A Review of the Nigerian Energy Industry

Nigeria govt in secret award of oil blocks

Clara Nwachukwu

09 May 2012, Sweetcrude, LAGOS – THE Nigerian government has again, secretly indulged in the discretionary award of oil blocks, contrary to global practice of open bidding and a negation of the Extractive Industry Transparency Initiative, EITI, to which Nigeria is signatory.

Without following due process, the government recently awarded the Otakikpo field in Oil Mining Lease, OML 11, and the Ubima Creek field in OML 17 to Green Energy, and All Grace Energy; respectively.

The circumstances and reasons for these discretionary awards, which were approved by President Goodluck Jonathan, are not too clear; a development industry watchers criticised as being unfair to other indigenous companies.

The two companies are relatively unknown, as there is no information regarding their capacities and or abilities to handle the fields.

Also, nothing is known of how much government realised from these discretionary awards, as in the 2006 bid round, government earned about $292 million in signature bonuses from the auction of 18 oil blocks, and $266 million in the 2007 rounds.

Discretionary awards was the norm under the military era, where all and sundry with any kind of political connection, including service chiefs, relations, friends and allies of the ruling class, and even hairdressers got oil blocks, which they simply traded offshore for huge profits since they had no competence to operate the oil leases they got.

The incidence of oil block award for political patronage was reduced upon the return to democracy, with the holding of three oil licensing rounds under the President Olusegun Obasanjo’s administration in 2005, 2006, and 2007, which were executed under equally controversial competitive bid processes.

Constitutional powers
However, defending the legality of the awards, the Director, Department of Petroleum Resources, Mr. Osten Olorunsola, told journalists in Houston Texas, USA, on the sidelines of the just-concluded Offshore Technology Conference, OTC, that there was nothing illegal about the awards.

He said, “Those were discretionary awards by Mr President, and he has the constitutional powers to do that. If you look at the reasons for every discretionary award has been made, there were strong reasons.”

Petroleum Act
Although part of the Petroleum Act says “marginal field means such field as the President may, from time to time, identify as a marginal field,” the DPR director could not cite any good reasons for the award except to recall that discretionary awards had been done in the past for specific reasons.

“If you look at Odwok and Ebok, why were they discretionarily awarded? Because the companies that owned those blocks when Nigeria did boundary readjustment with Equatorial Guinea, those blocks went to Equatorial Guinea. So, it made sense for the President of the day to say, No, it is not fair and had to do something about it and that is what happened. Same thing happened with Agip in the Oyo block,” the DPR boss offered.

New bid round
Nigeria has for a while been planning to hold another bid round after the 2007 licensing rounds for marginal field production, which offers indigenous operators the opportunities to acquire licences for oil production.

But Olorunsola had spoken of “ensuring fairness” and promised that “Going forward, things would be properly planned, which is what we are going to do right now, everything will be openly tendered, openly bided, and openly awarded.”

He also hinted that government might not enforce the use-it-or-lose-it practice, which stipulates timeline within which a license holder can hang onto the block or lose it after a period of time, saying, this “is a global benchmark that we are adopting, but there are no really hostile timelines for the blocks.”

In this article

Join the Conversation