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    Home » How 11 marginal field operators wish they were Addax!

    How 11 marginal field operators wish they were Addax!

    May 5, 2021
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    Port Harcourt — For 11 marginal field operators in Nigeria whose licenses were revoked by the Department of Petroleum, Resources (DPR), the prayer, hope and expectation is for the Addax treatment. On 6th April 2021, the DPR revoked the permits of Chinese-owned Addax Exploration Limited on Oil Mining Leases (OMLs) 123, 124, 126 and 137, which it operated under a Production Sharing Contract (PSC) with the Nigerian National Petroleum Corporation (NNPC.) The Director of DPR, Mr. Sarki Auwalu, said that “over 50 per cent of the assets had remained underdeveloped,” leading to loss of revenue loss to the Federal Government.

    In fact, he said the inactivity amounted to “economic sabotage.” The shockwaves from the announcement had barely settled when nearly three weeks after, the Minister of Petroleum (that is, President Muhammadu Buhari himself) revoked the revocation and told Addax to go about its business in the four OMLs. People said the Chinese had out-foxed us, that they threatened to withdraw their loans for rail and other projects such as the Abuja -Kaduna -Kano Pipeline and that Sino-Nigerian relations which stood gallantly on a huge trading inflow was at risk. Well, Addax is back to business and happy, and we are busy minding our own businesses.

    But not so for the 11 marginal field operators, who came under the DPR hammer on 6th April 2020 (did you notice the coincidence in date?) for the same DPR-adduced reason that the assets they won to operate were idling away. The revocation of the licenses casts a long shadow on the 2020 bid round for marginal fields which are underway with 57 marginal fields up for grabs. Although the DPR has assured that none of the 57 includes any of the 11, we must not stare as bored bystanders on the plight of marginal field operators, especially, those reeling under the DPR hammer.
    A marginal field in Nigerian parlance is so called if a discovery by an international oil company is undeveloped for more than 10 years, after which the President, whether or not he is also the Minister of Petroleum, has the power to declare it as such. This was the highlight of the amendment of the Petroleum Act in 1996, the same year that Nigeria’s marginal field development programme began. Nigeria boasts some 2.3 billion barrels of crude oil reserves in more than 180 marginal fields.

    The DPR conducted the first marginal field bid round in 2001, awarding 24 licenses to 31 companies. Bidding for marginal fields is more than presenting slides and sipping coffee in an air-conditioned room. You have to demonstrate that you possess the financial muscle to fund the work; you have to show the right level of expertise and technology; you have to woo overseas investors as much as you court community people and make them share in your dreams and goals; you have to develop field development plans and scale through high hurdles; and because, the oil industry speaks a global language, you have to deploy best-in-class safety and operational standards. Even before you get the chance to produce the first drop of oil, you have to pay a signature bonus which runs into millions of dollars. Add to these the challenges of security and whimsical contractual relationships which scare foreign investors, and you get an idea of the kind of tide our marginal operators are up against.

    The 11 marginal operators include a state player, Bayelsa Oil Company Limited, so this is not just about private interests. They dispute the DPR allegation that their assets have been idle. They say they were not consulted about the DPR action which they only learnt by email. The DPR said they lost the licenses because they could not satisfy government’s aspiration 15 years after winning them. Obviously, the “aspiration” is production. But the operators say they have invested over USD400 million in developing the fields, with approximately half already producing. Total production of the companies is reported at 232,389 barrels. They say many others are drilling and testing wells and constructing production facilities. This has seen the development of local technical expertise and supply chain in addition to community development.

    Perhaps, more worrying is the financial fallout if this revocation is not urgently addressed. Investigations show the Nigerian banking system is exposed to these operations to the tune of USD278 million. In plain language, these are Nigerian banks that loaned money to the operators in the hope of getting their money and back and making profit as the operations mature. Frightening!

    As you will expect the 11 companies did not take the matter lightly; they went to court to contest the revocation, and were pursuing their case until noises filtered in that the DPR is positively disposed at taking another look at the matter without the stern gaze of a judge. So the matter has since been withdrawn from court and all eyes are on DPR. In fairness to the regulatory body, government has no business looking into the balance sheet of marginal operators. In the first place, the motivation for the marginal field development programme is to grow Nigeria’s oil operations, and in the process, oil majors were compelled to give up fields they ignored for whatever reason. So government has the right to be nervous if the sin of the majors is being perpetuated by the minors. However, the axe on this kind of matter has to be wielded with all sense of responsibility, because the oil and gas world is closely knit, and Nigeria is a key player. If the headlines coming out of Nigeria are of regulators who, regardless of the righteousness of their cause, capriciously revoke licenses in the face of overwhelming evidence to the contrary, Nigeria will be scoring an unforgiveable own goal in her efforts to grow her oil and gas resources.

    The announcement of the restoration of the licenses to Addax, alluded to this when it said the move “reaffirms the commitment of President Buhari to the rule of law and sanctity of contracts.” The 11 operators are praying, hoping and expecting the same announcement.

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