Addressing the Challenges in Marginal Fields Devt

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With 21 out of the 30 marginal oilfields awarded in the country from 1999 to date not yet producing, Ejiofor Alike writes that the federal government should address the challenges that hindered indigenous operators from developing these marginal assets before the next marginal fields bid round

The federal government embarked on the award of marginal fields in the late 1990s after international oil companies (IOCs) had abandoned significant acreages unappraised and left others to lie fallow for many years even after oil discoveries, largely because the fields were not commercially viable for the oil majors to deploy their expensive technologies and resources.

The award of marginal fields is also aimed at increasing Nigeria’s crude oil production capacity through accelerated development of discovered reserves.
It also encourages aggressive exploration to increase the country’s oil and gas reserves
With the abundant the pool of the high-level competent Nigerians retiring after meritorious services with the international oil companies, the award of marginal fields also seeks to gainfully employ these professionals, thus creating employment opportunity for more Nigerians.

The first marginal field to be awarded in the country was the Ogbelle field allocated to the Niger Delta Petroleum Resources Limited in 1999 to promote indigenous participation and build local capacity in the upstream sector.

After the Petroleum (Amendment) Decree No. 23 of 1996 was enacted to provide the legal framework for the award of the oil acreages deemed “marginal” by the IOCs, the guidelines for farming more fields out and operation of these fields were developed in 2001 and 2003, following which 24 additional fields were awarded to 31 companies.

The 24 fields and the 31 beneficiary companies included Platform Petroleum, which was awarded the Asuokpu/Umutu field in OML 38, Prime Energy and Sufolk Petroleum, which were awarded the Asaramatoru field in OML 11, Bayelsa Oil (Atala field in OML 46), Excel E&P (Eremor field in OML 46), Walter Smith Petroman and Morris Petroleum (Ibigwe Field in OML 16), Independent Energy (Ofa field in OML 30), Millennium Oil (Oza field in OML 11), and Network E&P (Qua Ibo field in OML 13).

Others were Universal Energy (Stubb Creek field in OML 14), Associated Oil and Gas and Dansaki Petroleum (Tom Shot Bank field in OML 14), Sahara Energy and Africa Oil and Gas (Tsekelewu field in OML 40), Frontier Oil (Uquo marginal gas field in OML 13), Guarantee Oil and Owena Oil (Ororo field in OML 95), Sogenal Oil (Akepo field in OML 90), Bicta Energy System (Ogedeh field in OML 90); Britania-U (Ajapa field in OML 90), and Eurafic Energy (Dawes Island field in OML 54).

The rest included Del-Sigma Limited (Ke field in OML 54), Goland Petroleum (Oriri field in OML 88), Movido E&P (Ekeh field in OML 88), Midwestern Oil and Gas and Suntrust (Umusadege field in OML 56), Pillar Oil (Obodugwa/Obodeti field in OML 56), Energia Limited and Oando (Umusati/Igbuku field in OML 56), and Chorus Energy (Amoji/Matsogo/Igbolo field in OML 56).

The Okwok and Ebok fields were awarded in 2006 and 2007 to Oriental Energy to compensate the company for losing part of OML 115 to Equatorial Guinea, following a boundary adjustment exercise between Nigeria and Equatorial Guinea.
In 2010 Otakikpo and Ubima fields were also awarded to Green Energy Limited and Allgrace Energy Limited, respectively, to conclude a protracted award process that commenced in 2004.
But of the 30 marginal fields awarded from 1999 to date, only nine fields are producing, while 21 are at different stages of development.

The companies producing from the nine oil acreages are Platform Petroleum, Walter Smith Petroman and Morris Petroleum, Frontier Oil Limited, Britania-U, Midwestern Oil and Gas and Suntrust, Pillar Oil, Energia Limited and Oando, Oriental Energy, and Niger Delta Petroleum Resources Limited.
The other 21 fields are yet to produce oil as a result of a number of factors.

Challenges of marginal field development
Some of the marginal fields awarded in the country are largely sub-economic and non-bankable assets.
The major reason why the fields were abandoned by the IOCs was because they were not commercially viable for the oil majors to deploy their expensive material and human resources to produce the fields.

The fields were considered sub-economic and non-bankable largely because of the stranded nature of the assets.
This made it difficult for the indigenous operators that took over the assets to attract deep-pocket partners with the technical expertise to facilitate the development of the marginal assets.

Apart from some of the assets that are in clusters, most of the marginal assets are stranded and thus, not bankable.
One of the early challenges that faced the indigenous operators that were allocated marginal fields was the delay in signing agreement between the lease holders and the DPR.
After the allocation of the assets to the indigenous operators, it took several years for the DPR to conclude the signing of necessary agreements with the lease holders.

The delay in the signing of the agreements also delayed the development of the fields as the asset owners could not mobilise resources to start the developments without the necessary approvals by the regulator.
Lack of access to funding also hindered the development of marginal fields in the country.
With the non-bankable nature of the assets, the indigenous firms found it difficult to attract investors.
This has delayed the assets development, thus defeating the federal government’s objective of increasing the country’s oil and gas reserves base, as well as daily production capacity.

Some of the asset owners have also demonstrated lack of capacity to develop and manage the acreages.
This challenge stemmed from the fact that most of them did not have any track record in the exploration and production business before getting the marginal fields allocation.
Some of the companies were just hurriedly registered for the purpose of acquiring the marginal assets and had no experience in the E & P business.

This has delayed the development of these fields.
Another challenge that hampered the development of the marginal fields awarded between 1999 and 2010 is the community restiveness in the Niger Delta region.
Oil-producing communities have intensified their agitations for greater share of oil resources in recent years.

With community restiveness, most of the companies that succeeded had to understand and resolve the community issues to have uninterrupted operations that facilitated the development of the assets.
The administration of the late President Umaru Yar’Adua adopted a holistic approace to address the agitations in the Niger Delta by introducing the Amnesty Programme for repentant militants in 2009.

This programme brought relative peace in the region and facilitated the development of many marginal fields.
One of the greatest challenges that hindered the development of marginal fields in Nigeria was that some of the companies awarded the fields in 2003 were forced into partnerships and consortium by the federal government.
Instead of encouraging companies with the same vision and mission to enter into voluntary partnerships, the federal government arbitrarily merged two companies and gave them a marginal field.

By forcing companies to partner in marginal fields development, the federal government encouraged what oil and gas industry operators referred to as “forced marriages” between incompatible partners.
After getting the marginal field allocation, these strange bedfellows spent several years fighting each other, instead of developing the assets.

New marginal field bid round underway
Despite the inability of the indigenous operators to develop 21 out of the 30 fields awarded from 1999 to date, the federal government through the DPR has set the guidelines for the marginal oil field bid round scheduled to take place later this year or early 2018.

The proposed bid round could potentially see scores of investors jostling to acquire 46 oil acreages during the exercise.
Of the 46 acreages up grabs, it was however gathered that the DPR is considering setting aside some of the oil blocks for discretionary award to firms owned by Niger Delta indigenes, in order to sustain the prevalent peace in the oil-rich region and give its citizens a sense of ownership in Nigeria’s oil wealth.
Under the guidelines seen by THISDAY for the current marginal field bid round, interested investors will be required to pay $50,000 each for a Competent Persons Report (CPR).

The CPR will require bidders to provide details of their shareholding structure, names of their directors, track record in the oil and gas sector, audited financial statements, partnership and/or collaboration with indigenous firms, and financial resources to bid and pay for the oil acreages.

It was also gathered that prospective investors will also pay $15,000 each as Data Mining fee to enable them have access to the relevant data on the fields that will be put on offer.
After the payment of the $15,000 by each investor, the DPR will commence the technical and commercial evaluations of the bidders.

THISDAY also learnt that the $15,000 data mining fee to be paid by the investors in the forthcoming exercise is equivalent to the $2,000 paid by the operators in 2003 as data purchasing fee.
In the 2003 bidding round, investors paid N50,000 for application form; N100,000 processing fee, and signature bonus of $150,000 each.

Successful bidders in the forthcoming exercise are expected to confirm their willingness to pay $300,000 as signature bonus, against $150,000 paid in 2003.
Expectedly, the oil acreages will go to the highest bidders who will be given a timeline within which to pay for the oil acreages.

However, to avoid the pitfalls and the landmines that hampered the development of the 21 fields allocated in the previous bid rounds, the federal government should look at the lessons learnt and address the challenges facing the operators to ensure that it realises the objective of marginal field allocation to indigenous investors.