Avoiding Landmines and Pitfalls in 2020 Marginal Fields Round

Timipre Sylva

The notorious track record of favouring certain section of the country in appointments in oil and gas sector by President Muhammadu Buhari-led administration has fueled concerns that the 2020 marginal oilfields bid round may lack transparency, reports Ejiofor Alike

To help Nigerian companies develop capacity and capability in the upstream sector of the oil and gas industry, and at the same time boost the country’s crude oil production, the federal government came up with the idea of the award of marginal fields to Nigerian independent companies in the late 1990s.

The award of these marginal assets to the relatively small indigenous players became necessary after the international oil companies (IOCs) had abandoned significant acreages unappraised and left others to lie fallow for many years even after oil discoveries.

This apparent lack of interest by the IOCs stemmed from the fact that these fields were not commercially viable for the oil majors to deploy their expensive human assets and technologies.

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 in the industry.

Following the enactment of the Petroleum (Amendment) Decree No. 23 of 1996 to provide the legal framework for the award of the oil acreages deemed marginal by the IOCs, the guidelines for farming them out, as well as the operation of the fields were developed in 2001 and 2003.

This was followed by the award of additional 24 marginal fields 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).

However, the Okwok and Ebok marginal fields were awarded in 2006 and 2007, respectively, 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.

Again, 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 as at the last count, only nine fields were producing hydrocarbons out of the 30 marginal fields awarded from 1999 to date, while 21 were at different stages of development.

The companies producing from the nine oil acreages were 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.

One of the major reasons why the majority of the companies could not quickly bring their assets on stream was due to what the Chief Executive Officer of Seplat Petroleum Development Company Plc, Mr. Austin Avuru had described as a “marriage of strange bedfellows.”

Avuru was obviously referring to how some companies without background knowledge of one another, came together overnight to form partnerships and consortia just to clinch the assets that were up for grabs.

It was gathered that after being awarded the fields, these “strange bedfellows” engaged in protracted dispute instead of concentrating on putting the fields into production.

Indeed, only Avuru’s Platform Petroleum and few others developed their assets before Avuru moved ahead to with other investors to form Seplat, acquired larger acreages and other plum oil and gas assets from the IOCs during their divestment programme.

Apart from the issue of “marriage of strange bedfellows”, majority of the other companies that were awarded the marginal assets lacked the financial and technical knowhow to develop their assets.

2020 Marginal Fields Round

While transparency was not an issue in the previous bid rounds as the exercises were transparent and competitive, there are strong concerns about the transparency and credibility of the 2020 marginal fields’ bid round process also being handled by the Department of Petroleum Resources (DPR).

Under this 2020 exercise, the federal government is targeting to raise over $500 million in terms of signature bonuses from the 57 fields, which will be auctioned.

The entire process started from June 1, with the official announcement, to August 9, when payment of application, bid processing fee and submission of technical commercial bid will take place.

However, investors are worried that given the notorious antecedent of the present administration to favour certain section of the country in appointments, the marginal fields’ award process may be skewed to give undue advantage to investors from the privileged part of the country.

Some of the investors who spoke to THISDAY hinged their fears on the fact that the heads of all the agencies under the Ministry of Petroleum Resources, and other oil and gas-related agencies, except perhaps, the Nigerian Contempt Development and Monitoring Board (NCDMB), are from a particular part of Nigeria.

These agencies include: Nigerian National Petroleum Corporation (NNPC), Department of Petroleum Resources (DPR), Petroleum Products Pricing Regulatory Agency (PPPRA), Petroleum Equalisation Fund (PEF) and the Petroleum Technology Development Fund (PTDF).

NNPC is headed by Mallam Mele Kyari; DPR, Mr. Sarki Auwalu; PPPRA, Mr. Abdulkadir Saidu Umar; PEF, Alhaji Ahmed Bobboi, and PTDF, Dr. Bello Aliyu Gusau

With this dominance of one part of the country in the oil and gas, investors are concerned that most of the beneficiaries of the marginal fields bid round may potentially come from this section of the country.

Though former President Olusegun Obasanjo had initiated efforts to enthrone open, transparent and competitive bid rounds in the award of oil blocks, the Petroleum Act still empowers the Minister of Petroleum Resources to award oil acreages on a discretionary basis, a process that was frequently abused by past military administrations.

President Muhammadu Buhari is the substantive Minister of Petroleum Resources and given the lopsided nature of his appointments, some investors told THISDAY that it is doubtful if he will resist this temptation.

So in order to give potential investors assurances and guarantees on the transparency of the exercise, the DPR must show that those who are eventually selected have the cash, track record, experience and technical capacity to do business in the oil and gas sector.

However, the federal government should consider 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.

But investors must also know in clear terms, the pre-qualification criteria and how they will be weighted in selecting those that will participate at the application stage.

Industry players are also concerned whether the process is being independently handled by the DPR devoid of any political manipulations.

Political interference was also listed as one of the factors that made investors to abandon 15 fields out of the 30 that were awarded in the past.

DPR must demonstrate commitment to avoid pitfalls and landmines in this current exercise.

Investors are demanding that only companies with the capacity and financial reach are pre-qualified.

The oil and gas industry players argued that if this pre-qualification criteria is not strictly adhered to, it will open the door to what they called a political crony system and insider dealing that had plagued the previous award system.

According to them, these assets need to be put on production swiftly to earn the country the accompanying royalties and taxes, and also help to ensure that the government also meets with its objective of achieving a production target of 3 million barrels of crude oil per day by 2023.

To engender investor confidence in the exercise, the players also seek the involvement of civil society organisations, and independent agencies like the Nigeria Extractive Industry Transparency Initiative (NEITI).