Championing Due Process, Value Optimisation in Upstream Oil Sector

In consonance with the provisions of the Petroleum Industry Act 2021, the Nigerian Upstream Petroleum Regulatory Commission is engendering adherence to due process and transparency in its processes, writes Peter Uzoho.

One of the pressing tasks before the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), created by the Petroleum Industry Act (PIA 2021) in place of the defunct Department of Petroleum Resources (DPR), is the closing out on the 2020 marginal oilfield award process.

This has placed the regulator in a somewhat precarious position, as it has to contend with several interests involved in the award of the assets including the interests of the government, the awardees, the Nigerian public as well as other competing vested interests.

In the past, there have been cases where the regulator was either alleged to have given approvals without recourse to extant rules and laws guiding the sector to the dissatisfaction of some parties and eventually landing in law courts. There were also instances were the regulator was blackmailed and pressured to give approvals when it refused to act in violation of the law.

With the foregoing in mind, however, NUPRC, which is yet to clock one year of operation, has insisted on  ensuring strict adherence to the rules guiding approvals and issuance of licenses in the upstream sector.

The commission believes that optimising the value of the Nigerian oil resources can only be achieved when it does its work diligently and in line with the rule of law that guarantees increased competition, opportunities and value creation.

RIOT ACT TO BRIEFCASE INVESTORS

The commission’s Chief Executive Officer, Mr. Gbenga Komolafe, had in a recent session, warned that no marginal field operator would be allowed to “trade” in papers issued by the organisation.

It is no longer news that several fraudulent elements parading themselves as oil and gas investors had in the past deceived or blackmailed the regulator to issue them approval papers which they later used to access funds without carrying out the project they presented.

In March, oil workers under the aegis of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) called on President Muhammadu Buhari, who is the country’s Minister of Petroleum to take steps to check the presence and activities of portfolio and briefcase investors in the oil and gas sector whose sole aim it claimed was to milk the country without adding value.

In a statement jointly signed by its President, Festus Osifo and the General Secretary, Lumumba Okugbawa, the association stated that it would not fold its arms and allow mediocre persons to take hold of national assets and ruin the fortunes of future generations for immediate gains.

Displaying good knowledge of such malfeasance in the sector, Komolafe  stood his ground in ensuring that due process was followed in every of the commission’s dealings, especially as it concerns the award of the 57 marginal field.

Although some companies which are unable to meet up with the requirements for award of the marginal fields have been running campaigns against the commission to force it to give its approvals to them, the regulator has maintained its position that approval papers would only be given to those that merit it.

Komolafe expounded the need for the regulator to ensure that law and due process were followed in the award of licences to operators, stating  that under his leadership, no marginal field operator would be allowed to “trade” in papers issued by the organisation.

He stated that the rule of law would be strictly followed in the issuance of final licences to the winners, saying that no amount of pressure would make the commission award final documents without due process.

Stating that the NUPRC “won’t be arbitrary”, Komolafe stressed that some of the 119 companies that had fully paid their bonuses were insisting that they could not raise funds without collecting the licences.

He said: “In many cases, the moment people get a letter of award, they write to say they want to assign. Assign what? There’s a phrase in law, frequently rendered in Latin: ‘Nemo dat quod non habet’.

“It means ‘You can’t give what you don’t have’. For you to get an award, you have to show the proof that you can pay the signature bonus and you can finance the field development.

“You get it only because you’ve met the requirements. Your award would have been consummated before you can talk of assignment. We shouldn’t be encouraging people making money by trading papers.

“It is better you have a regulator that abides by the rule of law than to have a genius as a regulator. If you have a judge in court and he decides to rule on the basis of his ingenuity, then, it becomes a ground for appeal.”

Komolafe further said: “If you have such a judge, he is a problem judge; he would be abusing discretion. I am going to ensure that our rules and processes give effect to the law. Awards of acreages will be carried out on the basis of fairness, transparency and competitiveness.”

He insisted that until the process was completed, no licences would be issued, stating that all decisions would be taken based on strict adherence to the rules.

Assuring the impartiality of the commission under his watch, Komolafe stated that “Anyone whose licence is revoked during my tenure will not have a space to challenge, adding that “We will take a decision such that everyone challenging it will be standing on very weak ground”

According to him: “Now, some of the 119 companies, who have fully paid their bonuses, have formed the required Special Purpose Vehicles (SPVs) to operate the assets.

“They are asking for their licences, without which, some say, they are neither able to raise the funds for their work programmes, nor start working relationship discussions with the oil majors, who operate the leases from which the marginal fields were ring fenced.”

On the revocation of Addax Petroleum’s license, Komolafe explained that: “If you were granted an award, it is guided by the law of contract. If you don’t meet the terms, the award reverts to the original owner. It is now the obligation of the Nigerian National Petroleum Company (NNPC) to find a viable partner to operate the asset.”

GAS FLARE COMMERCIALISATION BID ROUND

Another programme which the commission is also saddled with is the National Gas Flare Commercialisation Programme (NGFCP).

In February 2020, the federal government, had identified 45 out of 178 gas flaring sites to be awarded to successful bidders among the 200 bidders at the time, in the first phase of the programme.

The NGFCP was launched in December 2016 by the then Minister of State for Petroleum Resources, Dr. Ibe Kachukwu, to offer gas for sale by the federal government through a transparent and competitive bidding process, with a structure devised to provide project bankability for the flare gas buyers.

The government through the Programme Manager, NGFCP, Mr. Justice Derefaka, had disclosed that the programme would save the country some $800 million losses it suffers annually due to gas flare.

He had put the volume of gas flared in the country at over 700 to 800 million cubic feet of gas per day, adding that Nigeria flared about 289 billion standard cubic feet of gas annually.

The programme was aimed at commercialising and monetising the nation’s huge gas resources that is being flared on daily basis and also part of the government’s move to achieve environmental safety by achieving gas flare-out.

Although not much has been heard about the update of the programme, Komolafe assured that the process would be wrapped up before the end of the second quarter of 2022.

Just like in the marginal field award, he said the commission would ensure fairness, transparency and competitiveness in awarding the flare sites to bidders.

According to him, “In finalising the round, we will ensure fairness, transparency and competitiveness. We are going to ensure very effective regulation that will give effect to the finest spirit of competition.”

POST PIA REGULATIONS

As part of efforts to increase stakeholders’ understanding and adherence to the Act, the commission is currently in the process of developing regulations for the activation of the PIA in order to give the law effect by regulations.

The Commission’s CEO stated: “There will be public hearings of the regulator, just as you have public hearings for the law making, you must also have public hearings for the regulations of the law. You must have the stakeholders’ hearings.”

He, however, explained that the PIA provided robustly for abandonment, host community and award of acreages, arguing that it could not be given effect until the entire process was consummated.

Komolafe said he had all that was needed  to tackle the challenges, adding, “I came with a revolutionary mind-set. I am a unique person in the industry, going by my background. I intend to do things differently in terms of adhering to processes.”

TACKLING FUNDING CHALLENGE

Also, in response to the funding challenge in the oil and gas industry, exacerbated by energy transition, NURPC is currently collaborating with indigenous operators on the platform of Independent Petroleum Producers Group (IPPG) to look at alternative ways of getting funds to accelerate hydrocarbon exploration and production in the country.

In one of his engagement’s with members of IPPG in Lagos, Komolafe, who said he understood the challenges faced by the indigenous operators, noted that the industry generally, was facing a critical challenge including access to finance.

He warned that the energy transition campaign would impact financing in oil and gas industry negatively, hence the need for the commission and the indigenous operators to think outside the box on funding.

He, however, said despite the energy transition threats, Nigeria would not abandon its God-given hydrocarbon resources, urging the IPPG to work with the commission to pursue international financing groups that would commit to funding critical upstream projects in the industry.

Komolafe said: “We will not abandon hydrocarbon- our God-given resources, because of energy transition.

“We really need to think out of the box. And as you depart, I want us to come back to the table, let us see how we can actually get, maybe, international financing group to commit to financing critical projects in our upstream.

“So, I want us to look at this. Because I understand that financing is a critical issue posed by the energy transition. But I know that if we sit down and think together, we will overcome.”

He stressed that the PIA has not only made the commission a conventional technical regulator, but now a commercial regulator and business enabler.

Komolafe promised that the commission would operate with a different regulatory culture as prescribed by the PIA, reiterating that the law has made the commission both a technical and commercial regulator.

In that wise, he said the commission would equally be concerned about how it facilitates financing for members of IPPG.

He maintained that ideas coming out of such collaboration could lead to getting finance that would empower the indigenous firms to be able to leverage the divestment of the international oil companies (IOCs) and enhance their capacity in the onshore and shallow water operations.