but it holds long-term benefits,” Adigun said.
He urged the government to speed up reforms in the oil and gas sector in order to avert susceptibility of the economy to volatility and shocks.
