Kachikwu: Why FG Has Not Conducted Bid Rounds for Marginal Oil Field

• Lists adoptive measures to stay in OPEC output pact with new oil volumes

Chineme Okafor in Abuja

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has said the federal government is yet to conduct the bid rounds for marginal oil fields because it is still awaiting approval of President Muhammadu Buhari.

At an interactive session with journalists, which after the Vice President, Prof. Yemi Osinbajo, declared the inaugural Nigeria International Petroleum Summit (NIPS) in Abuja closed, Kachikwu noted that Buhari, being the substantive petroleum minister, needed to give approval for the exercise before it could continue.

According to him, Buhari would have to examine the process as initiated so far, and sign it off, if he was satisfied with it, before it would continue. That sign off, he noted, had not come from the president hence, the standstill.

“We need to get approvals. You have to understand that there are steps in these things, it has to be signed off, we are waiting for that sign off and I didn’t want to raise people’s expectations until I have gotten that sign off.
“Bear in mind that I am not the petroleum minister and the authority lies with the president. So, he is going to look at it and be satisfied with what we are trying to do, what process is in place and then approve that. Until he does that I don’t have the authority to jump into marginal fields,” Kachikwu, said in response to a question on why the bid rounds had not progressed as expected.

In 2017, the federal government through the Department of Petroleum Resources (DPR) set guidelines for the marginal oil field bid round, which was scheduled to take place later that year or early 2018.

The guidelines seen by THISDAY then indicated that scores of investors, who could vie to acquire up to 46 oil acreages during the exercise, would 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.

THISDAY also learnt from the guidelines then that, at this stage of the process, investors will be availed of information on the size of the fields, seismic surveys, and past appraisals conducted by international oil companies (IOCs), among other relevant information.

After the data mining stage, the DPR would then commence the technical evaluation of the bids submitted by the firms, during which several investors, which fail to meet the criteria will be dropped and investors that pass the technical evaluation process will then be invited to submit their commercial bids.

Expectedly, the oil acreages will go to the highest bidders who will be given a timeline within which to pay for the oil acreages, however, THISDAY also gathered that the government would be looking to gain between $200 and $300 million in signature bonuses for the acreages.

Meanwhile, Kachikwu also at the session disclosed new measures Nigeria could take to ensure it stays within the production limits agreement member countries of the Organisation of Petroleum Exporting Countries (OPEC) has with non-OPEC member countries led by the Russian Federation, to rebalance the oil market.

He noted that the measures would be adopted in the wake of new oil volumes coming from Total’s Egina oil field later in the year and others expected from Zabazaba as well, all of which could shoot Nigeria’s output far ahead of the 1.8 million barrels a day (mbd) OPEC expects her to cap her production level.

The minister explained that to keep this in place, the country will emphasise on granting market access first to oil volumes that are produced cheaply from her fields – preferably within $15 per barrel production cost.
He also stated that in the event of the production cap extending further to maybe five years, the country would also emphasise on in-country processing and refining of her oil into finished products, and export of very limited output.

“We are still under the exemption, but the expectation looking at our numbers is that we should not exceed 1.8mbd. We have said that it covers pure crude, it does not cover condensates. A combination of both what we are producing today, which is in excess of 1.76mbd and the condensates which is in the region of 400,000 barrels will take us to the 2.2mbd. We are slightly below that and we will like to be able to move that.

“Challenges will come when you then hit 2.5mbd. Egina has 200,000bd in the next couple of months (which is) the last quarter of this year, Zabazaba potentially late end of next year, another 250,000bd. So, you begin to struggle with what you do with those volumes and that’s is why I said today that it is a signal to oil companies that we are going to be watching cost,” he stated.

According to him, “I will hate to take a costly barrel to the market when I have a cheap barrel. So, what it means is that everybody needs to begin to drive down to that $15 (per barrel) concept that we have set as the ideal cost of production in this country, not $22 or $23. Like I said two of the companies have met that and we will like to get other companies to begin to do that. So, there will be incentives both in terms of your access to the market, our willingness to produce and also incentives in terms of what we are going to give to you for being a least-cost producer. We are going to work that out.”

“Once we begin to hit the 2.5mbd, if these agreements were foreseeably to last for five years – I hope not, I hope the market would have become that tight that there would be need for agreements and we can produce freely. But assuming that it doesn’t and shale continues to surge and maintain the sort of equilibrium misbalance, then obviously, what we need to do is to begin to look at how do we process a huge amount of our oil.

“Exporting crude is like exporting raw materials for our agricultural products, it is not the way to go. I will like to see a policy whereby oil companies begin to refine heavily, process heavily and take out their finished products. I am hoping that by the time we begin to hit those challenging numbers, local processing and refining would have improved to a level where in fact that is no longer an issue to us,” the minister added.