Growing local production capacity through marginal field

Marginal-fields10 December 2013, Lagos – Penultimate Thursday, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, kicked off the second marginal field licensing round. Under the upcoming exercise, 31 fields are up for grab. Sixteen are onshore fields, while 15 are located in the continental shelf. To ensure transparence in the process, the minister said government has encouraged companies interested in the assets to bid in consortia to enable them leverage upon each other’s strengths. She also assured proper technical and financial due diligence would be done on companies that indicate interest in the assets.

The marginal field programme, which evolved from the Petroleum (Amendment) Decree Act No. 23 of 1996, was introduced by the federal government to encourage indigenous participation in the strategic upstream sector of the oil industry as well as to reduce the rate of abandonment of depleting oil fields by international oil companies (IOCs).
Under the programme, IOCs were required to farm out to indigenous Exploration & Production (E&P) companies oil fields that were undeveloped for at least 10 years after discovery.
A total of 24 fields were allocated to wholly Nigerian companies in the first bid round, which was conducted in 2003, but only eight are currently producing, while the others are in various stages of development. The producing fields include: Energia’s Obodeti/Obudugwa field; Midwestern’s Umusadege field; Pillar Oil’s Umusati/Igboku field; Platform Petroleum’s Asuokpu/Umutu field, Britannia-U’s Ajapa field and Waltersmith’s Ibigwe field.
The petroleum minister said these producing companies currently contributed only about one per cent to the nation’s daily production mix, while recording additional discoveries in excess of 100million barrels to the nation’s reserve base.
Most of the operators had hinged their inability to develop the fields 10 years after, on the difficulty in accessing funds required to develop the fields. At a recent forum on marginal fields organised by the by the Department of Petroleum Resources (DPR), the marginal fields awardees blamed funding constraints, delay in approval processes by the regulatory agency and lack of incentives from the government for the delay in the development of the fields.
Managing Director/ Chief Executive Officer of Del-Sigma Petroleum Nigeria Limited, operator of the Ke Marginal Field, Mr. S. O Amachree listed key challenges of meeting up with work programme obligations to include: oil theft, delay in approval processes, fluctuating assistance from foreign and local investors, unfavorable tax regime and multiple taxation as well as the local content development policy.

Similarly, Yinka Folawiyo Petroleum, operator of OML 113 (formerly OPL 309) complained that funding shortfall was a major challenge to the field development. The company said its Aje field development strategy using an FPSO was the most economically viable option, insisting that meeting work program obligations would require funding and government’s assistance, through incentives
Despite these challenges, stakeholders argue that the marginal field development programme is a huge success. Managing Director of Seplat Petroleum, Mr. Austin Avuru, said at the recent stakeholders’ conference that the programme had helped to grow local participation in the Nigerian oil and gas industry.

He recalled that for 10 to 15 years, indigenous companies produced only about 10 per cent of Nigeria’s total crude oil, but production had since increased to about 20 per cent, with the coming on stream of some of the marginal oil fields.
Also, the DPR director argued it took a lot to achieve one per cent production in the oil industry.
“If you understand our industry, you will know what one per cent is and how much those companies have struggled to bring out that one per cent,” Osahon asserted.

Similarly, the petroleum minister noted the modest achievements of the producing companies quite evidently justifies government’s local content initiatives, especially in the upstream sector, thereby spurring the second marginal field licensing round.
Road Shows
In line with the minister’s directives, the DPR last week organised road shows in Lagos and Port Harcourt for the sale of the 31 marginal oil fields. The new guidelines for the marginal field licensing round were also released to prospective investors at the forum.
The Director of DPR, Mr. George Osahon, who unveiled the new guidelines explained that criteria such as Niger Delta representation, Federal Character, and registration of companies six months prior to application, as obtained in the first licensing round had been outlawed.
He said, under the latest guidelines, an interested investor is expected to pay about N3 million to be pre-qualified to participate in the bid round. The breakdown showed N2.4 million is for accessing the physical data for the respective fields; N300,000 for processing fee; and N200,000 for application forms.
In addition, prospective bidders are required to show evidence of availability of funds from their respective banks for the fields bid for. This, he explained, was to avoid investors scouting for funds after winning the bids, thereby causing processing delays.
Also, applications are to be submitted at the DPR, headquarters in Lagos or the London office of Nigerian National Petroleum Corporation (NNPC).

Osahon also said government would not compel participants to form alliances, as investors are at liberty to choose their own partners to form consortia. He explained that participating companies could come together even a day before submitting their applications.
To minimise the funding challenges faced by operators of the marginal field, Osahon said the agency would involve the African Development Bank and African Finance Corporation in the new bid round. He said prospective investors had also been directed to disclose their source of funding to the government.
He said AFC and ADB were in the committee because they were the people, who understood funding and financing. The road show will hold today in Kaduna and on December 12 in Abuja.

– Chika Amanze-Nwachuku, This Day

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