The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has completed the 2020 marginal oilfields bid round two years after the process began. The N200 billion and $7 million signature bonuses and the transparency of the exercise showed positive outlook for the oil industry as well as the economy. With the issuance of the Petroleum Prospecting Licences (PPL), the oilfields awardees can move to site for preliminary prospecting activities for new oil field discoveries and support for Nigeria’s revenue base.
The award of oilfield licences has, for decades, remained a significant part of the oil sector transformations.
The 2020 bid rounds conducted by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) were not different. The enthusiasm, the passion and expectations that greeted the exercise captured the impact stakeholders expect the exercise to have on the economy.
With the oil bids finally awarded last month, stakeholders are expecting a great outing that will lift the oil sector, operators and the economy.
The Chief Executive of the NUPRC, Gbenga Komolafe, said with the issuance of the Petroleum Prospecting Licences (PPL), the winners of the awarded oilfields would move to site for preliminary prospecting activities.
He also disclosed that in the process of getting to conclude the bid rounds, about N200 billion was raked in from the 57 oilfields into the coffers of the Federal Government, plus an additional $7 million in signature bonuses and others.
In addition, 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 Petroleum Industry Act (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.
Since the regulations, which were officially unveiled by the government are now ready, the managers of the fund should be announced anytime soon.
Michael Adams, an oil expert based in Lagos, applauded Komolafe for leading NURPC at this critical time, and having the courage to see the marginal oilfields award completed seamlessly.
According to other experts, the project is expected to revive production of oil in fields that have been abandoned for at least 10 years from the date of first discovery.
Also, they said that with the Oil Prospecting Licence (OPL), the winners can legally search for oil and operate on an oil field in Nigeria.
Also, marginal fields have proven to be vital to Nigeria’s upstream local content development strategy. Preceding excercises produced some notable indigenous stakeholders in the industry such as Seplat Petroleum, Belema Oil?, and Shoreline Energy.
How it all started
For the Minister of State, Petroleum, Timipre Sylva, the roadmap of the marginal field awards began with two fields awarded in 1999, adding that prior to the award, 13 fields had been awarded on land, eight fields in swamp and nine fields offshore, leading to a cumulative of 30 marginal fields so far awarded in Nigeria.
“It is worthy of note to state here that this present award process saw 57 fields offered and over 70 per cent of them have their signature bonuses fully paid. This indeed is a testament to the increasing interest in our petroleum operations,” he said.
With the implementation of the PIA 2021 in top gear, the minister reminded the new awardees that their assets would be fully governed by the provisions of the new law.
“As a result, each successful field will be issued a Petroleum Prospecting Licence (PPL) in line with the PIA. This is a complete departure from what used to be where the marginal field owners had no licences.
“This marks the beginning of a new era for us in the oil and gas sector and I urge the awardees of the PPL to take full advantage of the opportunities being presented to exploit, develop, and bring the assets to productive use,” he declared.
As they move to develop their assets with the Special Purpose Vehicles (SPVs), he urged the award winners to ensure that good oilfield practice was employed, while environmental considerations and community stakeholders’ management should not be neglected.
He charged the commission to provide every necessary support to ease and facilitate seamless upstream petroleum operations in line with the objectives and provisions of the PIA.
Some of the winners of the bid rounds included Matrix Energy, SunTrust Oil, PetroGas Energy, Genesis Hydrocarbons, Samora Oil & Gas, Ardova, Terra Energy and Mainland Energy.
Energia, Bono, Calm Marine, Virgin Forest, Tempo, Deep Offshore, North Oil, Shepherd Oil, Hilltop Global, Duport, among others made the winners’ list.
The process which began in 2020 had been bogged down by bureaucratic challenges, meaning that the actual drilling for oil had yet to effectively take off after a long time, although 161 companies were eventually shortlisted to advance to the final stage from 591 entities that applied for pre-qualification.
The then head of the defunct DPR, which has now transformed into the NUPRC, Sarki Auwalu, had said the exercise was worth roughly $500 million in signature bonuses.
However, 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.
Komolafe explained that historically, the marginal fields award initiative began in 1999 and 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.
Besides, the initiative was also targeted at creating employment opportunities and encouraging increased capital inflow to the sector.
“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 stressed.
He 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.
Komolafe lamented that Nigeria currently wasn’t meeting its oil production quota, stating that it was the reason Nigeria wasn’t 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.
In addition, the NUPRC head 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.
Former Chairman of the Petroleum Technology Association of Nigeria (PETAN) and an oilfield winner, 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.
Petroleum Industry Act
Prior to the enactment of the Petroleum Industry Act (PIA) 2021, the fields were classified as marginal when they were not considered by licence holders for immediate development due to assumed marginal economics under prevailing conditions or left unattended for more than 10 years. They also included assets that leaseholders considered for farm-out due to portfolio rationalisation or those, which the president may, from time to time, identify as such.
Komolafe, noted that the engagement with the marginal field awardees and leaseholders was for NUPRC to state the policy position on the 2020 Marginal Fields Bid Round (MFBR). Komolafe stated that this would enable successful awardees progress to field development phase in line with the PIA.
He stated that the marginal field initiative was conceived to entrench the indigenisation policy of the government in the upstream sector of the oil and gas industry.
According to him, the objective is to promote indigenous participation, increase oil and gas reserves, as well as production, encourage capital inflow, generate employment, and build local capacity in the sector.
Komolafe noted that relevant leaseholders had also been invited to the forum so that they could understand their roles and responsibilities as they affect the farm-out of the fields, which he said included facilitating the achievement of first oil in a collaborative manner.
In all, he reiterated that 57 fields were identified for the 2020 bid round exercise, and a total of 665 entities expressed interest, explaining that after extensive evaluation processes as laid down in the guidelines, 161 entities emerged as potential awardees.
Komolafe explained that signature bonuses for 119 awards were fully paid, nine awards were partly paid for, and 33 awards had yet to be paid for, a situation he said had resulted in various challenges inhibiting the close-out of the exercise.
The journey so far
The NURPC noted that in 1999, two fields were awarded, 24 in 2003, one in 2006, one in 2007, two in 2010 and 57 in 2020, with 13 of the assets on land, eight on swamp and nine offshore, prior to 2020.
In the latest bid round, it stated that 665 applications were received, 540 were pre-qualified, 546 went through data prying, 450 went through data leasing, 482 submitted bids, while 161 were potentially awarded the marginal fields.
“In all, 57 fields were awarded, 119 fully paid up, nine partially paid, 33 awardees failed to pay, while 247 had unsuccessful bids,” the organisation indicated.
On the way forward, NURPC stated that fields where none of the awardees had made signature bonuses had been terminated, affirming that engagement with awardees and discussion on areas of conflict remain open.
In addition, the commission stated that it would take necessary measures to assist the awardees to take over the assets for development and to accelerate first oil find as soon as possible.
The NURPC team further took time out to address the concerns raised by the awardees, bordering on governance and operational matters of the SPVs.
