Winning Big With Marginal Fields Awards

Emmanuel Addeh writes that apart from giving a boost to local oil and gas companies, the recent conclusion of the marginal oilfields award by the Department of Petroleum Resources, said to be one of the most transparent in the country’s history, also helped the federal government get the badly-needed funds to keep the nation afloat

By mostly keeping to its timelines and completing the marginal oilfields bids awards within schedule, the Department of Petroleum Resources (DPR), has again put on display the, “can do” Nigerian spirit, especially given the several failed attempts to achieve that goal in the last 18 years.

So, exactly a year after the process started, the oil and gas industry regulator, which prides itself as a business enabler, successfully generated over $500 million for the federal government through the awards, handed over 57 marginal fields to successful Nigerian bidders and by extension ramped up the country’s oil and gas production.

With the process out of the way, the marginal fields, which are basically smaller oilfields that have been discovered and left unattended for not less than 10 years, from the testimonies of the Nigerian winners, showed how the resilience of the organisation, despite the Covid-19 pandemic, paid off.

As the successful bidders toast to the process and begin the next stage, which is the execution of farm-out agreements between existing OML holders and the designated recipients of the marginal fields, including negotiation of the farm-out agreements, many industry stakeholders have lauded the development thus far.

In sticking with his pledge earlier during an earlier interview with Arise News Channel, THISDAY’s broadcast arm, the DPR Director, Mr. Sarki Auwalu, promised that having reviewed the first awards, the agency will deploy all the lessons learnt from the 2003 experience.

In that awards, only 13 out of the 24 ever produced, with the regulator revoking 11 non-producing ones to guarantee the revenue for the nation. Tactically, to avoid unnecessary litigations, the 11 fields that were revoked were not added to the 57.
In all, over 630 companies applied for the oilfields, of which over 500 were pre-qualified and 160 eventually picked for the grand finale of the process that lasted one year.

The criteria were open; the marginal fields were exclusively for Nigerians and one of the key criteria for pre-qualifying any company was being able to carry people of the host communities along, having Nigerian spread and outlook, having some experience in the industry as well as possessing a strong financial base.

In addition, all relevant government agencies like the Nigerian Financial Intelligence Unit (NFIU) Department of State Service (DSS) and Federal Inland Revenue (FIRS) were brought in to help validate or repudiate all the information supplied by the applicants.

Added to that, to simplify the process, Nigerian companies were allowed to pay signature bonuses either in dollars or in naira, whichever one they preferred.

Expectations were high as the DPR set the application and processing fee at N5 million per field, with cost of data prying and data leasing put averagely at $65,000 to $115.

The 57 onshore and near-shore fields contain an estimated one billion barrels of oil and almost 5 trillion cubic feet of gas.
But aside keeping to schedule, the DPR’s promise to be open and transparent were largely adhered to, after all, all eyes were on the regulatory agency to deliver to the Nigerian people.

And on May 31, the DPR concluded the 2020 marginal oilfield bid round, the first successful exercise since 2003 when 24 assets were put on offer.

The process culminated in the presentation of letters to the bid winners in Abuja by the industry regulator, with marginal fields spanning land, swamp and offshore put up for lease by the federal government.

However, during the event, the DPR stated that 161 successful companies were eventually shortlisted to advance to the final stage and were selected from 591 entities that applied for pre-qualification.

Some of the companies which emerged winners included: Matrix Energy, AA Rano, Andova Plc, Duport Midstream, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS and Petrogas.
A few others that succeeded in crossing the hurdle and had fully satisfied all conditions were: North Oils and Gas, Pierport, Metropole, Pioneer Global, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil, Virgin Forest among others.

As expected, it was a big win for local oil and gas companies in the country, which had a good outing during the ceremony as 100 per cent of the beneficiaries of the exercise were indigenous entities.

Speaking during the presentation of letters to the winners, DPR Director, Auwalu, noted that a total of 591 corporate entities submitted the expression of interest form, out of which 540 were pre-qualified, while 482 were bids submitted by 405 applicants.
He stated that following the evaluation of the bids, 161 companies were shortlisted as potential awardees out of which 50 per cent has met all conditions and therefore eligible for awards.

“In the end, 161 companies were shortlisted as potential awardees out of which 50 per cent has met all conditions and therefore eligible for awards today. We are set to ensure opportunities are extended to other deserving applicants to fill the gap.
“The DPR is not just a regulator, we are an opportunity house, we drive creativity and transformation and we use these in all of our activities. This is done in the overriding national interest,” he said.

An excited Auwalu said the exercise will enhance economic growth, increase Gross Domestic Product (GDP) and create employment, stressing that with the experience garnered before now mistakes of the past will be avoided.

The DPR boss noted that the desire of the government is that the awardees hit “first oil” in record time, stressing that a technical workshop will be organised with all bid winners for guidance on field development and operations.

He pledged to support the bid winners in their bid to operate within the country’s oil and gas space, urging them to take advantage of the oil and gas centre recently inaugurated by President Muhammadu Buhari.

“Despite the daunting challenges of the triple force (Oil price crash, global pandemic, and production cuts) in 2020, which dealt a severe blow on the world market and global economy, the DPR forged ahead with government aspirations for the industry,” he said.
According to him, the exercise was carried out in two phases; expression of interest and prequalification phase as well as technical and financial phase.

He stated that phase 1 ensured that applicants were subjected to screening of basic documentations such as shareholders’ details, directors, management team, procedures and systems, legal and association status, basic technical capability, financial capability and corporate accountability.

Auwalu explained that the DPR has now provided opportunities through the marginal field bid round to indigenous operators for wealth creation and economic growth consistent with government drive for increased GDP, employment generation and improved revenue.

“The DPR will continue to follow-up and guide the awardees every step of the way. For instance, a guiding template of working agreement has been drafted for joint awardees and discussions have reached advanced stage between DPR and lease holders on the farmout agreement and other technical enablers,” he added.

Earlier in his comments, the Head, Basinal Assessment and Lease Administration (BALA) of the organisation, Mr Edu Inyang, said that when the exercise was being embarked upon, the objectives were to increase indigenous participation in the oil and gas industry, increase reserves, rev up technological transfer, attract investment and enhance revenue generation.

He stated that a large part of the objectives had been achieved, with the culmination of the process in the presentation of letters.

Assistant Director, DPR, Mr Abel Nsa, in his remarks, noted that with the revocation of 11 licenses, Nigeria was losing a lot of revenue, with taxes and royalties not being paid on the assets, leaving about 40 million barrels unproduced and many opportunities missed.

He said that marginal fields were only producing a miserly two per cent of the country’s total production, which needed to be boosted, assuring that the non-commitment to contractual agreements in the past will not be allowed to happen again.
Indeed, the multiplier effect on the economy through increase in Gross Domestic Product (GDP), job creation employment cannot be over-emphasised.

All through, there was a conscious effort to consistently be as open as possible, with little or no discretionary action by individuals.

Former President of the Petroleum Technology Association of Nigeria (PETAN) Bank-Anthony Okoroafor, who spoke on behalf of the awardees in Abuja, lauded the entire process from beginning to the ending.

“Since 2003, this is the most transparent exercise carried out by the DPR. It was made open to everybody. Communication with all bidders was consistent, credible and sincere. And they did their home-work very well,” Okoroafor stressed.

He added: “That was when I knew this was serious business. But they will call you to clarify issues where necessary. It was strictly formal and in line with laid down rules and processes. I was really impressed.”

However, he urged the DPR for further support with the International Oil Companies (IOCs) and ensure they are not suffocated with rules that will disrupt the awardees’ ability to run the assets.

To this, Auwalu responded thus: “Let me assure you, we are not leaving you alone. We have reached advanced stage on the farm-out agreement. As a matter of fact, the agency has been meeting with the leaseholders,” stressing that the agency would not allow the original multinational owners of the leases to suffocate the indigenous awardees.

While first oil from most of the marginal fields is expected next year, the DPR is also working closely with the awardees to sort out any challenges they may encounter to ensure that the reserves are boosted and that the federal government begins to earn taxes from the fields as soon as possible.

While the much-needed revenues continue to trickle into the Nigerian economy from the expected development of the nation’s marginal fields, going by the rebound in global oil prices, plans to increase crude oil reserves to 40 billion barrels, will be further ramped up by the recent exercise.

Nigeria currently has roughly 37 billion barrels in its reserves, although the Nigerian National Petroleum Corporation (NNPC) had envisaged the country would increase crude oil reserves by one billion barrels yearly to meet the 40 billion barrels target last year.

As members of the Organisation of Petroleum Exporting Countries (OPEC) open their taps to rev up production and the recent directive by President Buhari to the national oil company to work towards a 4 million per day oil production, the DPR’s successful marginal fields awards will come handy in achieving that goal.

To further douse any misgivings and reduce the chances of approaching the courts with associated long-drawn-out legal battles , the DPR also recently concluded the inauguration of the Advisory Council and Body of Neutrals of the oil and gas industry’s Alternative Dispute Resolution Centre (ADRC) in Lagos.

The ADRC, one of the centres in the DPR National Oil and Gas Excellence Centre (NOGEC) recently inaugurated by Buhari, has already settled down to work, offering arbitration, mediation and conciliation services for the industry.

In addition, the centre will leverage industry technical experts, alternative dispute resolution practitioners and resources of the national data repository to provide fair and balanced resolutions of industry-related disputes from an informed position.

Structured to adequately resolve disputes in a manner consistent with regulatory and commercial interests of the industry, it will in addition, address suboptimal development of oil and gas assets associated with lingering disputes and eliminate the attendant consequences of value erosion in terms of national resource growth, global competitiveness, investment attractiveness and investors’ profitability.

What that effectively means is that cases can now be settled without recourse to full-blown court trials which was one of the factors that hindered and indeed crumbled the last marginal fields awards before this latest round.

Having crossed the hurdle of concluding the process in record time, the DPR has asked all stakeholders to keep faith with it. From its antecedents, the Auwalu-led organisation says it is set to keep working with the winners to strike first oil in no distant future.