In June 2020, Nigeria started the process of awarding marginal oil fields to indigenous firms in a bid to rake in the much-needed revenue as well as boost oil and gas production. Though slow, progress appears to have been made. Emmanuel Addeh writes that the programme has been bogged down by seemingly unforeseen circumstances.
The enthusiasm that heralded the announcement of the commencement of the marginal oil bid round in 2020 may be fast waning as the process continues to grind slowly and timelines are missed. Precisely on June 1, nearly two years ago, the programme which was kicked off by the then Department of Petroleum Resources (DPR) brought so much hope, being the first that was taking place in close to two decades.
It also raised Nigeria’s hope that with the expected increase in oil production, the somewhat precarious economic situation could improve remarkably especially at a time the impact of the Covid-19 pandemic had begun to take a toll. For the exercise, the then regulatory agency, DPR, which has now transformed into the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) announced that a total of 57 fields located on land, swamp and shallow offshore terrains were being put on offer.
A non-refundable application fee of N2 million per field, bid processing fee of N3 million, data prying fee of $15,000, data leasing fee of $25,000, Competent Persons Report (CPR) of $50,000 and $25,000 were thereafter set for interested bidders.
Although the process wasn’t entirely as transparent as Nigerians would have wanted, nevertheless a number of Nigerians applied and it culminated in the then Director/Chief Executive Officer, DPR, Mr Sarki Auwalu, telling the country that by January 2022, Nigeria will have its first oil from the assets.
In the same vein, he announced that the government was expecting to generate at least $500 million in revenue from the marginal fields bid round.
“We expect first oil from most of the marginal fields, for which we just concluded bid round, around January 2022 because all the things that will retard them will go, and we need that money for the country,” Auwalu had stressed.
Earlier, the agency had said that 161 companies had been shortlisted to advance to the final stage of the bid round.
In addition, the objectives of the awards include to increase indigenous participation in the oil and gas industry, increase reserves, rev up technological transfer, attract investment and enhance revenue generation.
SHIFTING TIMELINES
But as Nigeria continues to struggle to increase its daily crude oil production, the industry regulator says it is now targeting June 2022 for marginal field awardees to “move to site.”
Although the target was to start production four months ago, still, moving to site does not mean commencement of drilling since a lot of preliminary work will be carried out.
With the process bogged down by bureaucratic challenges, the actual drilling for oil has yet to effectively take off almost time years after the awardees were officially handed award certificates by the defunct DPR.
Speaking on the be date, NUPRC Chief Executive, Gbenga Komolafe, noted that although the commission inherited a difficult situation, it expects that by the end of H1, all the issues will be sorted out.
“It’s critical because one of our cardinal objectives is to ensure that we increase the national oil production and of course, we realise that the fields will actually help in enhancing that.
“But I want to assure Nigerians and indeed the awardees that we have been able to, as I speak, tried to bring the issue to a manageable state and devise a strategy for bringing the challenge to a close.
FORCED MARRIAGES
In the run-up to the final bid rounds, the DPR as it then was, had imposed a model on the potential winners of the bids which would involve the formation of what it called Special Purpose Vehicles (SPVs).
In the main, this somewhat complicated arrangement, would see partnerships between and among interested companies, even though some of them were simply incompatible.
This also meant that indigenous firms competing for the same field were, in some instances, made joint winners, form joint ventures and develop won assets as single entities.
With mounting concerns that some of the disgruntled parties may resort to litigations which would further delay the process and hobble Nigeria’s chances of drilling more oil, that singular decision , which appeared not well thought-out, has remained the Achilles heel of the programme.
In some cases, some of the forced partners had issues with payment of the required funds, thereby delaying the rest which had paid and ready to move to the field for business.
With strange business bedfellows forced together to begin discussions to go through the process as partners on the farm-out agreements, the issue of equity sharing as well as the fate of mergers where some parties had yet to fully pay up largely remained unresolved.
In other cases, entities that were compelled to co-own the assets, complained about the outright non-payment of the bonuses by their partners.
WRONG MODEL
However, the successor NUPRC has admitted that the model adopted by the defunct DPR was wrongheaded, but has also expressed frustration over its inability to review or alter it wholesale in the middle of the process. The thinking of the commission is that the rules cannot be changed when the game is already on.
“In fact, one of the challenges we’ve had is that even in forming the SPVs , they are still having challenges working together because of the nature of the model used.
“But by and large, I want to say that we as a commission, we will learn from this experience, and I want to assure Nigeria that the next marginal field bid will definitely not be bogged down by these kind of challenges we are experiencing in managing the fallout of the 2020 marginal field.
“Before the first half of the year, we want to see a situation where some of the awardees will be proceeding to field development plan.
“At the moment again, we have recorded close to 90 per cent of the co-awardees forming their SPV and at that stage, it is the very comfortable stage when the commission can go ahead to issue Petroleum Prospecting Licences (PPLs),” Komolafe explained.
The commission appealed to winners of the bids to show understanding and work with the regulator to resolve the contentious issues thrown up by the cumbersome model used in awarding the oil fields.
The NUPRC stressed that though it was an inherited problem, it had been doing everything within its capacity to resolve the matter in the interest of parties involved in the transaction.
It pointed out that the model used in conducting the bid and awarding equities merged strange bedfellows and asked them to work together on same fields, a development it said had become a problem as it was difficult for some of them to agree on certain terms and conditions because of their incompatible and incongruent backgrounds and capacities.
“The development has since slowed down the commencement process and achievement of the goal for which the exercise was meant to achieve,” Komolafe said recently.
The chief executive acknowledged the economic impact the resultant delay is exerting on the awardees, following their inability to take possession of the assets, particularly those who have already paid signature bonuses.
Komolafe pointed out that the situation had also affected the country’s economy which had been denied expected income from increased oil production and taxes that would have accrued from operational activities.
He noted that the model, which was complex and complicated, is the major cause of the inability of awardees to effectively proceed towards the process of production.
According to him, when it became apparent that the fallouts of the cumbersome arrangement were detrimental to the objective of the exercise, the NUPRC moved to resolve the situation by setting up a technical team which has so far held several meetings and workshops with the aggrieved parties.
“After series of meetings and consultations on the issues and having reviewed the circumstances and noted the issues involved, the NUPRC is asking for patience and understanding from the awardees while it moves to address the issues created by a model which they willingly consented to ab initio,” the commission stated.
At another meeting recently, the new CEO told the companies that since he took office, the challenges surrounding the actual take off of the programme had been a key exercise that he had devoted his time to resolving.
“ I’ll tell you why. I realise that you as stakeholders, as awardees , we have tied down your capital, and I am very mindful about what we call the cost of capital.
“It’s really very painful that you have tied down your capital for this long time and that you expect the commission to take prompt action in that respect and I want to tell you that it has really bothered my mind and we have been doing everything possible within the commission that will progress the exercise to conclusion.
“So, it is an issue that has been very germane to the commission, to ensure that we bring the exercise into conclusion. With the funds that you have tied down, the cost of this exercise is very huge capital, that even for the entire banking industry, it is very significant and we cannot continue to delay in the completion of this exercise,” he noted.
He explained that he had received lot of petitions on the issues, but noted that the commission cannot reverse the model that was deployed, “because it’s too late in the day” as it was inherited from the former managers of the programme.
“ It’s a contract and they have paid, it means they have accepted the model for the conduct of the exercise. It’s too late in the day to reverse the process. Complaining after the fact will not help anybody,” he pointed out.
INVESTORS GRUMBLE
Although till now, there’s still no comprehensive list of winners of the bid round in the public space, a number of the investors tracked by THISDAY have been grumbling.
The bid winners complained that about N200 billion of their loans were hanging, while they continued to pay interests for close to a year, without the take-off of the process to find oil in the fields.
Their grouse is that the programme, meant to drill more oil and boost the country’s revenue, is yet to effectively take off almost a year after they were officially handed award certificates.
Some of the award winners are decrying the slow turn of events, stressing that they had continued to pay heavy interests on the loans that were borrowed to pay for the transactions, despite the fact that the loans had been unproductive for over a year.
“About N200 billion is currently hanging for over one year that we paid this money. My company invested billions in that transaction. For over a year, we have been paying close to N200 million a month as interest on loans.
“Just calculate that in a year and you will have an idea how much capital is tied down and how much interest is being paid on that whole sum of N200 billion.
“We are now even being told that there is no more farm-out. How will investors see what is happening and still have the courage to come in and invest in our clime?” one of the bid holders who declined to be named, stressed.
Another bid winner who also complained that the process was becoming unnecessarily slow, stated that although some progress had been made, the company was waiting for the take-off of the real work , which is to find “first oil” now that oil prices are high.
He, too complained that paying interest on loans that were not performing will ultimately negatively impact the business entities.
While the delay continues to scare investors away, both foreign and local, stakeholders believe that the NUPRC should quickly move to resolve all the outstanding issues to afford Nigeria and the local investors the full benefits of their business decisions.
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