NUPRC: Enabling Oilfields’ Development

NUPRC: Enabling Oilfields’ Development

The Nigerian Upstream Petroleum Regulatory Commission has finally closed out on the 2020 marginal oilfield award process with the presentation of the Petroleum Prospecting Licences to the companies. This major milestone achievement has paved the way for the development of the 57 marginal oilfields put on offer, writes Peter Uzoho

After the stalemate witnessed in the 2020 marginal oilfields award process, which hampered it from progressing to field development, one year after award certificates were issued to the successful companies, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has finally overcome that hurdle. 

Now, the process has finally been concluded with the presentation of the statutory Petroleum Prospecting Licences (PPLs) to the awardee companies at a ceremony in Abuja, last week. The ball has now shifted to the companies, who are now required to put together and submit to the commission, their Field Development Plans (FDPs) for review and approval by the regulator, to enable them proceed to site.

How It Started 

The 2020 marginal oilfield bid round, which was the first after the 2003 bid round, commenced in June 2020 with the call for biddings by indigenous Nigerian oil and gas companies that have got the requisite competence and capabilities needed to vie for the fields.  Fifty-seven fields designated as marginal fields spanning land, shallow-water and swamps were put on offer.

The process started with the defunct Department of Petroleum Resources (DPR), which saw the process up to the presentation of award certificates in May 2021, to about 50 per cent of the 161 successful companies that made it, out of the over 665 initial bidders.

However, with the enactment of the Petroleum Industry Act (PIA) in August 2021, which sanctioned the emergence of new regulator, NUPRC, and scrapped the DPR, the task of completing the award process fell on the commission. 

Led by one of Nigeria’s cerebral oil and gas professionals, Mr. Gbenga Komolafe, as its Chief Executive Officer, the commission upon inauguration, took closing out on the 2020 award process as one of the first critical tasks it was going to deal with immediately. 

Komolafe immediately embarked on series of engagement meetings with the awardees and other stakeholders in the sector in order to ensure that the process was concluded so that the companies can proceed to their various fields.

Nexus Between the Process and Economy

Very conscious of the mood of the nation in terms of the urgent need to increase Nigeria’s oil production to the government’s envisioned 3 million barrels per day and to meet other expectations from the bid process, the NUPRC hit the ground running. 

In all of his engagements with the awardees, the NUPRC chief executive would explain that the marginal field programme was critical to government’s plan of building local capacity among the indigenous companies and to boost their contribution to the country through enhanced participation in the industry.

He would explain that allowing local firms to take more active part in the exploration and production activities through the marginal fields would help a great deal in helping the country to shore up production and get more value during oil price rise.

More than any time ever, Nigeria is currently in serious need to increase its oil production volumes, which has been so low at just a little above of 1million barrels per day. This has made it difficult for the country to meet its monthly production allocation by the Organization of Petroleum Exporting Countries (OPEC), which now stands at 1.7 million for July and 1.8 million for August.

The urgency around this aspiration has been further heightened by the rising oil prices, as Brent Crude, the global oil price benchmark, has been trading above $110 per barrel in the last months.

Indeed, Nigeria really needs to maximise the benefit of this price rally by producing more and exporting more oil to boost the country’s foreign exchange earnings from crude.

But the country is hamstrung by the fact that its production volume is too low, and so, the price hike makes little or no sense to the country.

Making the matter worse is the subsidy paid on imported petrol to keep the price of petrol consumed by Nigerians, and shockingly, by the neighbouring African countries at just N165 per litre.

This alone wipes off all the gains that should ordinarily accrue to Nigeria in times of high oil prices as being witnessed now.

Presenting the Petroleum Prospecting Licenses 

Having succeeded in resolving all the problems that arose in the course of the award process through the Special Purpose Vehicle (SPVs) formed by the companies on its instruction, the NUPRC went ahead to issue the Petroleum Prospecting Licenses (PPLs) to about 49 awardees that have fully complied with the requirements.

Some of the companies presented with the PPL at the ceremony held in Abuja last week included Island Energy Ltd, Sigmund Oil Field Ltd., Shafa E&P, Emadeb Energy Ltd., Zigma Ltd., Inland Basin Ltd, Petraco Oil Ltd., Duport, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS, and Petrogas among others.

Others are: North Oils and Gas, Pierport, Metropole, Pioneer Global, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil, Virgin Forest, 

AA Rano, Ardova Plc, Matrix Energy Ltd., Sun Trust Oil, among others.

The commission also at the event unveiled the Template and Procedure Guide for the Host Communities Development Trust (HCDT) for the marginal field operators to guide them in the execution of the host community development plans as provided by the PIA.

Speaking at the occasion, Komolafe noted that the commission was faced with several constraints during the course of the exercise which have now been surmounted.

He listed some of them as the COVID-19 interruption, partial payment of signature bonuses by some of the awardees, and the unwillingness of co-awardees to work together in forming SPVs for field development.

He explained that the marginal fields award, which was initiated in 1999 was borne out of the need to entrench the indigenisation policy of government in the upstream sector of the oil and gas industry and build local content capacity.

He added that the initiative was also targeted at creating employment opportunities and encouraging increased capital inflow to the sector.

The NUPRC chief executive also disclosed that about N200 billion was raked in from the 57 oilfields to the coffers of the federal government, plus an additional $7 million in signature bonuses and others during the course of the process 

Announcement of HCDT Template

Also at the event, the NUPRC announced the unveiling of the Template and Procedure Guide for the Host Communities’ Development Trust (HCDT) for commencement of implementation of the provisions of Section 235 of the PIA 2021.

The unveiling of the template on host communities fund administration was a major development for oil-producing areas of the Niger Delta who are expected to benefit from the three per cent operating expenses of oil companies in the area.

Section 235 of the PIA provides for the incorporation of Host Communities Development Trust by the Settlors, that is, the oil and gas companies, for the benefit of their hosts. It places the responsibility to set up the HCDT and appoint the Board of Trustees (BoT) on the companies in consultation with the host communities.

In addition, Section 247 of the Act requires the BoT to set up a management committee to handle the general administration of the fund.

The HCDT provided by the PIA proposes to advance the development of the host communities within the scope of funds available to the BoTs for such purposes. It is also envisaged that sabotage of oil and gas infrastructure will be reduced since local communities now have a slice of the pie.

“Again, it is noteworthy that the 2020 marginal field bid round exercise in respect of which PPLs are being issued today has attracted government revenue of about N200 billion and $7 million respectively,” he stated.

Komolafe noted that the NUPRC would continue to provide a predictable and enabling regulatory environment to operators in line with its technical and commercial statutory mandates with a view to optimising the development and exploitation of the nation’s hydrocarbon resources.

Lamenting that Nigeria currently was not meeting its oil production quota, he stated that it was the reason Nigeria was not feeling the positive impact of the current surge in crude prices.

“It is worthy of note that the average price of crude oil in recent months has been above $100 per barrel. This upward swing in market fundamentals is largely associated with the Russian-Ukraine conflict.

“However, the impact of the upswing in the crude oil price is not reflecting in the nation’s revenue earnings due to disruptions in our national oil production owing to sabotage, theft, and other operational challenges.

“Therefore, potential licensees are urged to take advantage of the current market realities and quickly bring their fields to production,” he said.

He announced the unveiling of the Template and Procedure Guide for the Host Communities Development Trust for commencement of implementation of the provisions of Section 235 of the PIA, 2021.

He said the commission was committed to transparency in its processes and has therefore, implemented the Beneficial Ownership (BO) reporting, which requires full disclosure of ownership information.

“The objective is to ensure financial transparency, accountability, and public financial management among others,” Komolafe stated.

THISDAY learnt that the 57 fields, spanning lands, swamps, and offshore presented in the 2020 bid round met the criteria of an ideal marginal field. They were subsequently offered for bidding, out of which only 41 were fully paid for, while 37 fields were issued with the PPL having satisfied all conditions for award.

Out of the 665 entities that expressed interest in the exercise, 161 emerged as potential awardees, and later transformed into 57 Special Purpose Vehicle(SPV) companies.

This is coming months after the awardees had offered several plea to NUPRC for the release of the licenses, which according to them, would give a clear insight into the development and finance of the oil field. The SPV companies, it was gathered, need the licences in order to be able to carry out due diligence on the field and hit the first oil.

Marginal fields are under-developed oil blocks located in acreages operated by the oil companies, typically to be developed by indigenous companies and have remained unproduced for a period of over 10 years.

The fields that have now been issued out to indigenous participants in the oil and gas industry, are expected to increase the Nigeria’s hydrocarbon reserves, rev up technological transfer, attract investment and enhance revenue generation.

PIA Implementation in Top Gear

Minister of State Petroleum Resources, Chief Timipre Sylva, also at the occasion, said the maiden presentation of the PPL was part of the implementation of Petroleum Industry Act (PIA), 2021, describing the conclusion of the bid round as a giant milestone.

Sylva said, “The implementation of the PIA 2021 is in top gear. Consequently, the new awardees should note that their assets will be fully governed by the provisions of the PIA 2021.

“While developing the assets with the special purpose vehicles (SPVs), ensure that good oilfield practice is employed, environmental considerations and community stakeholders’ management are not neglected.

“It is my strong belief that the awardees would take advantage of the current attractive oil prices to bring these fields into full production within a short period to increase production, grow reserves and reduce cost of production.

“The onboarding of new oil and gas players in the petroleum sector is part of this government’s policy to encourage more indigenous participation in our petroleum operations.”

The development would boost activities in the oil and gas sector, boost production output and create additional employment opportunities for Nigerians

 The new development is expected to enhance the country’s economic growth, increase Gross Domestic Product (GDP) and create employment, while also avoiding the error of stranded assets.

The awardees are therefore expected to hit “first oil” in record time, since they have already obtained the technical knowledge on field development and operations amidst working agreement drafted for joint awardees and lease holders on the Farmout agreement and other technical enablers.

The SPV member companies therefore have the duty to perform, meet their cash call and “first oil” in record time, under three years.

Commission’s Support for Field Development

Having crossed the hurdle of concluding the marginal field bid round, cumulating in the presentation of PPL certificates, NUPRC, however, said it was not going to stop at that, as it has to continue to work with the awardees until they hit first oil.

In his intervention at a dialogue, in Lagos, last Thursday, Komolafe said the commission has advised the companies to go and put together their Field Development Plans for review and approval by the commission.

“In my welcome remarks at that ceremony in Abuja, we actually said that we are not only going to stop at just issuing the license but that we will work closely with the awardees in ensuring that they hit the first oil.

“So, the next stage in this is, we will be expecting them to come forward with their Field Development Plans (FDPs) which we will subject to review and work closely to ensure that they quickly proceed to their Field Development.” 

On measures to help the companies overcome the funding challenge in their field development process, the NUPRC boss also noted that the agency strategically and consciously invited both local and international financing institutions to the ceremony in Abuja as part of the efforts to ensure an interface between the awardees and the funders. 

He stated, “And we made a deliberate and conscious act at that ceremony in Abuja. The audience there consisted of financial institutions. So, it was a deliberate effort on our part to ensure that even while we are issuing the license, financial institutions were present.

“Financing institutions apart from the ones we invited to the ceremony, were there. Afreximbank President was there, the International Finance Corporation (IFC) was present, apart from the local banks. 

“It was for conversations to begin on how to develop those fields. So, those are part of the measures we took to make sure we facilitate an interface and synergy between the awardees and the banks, to make sure that we continue to soften the ground for the development of those fields to start.”

Awardees Hail Transparent Award Process 

Some of the companies that emerged winners commended the commission for conducting the most transparent award process in the history of marginal oilfield in the country.

One of the oilfield winners and former Chairman of the Petroleum Technology Association of Nigeria (PETAN), Bank-Anthony Okoroafor, described the awards as the most transparent process in the history of marginal fields awards in the country, adding that the issue of “forced marriage” has now been resolved.

He urged the international oil companies (IOCs) to fully cooperate with the winners by giving them assess for evacuation of crude as far as it was optimal, and avail them all the information needed to make it easier to transition to first oil.

Okoroafor also urged the federal government to solve the issue of crude theft and vandalism as well as declare it a national emergency.

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