Nigeria’s secondary licensing market
“Do you know a Nigerian holder of petroleum acreage who is interested in funding partnership for field development?”
It’s a question I have been asked, quite routinely, in the last 10 years.
The geography is very specific and so is the nationality of the preferred licensee: Nigeria and Nigerian.
The follow up statement to that query hardly varies; “I have people who have money to invest”.
These enquiries are always about the marginal fields, awarded 17 years ago, that haven’t been developed, as well as over 20 oil prospecting leases; exploratory tracts which have been granted to Nigerian companies, as far back as 29 years ago, but never experienced an active work programme.
“What do you know about them?”, the inquiries always state.
Nigeria has not conducted a bid round since 2007. And discretionary awards by the government have been few and far between.
So, a semi-official secondary market has grown to fill the gap.
One recurring challenge in consummating the transactions in the secondary lease market is the ministerial consent, a condition that stipulates that any transfer of asset, either in whole or in part, has to have the nod of the political head of the Ministry of Petroleum Resources. The hurdles as well as transparency concerns around the Ministerial consent are identified in a recent report published by the Nigerian Natural Resource Charter NNRC. But I am getting ahead of myself.
The secondary lease market has in the past 12 years, had a turnover of close to $15 billion, if not more.
Shell started the contemporary round of divestments of Nigerian assets in 2008 when it sold 15 percent of the total equity in Oil Mining Leases (OMLs) 125 and 134 to Oando. It upped the game in 2010, when it began what has now become its recurring “bid round” of sale of onshore assets, leading its co-venturers TOTAL and ENI to collectively divest their 45 percent in eight acreages for a sum of around $7 billion.
Between 2013 and 2015, ConocoPhillips, the world’s largest independent, received close to $1.5 billion for its sale of, mainly, 20 percent equity in four leases in the country, from Oando, a transaction that marked its exit from Nigeria.
Chevron has, quietly earned over $800 million from the sale of its stakes in six acreages (three onshore and three shallow offshore) since 2014.
Last year witnessed the $520 million purchase, by the Canadian junior Africa Oil Corp., of 50 percent stake in POGBV a vehicle which holds 8 percent and 16 percent stakes in Oil Mining Leases (OMLs) 127 (Agbami) and 130 (Akpo & Egina fields), with combined output in excess of 475,000BOPD, in crude oil volume only.
But these are the big-ticket items, in which the cost of buying stakes in each acreage has ranged from $50 million to $2.5 million, as most of the assets involved are producing properties.
Far less expensive have been the deals involving farm ins into and operatorships of marginal fields and exploratory tracts.
One company that thrived in this segment of the market was Afren. Between its founding in 2004 and its demise in 2015, the London headquartered independent signed MoUs with seven Nigerian marginal field acreage holders. In the end it consummated a deal with one; Oriental Resources, on the Ebok field, which it brought into production. It also farmed into Amni Petroleum’s Okoro field, which it took to first oil. At the height of its powers, Afren was producing over 52,000BOPD gross from these two fields. It was convenient for the company not to quote the gross figures, since its equity volume from these two assets, at over 30,000BOPD, was not exactly marginal.
So Afren had taken advantage of Nigeria’s informal secondary lease market. In spite of the access of some of the company’s principals to the upper reaches of Nigerian political power structure, Afren never won an acreage from the Nigerian government, either in an open lease sale or a discretionary award.
Indeed, the largest producing Nigerian independents: AITEO ~80,000BOPD, Shoreline ~70,000BOPD, Seplat ~60,000BOPD, Neconde ~50,000BOPD, Eroton ~45,000BOPD, came in to being through the secondary market.
The only licencing round focused on marginal fields was conducted in 2001-2002. Out of the 24 such fields awarded to 31 Nigerian independents in 2003, 11 fields were either not developed, nor worked up to sustained production.
For most of the last 10 years, these fields were the hottest candidates around, for investors keen on having a piece of the Nigerian marginal field basket. They were Bicta Energy’s Ogedeh field, which has never really had an operationalised work programme; Sogenal’s Akepo field, which has faced serious operational challenges in the journey to development; Goland’s Oriri field has experienced failed re-entries; Movido’s Ekeh field has had intermittent production, with expensive, short term production facilities and the field had been shut in for upwards of five years; Dansaki/Associated’s Tom Shot Bank field has not had the benefit of a robust development partner. Finally, Del Sigma’s Ke Field needed a working up.
There were also Guarantee/Owena held Ororo marginal field and Sahara’s Tsekelewu Field. Licenses to all these 11 marginal fields have now been revoked by the government. But that is another story.
Outside of the marginal fields league are a number of Oil Prospecting Licenced acreages that would seem, on the surface, available. There are over 15 of them, mostly onshore Niger Delta, some in shallow water. But holders of these assets are not in a hurry to do deals. The fact that they escape even paying signature bonus after being awarded these assets, in cases for over 20 years, says something about state/regulatory capture in the Nigerian petroleum industry.
The Nigerian government has been severally criticised for infrequent petroleum licencing rounds. I am not one of those critics. I have been more concerned about routine, day to day management of licences and in the ministerial consent.
In the former, Companies hold on to asset, especially if it is awarded by the state, without payment of the most rudimentary charges and unwilling to embark on a work programme. And when investors approach them for farm outs, the first agreement is a sign on fee, the second is to agree on a regular, quarterly fee paid to license holder and the last is to pay the signature bonus on the asset to the state.
Very often, licence holders orchestrate disagreement with one investor, so that he storms off, leaving the opportunity on the table for another investor. The situation is repeated many times. So, acreage licence holders sit on assets, without working them, without payment to the state, and yet feed fat on them.
When investors come for farm in into Nigerian assets, the Ministry of Petroleum Resources conducts due diligence investigations on the transfer to ensure technical and financial capacity and also ensure that there is no revenue loss to the nation. Great. But in practice, however, “events suggest that ministerial discretion has undermined the process, leading to poorly coordinated transfers and multiple prosecutorial cases in domestic and foreign courts”, notes the just released Benchmarking Exercise Report of the Nigerian Natural Resource Charter. As everyone knows, it was in the ministerial consent process stage of the Shell divestments of 2012-2015, that the murkiest of dealings took place in the era of Diezani Allison Madueke, the last petroleum minister before this administration.
Akinosho is the Publisher of Africa Oil+Gas report.