The Federal Government’s plan to improve on Nigeria’s dollar earnings from crude oil will be receiving a boost as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) prepares to issue Petroleum Prospecting Licences (PPLs) to winners in the 2020 marginal oil field bid round.
The move is expected to raise government’s revenue earnings from oil, and boost investors’ confidence in the domestic economy.
Oil has for long, remained the mainstay of Nigeria’s economy. The liquid gold does not only account for over 80 per cent of Nigeria’s foreign exchange (forex) earnings, but represents a new hope for sustainable revenue flow into the economy.
Achieving these goals requires that oil sector policies, including the the concluded 2020 marginal oilfield bid round, should be effectively and diligently implemented.
Already, the Central Bank of Nigeria (CBN) economic report showed that the Federal Government earnings from oil sales stood at N945 billion in January this year.
Revenue from petroleum profit tax and royalties, stood at N247 billion within the period.
Also, government’s aggregate expenditure dropped by 9.9 per cent to N951.14 billion, from N1,055.50 billion in December 2021.
On the balance of risks, there is optimism about growth, while inflationary pressures are expected to decelerate on the back of continued strong policy support as well as commitment towards sustaining growth recovery and the safety and stability of the financial system.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) believes that achieving these milestones would require strict adherence to the rules guiding approvals and issuance of licenses in the upstream sector of the nation’s oil and gas industry in the implementation of the concluded 2020 marginal oilfield bid round.
The NUPRC says it is preparing to issue Petroleum Prospecting Licences (PPLs) in line with its commitment to due diligence and accountability, which stakeholders believe are key in enhancing Nigeria’s dollar earnings.
The ongoing Russia-Ukraine war requires that the Federal Government effectively utilises the current high prices of crude oil by ramping up the country’s oil reserves and daily production.
Expectedly, the government would undoubtedly want production to commence in the 57 marginal oil fields won last year by 161 companies in the 2020 marginal oil field bid round. The 2020 marginal oil field bid round started in June 2020 and by May, 2021, 161 companies were shortlisted as winners of the 57 marginal fields put on offer, which spanned onshore, swamp and shallow-water.
Some of the winning companies in that exercise included: Matrix Energy, AA Rano, Andova Plc, Duport Midstream, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS and Petrogas.
Others were: Metropole, Pioneer Global, North Oils and Gas, Pierport, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil and Virgin Forest, among others. The defunct Department of Petroleum Resources (DPR) had at the time put the total value of the 57 marginal oil fields at not less than $500 million.
However, early this year, the successor agency to the DPR, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), disclosed that 80 per cent of the awardees had complied in terms of payment while close to 90 per cent of the companies had complied in forming the Special Purpose Vehicles (SPVs).
The commission had also disclosed that the marginal oil fields awarded to 33 companies had been revoked following their inability to meet the 45 days deadline required to pay the signature bonus for the fields.
According to the Chief Executive Officer (CEO) of NUPRC, Gbenga Komolafe, the commission is targeting June for marginal field awardees to begin the Field Development Plan (FDP).
Komolafe explained that the plan includes all activities and processes required to optimally develop a field.
He noted that over 600 companies had applied to be pre-qualified for the bid rounds of 57 marginal fields, which began on June 1, 2020. Commenting on the first successful bid programme which was completed by the defunct DPR in May 2021, but was hindered by bureaucratic challenges, thus ensuring that actual drilling for oil did not effectively take off well over a year after the awardees were officially handed award certificates, Komolafe said although the NUPRC inherited a complex situation, it would resolve all issues by the first half of this year.
He said: “It’s critical because one of our cardinal objectives is to ensure that we increase the national oil production, and of course, we realise that the fields will help in enhancing that.
“We took the issue frontally. It’s really been very challenging to handle the issue in the sense that the model used poses serious challenges to bringing the matter to an end quickly. “But I want to assure Nigerians and indeed the awardees that we have been able to, as I speak, try to bring the issue to a manageable state and devise a strategy for bringing the challenge to a close.”
He disclosed that there has been over 80 per cent compliance in terms of payment.
“In fact, one of the challenges we’ve had is that even forming the SPVs, they are still having challenges working together because of the nature of the model used,” the NUPRC CEO added.
“But by and large, I want to say that, as a commission, we will learn from this experience, and I want to assure Nigerians that the next marginal bid will not be bogged down by these kinds of challenges we experienced in managing the fallout of the 2020 marginal field.”
“Before the first half of the year, we want to see a situation where some of the awardees will be proceeding to the field development plan.
“At the moment again, we have recorded close to 90 per cent of the co-awardees forming their SPV, and at that stage, it is the very comfortable stage when the commission can go ahead to issue Petroleum Prospecting Licences (PPLs).”
About two months ago, NUPRC had said it would invite eligible reserve bidders for the 2020 marginal field bid round programme.
Domestic Crude Oil Market Developments
The Central Bank of Nigeria (CBN) economic report said the rising Russia-Ukraine tensions led to further rise in crude oil prices at the international market and resulted in higher export receipts.
According to the apex bank, provisional data revealed that in January, the total value of crude oil and gas export increased by 16.1 per cent to $4.29 billion, compared with $3.69 billion in December 2021. A disaggregation shows that crude oil export receipts increased by 17.9 per cent to $3.81 billion, relative to $3.23 billion in December 2021.
The increase was driven, majorly, by the rise in the price of Nigeria’s reference crude, the Bonny Light, by 16.2 per cent to an average of $87.07pb, relative to $74.95pb in December 2021.
Similarly, gas export receipts, increased by 3.6 per cent to $0.48 billion, compared with the value in December 2021, due to higher gas prices, particularly in Europe, following increased demand for energy during the winter period. Crude oil and gas export constituted 88.1 per cent of total exports, with oil accounting for 78.2 per cent and gas export 9.9 per cent.
Domestic crude oil production and export increased due to the lifting of the force majeure declared in the previous month. Nigeria’s crude oil production rose to 1.46 million barrels per day (mbpd), an increase of 3.5 per cent, from 1.41 mbpd in the preceding month.
Out of the 1.46 mbpd produced in January 2022, exports accounted for an average of 1.01 mbpd, while the allocation for domestic consumption was 0.45 mbpd.
The increase in crude oil production and export was due to the lifting of a force majeure declared by Shell on the Forcados crude stream in December 2021, when a malfunctioning barge obstructed a tanker path.
Also, on the global commodity market, total world crude oil production increased as OPEC+ supply rose in line with the continued implementation of production agreement. Global crude oil supply increased by 0.8 per cent to 99.10 million barrels per day (mbpd) from 98.27 mbpd in December 2021.
Stakeholders expectations from NUPRC
According to Komolafe, NUPRC would ensure that law and due process were followed in the award of licenses to operators, stating categorically 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, stating that no amount of pressure would make the commission award final documents without due process.
He further said: “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.”
He added: “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 acknowledged that some of the companies that had fully paid their bonuses were insisting that they could not raise funds without collecting the licences.
However, commenting on the issue at a recent marginal field conference in Lagos, Komolafe, pointed out that the Petroleum Industry Act (PIA) has provided a safety net for financiers to provide funds for the development of oil and gas in Nigeria, as the marginal field operators can leverage on this to raise funds for their operations.
He said the PIA under Section 95 (5) has also made provisions for: “Holders of license or lease by way of security, to assign, pledge, and mortgage its interest, in whole or in part under the applicable license or lease provided the consent of the commission is obtained”.
Represented by the commission’s Head of Basinal Assessment and Lease Administration, Edu Iyang, the CEO listed the various options open to the marginal field operators and investors to raise funds for marginal field development as “private equity, capital market, strategic alliance and debt financing.”
The NUPRC CEO noted that the commission was improving due diligence protocols to enable investors and operators access information prior to taking investment decisions and encouraging synergies in the use of shared facilities.
He stated further that the commission was also developing regulations to enable ease of implementation of the PIA, saying concerted efforts were being made in collaboration with stakeholders to tackle security issues in the oil and gas sector.
Komolafe said the commission had delineated the 57 marginal fields’ areas and engaged awardees to resolve issues arising from the 2020 marginal field award as well as concluded drafting of model license document, which is critical for issuing PPL to awardees.
Industry watchers believe that the tough stance of the NUPRC leadership with regard to ensuring transparency and the rule of law in its regulation of the upstream sector of the oil and gas industry will play a key role in boosting the nation’s oil reserves and production.