• FG Sets Bid Round Guidelines for Award of 46 Marginal Oil Fields

The federal government through the Department of Petroleum Resources (DPR) has set the guidelines for the marginal oil field bid round scheduled to take place later this year or early 2018 and 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.

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

According to DPR sources, at least 25 of the marginal fields in the current bid round are promising and if developed could produce 5,000 to 10,000 barrels per day of oil equivalent (bpoe).

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 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 them out and operation of the 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.

Under the guidelines, 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.

After the CPR stage, investors will also pay $15,000 each as data mining fees to enable them gain access to the relevant data on the acreages that will be placed on offer.

At this stage of the process, investors will be availed information on the size of the fields, seismic surveys, and past appraisals conducted by IOCs, among other relevant information.

After the data mining stage, the DPR will commence the technical evaluation of the bids submitted by the firms, during which several investors which fail to meet the criteria will be dropped.
Investors that have passed the technical evaluation process will then be invited to submit their commercial bids in a process that will be open to the public.

Expectedly, the oil acreages will go to the highest bidders who will be given a timeline within which to pay for the oil acreages.

Where a bidder fails to meet the payment terms, the second bidder (reserve bidder) will be invited by the DPR to take up the block.

Also from an official of the DPR who preferred not to be named, that successful bidders in the forthcoming exercise will be expected to confirm their willingness to pay $300,000 as signature bonus.

He also disclosed that the federal government was expecting to realise $200 million-$300 million from the bid round.

He added that the indigenous companies, which must have “at least 51 per cent of the beneficiary interest in the company, must be registered solely for exploration and production business”.

“This is to avoid the mistakes of the past where companies with no track record in E&P operations were forced into marriages even when they were not compatible,” he said.

“The signature bonus shall be paid within 90 days of the date of the award. Any successful company that fails to pay the signature bonus at the expiration of the 90 days will be issued a revocation notice, which shall last for 30 days.

“If the company still fails to pay at the expiration of the 30 days, the allocation will be automatically revoked and it will be offered to the bidder that came second in the bid round,” the official explained.

It was also gathered that the bidders will be expected to submit their Nigerian content plan to demonstrate the commitment of the company in local manpower development and patronage of indigenous service providers.

A senior official in the Ministry of Petroleum Resources also explained that the reason the DPR was considering setting aside some of the oil acreages for discretionary awards stemmed from the need to pave the path for ownership of oil assets by Niger Delta companies.

“No decision has been made on how many marginal fields will be set aside for discretionary awards, but the intention is to allow individuals from the Niger Delta to own them.

“It is not being done for political reasons, but to pave the path for ownership by Niger Delta individuals. The intention is to ensure that people from the region own the oil assets, even if it means holding a separate bid round for Niger Delta-owned companies,” he said.

Though the administration of former President Obasanjo significantly curbed discretionary allocation of oil blocks and introduced the open bid rounds, Oil Prospecting Lease (OPL) 291 was awarded to Starcrest Nigeria Energy Limited on a discretionary basis in the bid round of May 2006 bid, after other bidders, journalists and civil society groups had left the venue of the licensing auction.

The award of OPL 291 to Starcrest, with a $55 million signature bonus, became public after Addax Petroleum, in a regulatory filing, said it had agreed to pay the $55 million signature bonus in full and an additional $35 million to Starcrest for a 72.5 per cent stake in the block to foot Starcrest’s exploration and development costs.

The transaction fuelled a public outcry that forced the federal government to suspend the then DPR director, Mr. Tony Chukwueke, who was also an adviser to the Minister of State for Petroleum at the time, Dr. Edmund Daukoru.