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Signature bonuses: Nigeria loses N112bn revenue over delayed bid round

Signature bonuses: Nigeria loses N112bn revenue over delayed bid round

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 Adewale Sanyolu

The Federal Government’s desire to grow Nigeria’s strategic oil reserve to about 40 billion barrels and the daily oil production from 2018 projection of 2.2 million barrels per day (bpd) to a higher figure in subsequent years may suffer a major setback due its failure to hold major and marginal oil field bid rounds in more than 12 years after the last edition was conducted in Abuja.

A marginal field is defined as any field that has reserves booked and reported annually to the Department of Petroleum Resources (DPR), but remained unproductive for a period of 10 years.

But industry stakeholders have expressed concern that an estimated 46 oil acreages have been lying fallow while their potential remained untapped due to the Federal Government’s failure to conduct a fresh marginal oil field bid round in more than a decade. The last of such exercise was conducted during the administration of ex-President Olusegun Obasanjo in 2007.

The Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mr. Maikanti Baru, had in August last year put the number of marginal fields up for grabs at 30, and urged members of the Independent Petroleum Producers Group (IPPG) to participate in the bid exercise when they are eventually thrown open.

Regretbly, close to three years after the administration of President Muhammadu Buhari, came on board, a dark cloud still surrounds this all important licensing bid round in the oil and gas industry.

Meanwhile, as an estimated 46 acreages remain idle, the country is said to be losing value on the assets to other countries in Africa, including Senegal, Ghana, Gabon and Angola, who have made tremendous progress in oil production and exploration and have become an investment destination for Foreign Direct Investment (FDI).

For 11 years since the last bid round was conducted, many investors with high hopes that the field would soon be open for grabs have since moved their resources to other countries where they consider the business environment to be more friendly.

Some experts have argued that the failure of the Federal Government to conduct the much awaited oil bid round may have robbed the country revenue in the region of about N112 billion in signature bonuses.

Signature bonuses, according to NNPC, are funds paid by oil companies to the Federal Government upon their successful bid for oil blocks.

While preparing for the 2018 budget estimate, President Buhari, had indicated tht it would be partly funded from the proceeds of oil block sales.

An overview of the 2018 budget  proposal of N8.61 trillion, which was presented by the Minister of Budget and National Planning, Mr. Udoma Udo Udoma, in December 2018, reveals that the government plans to fund the budget with N6.6 trillion revenues from various sources including  signature bonus which was to contribute 1.7 per cent amounting to N112 billion.

In preparation for the bid round the DPR had last year, set guidelines for the marginal oil field bid round, which was scheduled to take place later that year or early 2018.

The guidelines 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.

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, who fail to meet the criteria will be dropped while those that pass the technical evaluation process will then be invited to submit their commercial bids.

But the guidelines released then are still under the realm of speculation as government has failed to give a definite timeline when the acreages are expected to be thrown open to would-be investors.

Commenting on the development, Partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the reasons for the delay in conducting the bidding process for marginal oil fields are unknown.

‘‘However, our best estimations would be based on the decline in the oil and gas industry within Nigeria in recent years. The fall in the global price of crude oil has had manifold impact on the Nigerian economy, one of which has been a recession in the Nigerian petroleum industry. With this, the Nigerian government has been faced with measures to revive the industry and reinforce the Nigerian economy, which had otherwise been heavily dependent on oil revenues.

With these, pressing issues in the industry have not centered around the bids for Oil Mining Leases (OMLs), and bidding for marginal fields.’’

On the other hand, he explained that another pertinent reason for the delay could be accounted for by the underutilisation of previous marginal oil fields awarded during prior bidding rounds, adding that the government was not satisfied with the development and was threatening revocation of the said awards.

On what the country could have lost to the delay, Oni said as with all underused/unused assets, the presence of marginal oil fields in Nigeria that are left to wallow represents loss of value for the Nigerian economy.

He was worried that the potential profitability of such fields also represent economic waste of Nigerian natural resources, and a neglect of sources of income for the government, stating that the additional revenue would have been put to good use to finance budget deficits and provide infrastructure that would boost national development.

“Naturally, investors may see the timelines for the bidding as perhaps slow and bureaucratic. Another issue that does not favour investors and investment in the industry are the constantly changing declarations for bid rounds. It is near impossible to guarantee the bidding process will be completed within a year, even where the government has declared such. All these provide for uncertainty to all participants in the industry.

On the way forward, the oil and gas expert posited that the timelines and fees for the marginal bid rounds need to be publicised in order to encourage transparency while the DPR should ensure a much stricter adherence to these timelines as a measure to encourage investment in these fallow fields, and a growth in economic output.

For his part, Chairman, Society of Petroleum Engineers (SPE), Nigeria Council, Mr. Chikezie Nwosu, told Daily Sun that several investors and stakeholders have been waiting for this marginal field bid round, saying the question is, why have they not happened?  

‘‘And that is same question SPE is asking because we have a lot of members and partners who have been waiting for when the bid rounds will come up. The resources are there. Basically, we have to find a way to unlock the obstacles in order to get the marginal bid round thrown up.”

Nwosu said the impact and expectation on the marginal bid round is substantial, explaining that the intention of IPPG as echoed by its Chairman, Mr. Ademola Adeyemi-Bero, at the recently concluded NIPS summit in Abuja was for IPPG members to grow production levels by up to 30 per cent of the total production in the next couple of years.

The SPE Chairman said this target is dependent on members of IPPG getting more marginal fields for them to have their investments active.

‘‘You have to see that the IPPG has the intention of growing production but they have to be enabled through access to these marginal fields. SPE and the press must continue to put pressure and ask questions on why we are delaying and losing value,’’ he warned.

Chairman/Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe, had said in a recent interview that, “Nigeria is not helping itself by locking up so many fields to be developed and for either administrative or policy reasons, we are not getting the fields to be developed. What are we waiting for? We are wasting too much time.”

Fawibe, a former General Manager, Marketing, at NNPC, recalled that the marginal fields programme was conceived to give marginal fields to indigenous firms operating in the industry with the financial wherewithal to develop such fields.

“But politicians and vested interests hijacked the process and at the end of the day, some of the people who won the marginal fields are not professionals and some of them don’t even know anything about oil and gas business,” he said.

A former board member of NNPC, Alhaji Abudullahi Bukar, for his part said, “the tragedy is that money that could have come as investment into Nigeria went elsewhere, especially during the years when oil price was over $100 per barrel.

“The government would have earned huge revenue from the signature bonus and other filing charges because Nigeria has a lot of attractive acreages in very strategic places in comparison to many other countries.”

But the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said the Federal Government was yet to conduct the bid rounds for marginal oil fields because it was still awaiting approval from President Muhammadu Buhari.

Kachikwu at an interactive session with journalists at the inaugural edition of the Nigeria International Petroleum Summit (NIPS), which ended in Abuja recently, noted that Buhari, being the substantive petroleum Minister, needed to give approval for the exercise before it could continue.

According to him, the President 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 delay in bid round.

“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 field sales,” Kachikwu said in response to a question on why the bid rounds had not progressed as expected.

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