Nigerian Marginal Fields Bid Round: Third Letter Out, Signature Bonus Called

 

By the Editorial Board of Africa Oil+Gas Report

The country’s least transparent bid round in 20 years inches towards some closure

The Department of Petroleum Resources (DPR), Nigeria’s regulatory agency for the hydrocarbon industry, has distributed the third letter in the series of correspondences it has been sending to, apparently, the 161 companies selected as winners of interests in the 57 marginal fields on offer in the country’s second marginal field bid round.

The third letter specifies the percentage awarded to the recipient and the signature bonus expected of it by government. The letters were emailed on March 2, 2021 and the authorities expect the signature bonus to be paid in 45 days, and it could be paid in either the local currency Naira or in US Dollars.

The total signature bonus per field ranges from $5Million to $20Million, but since no single field is assigned to a single company, the signature bonus demanded from each company correlates with the percentage interest in the field offered to the company. If the entire signature bonus charged to Field A is $5Million, a company assigned 20% equity in that field is asked to pay a signature bonus of $1Million.

Names of those who have been granted the awards remain largely in the realm of speculation, as the authorities have not published the list. This latest correspondence to awardees still doesn’t specify who your partners are and doesn’t tell who operates the field, but the partners on each field are expected to jointly create a Special Purpose Vehicle to operate the asset.

The lack of knowledge of who your partners are raises the risk involved in the funding of the signature bonus. So does the instruction to awardees attached to every field to create a Special Purpose Vehicle (SPV) to act as operator.

Africa Oil+Gas Report learns that winners of this round include at least three marginal field operating companies. There are also at least three companies, run by members of PETAN, the umbrella grouping of oilfield engineering contractors. Other companies that have reportedly received letters include those promoted by retired technical staff of some of the oil majors operating in Nigeria.   But there is a lot of talk about wheeling and dealing in Abuja and names of companies that have been awarded fields who didn’t even apply. The only way to dissuade anyone from believing false conspiracy theories is to know who got what at every stage of the process.

The first of the three letters emailed to “winners” indicated that the addressee was qualified for a certain field. The second letter then merely asked the awardee to specify which currency they want to pay the signature bonus in. This third letter, then, which specifies the percentage that the awardee has on the field and requests for payment of signature bonus by a certain date, is the first firm commitment the authorities are making to an awardee. But questions around who other partners are and who to operate the field indicate that there will either be a fourth letter, or the DPR will publish a list on which the fields, the awardees to each field, the signature bonus and the operator will be. It’s quite exhausting.

The ongoing bid round has been the least open of all the non-discretionary awards organized by the Nigerian authorities since the country’s first competitive lease sale was announced in 2000. Prior to 2000, the year after Nigeria’s return to democratic governance, the country’s sole process of granting awards of acreages was discretionary. The 2003/2004 Marginal field bid round was a high-water mark in the annals of licencing rounds in Nigeria. 120 companies were shortlisted from a bidders’ list of less than 200 companies that applied for 24 fields, with their names all published. For each of the 24 fields, five companies were then asked to appear before a jury, and give technical and financial presentations on their proposed paths to first oil. The jurors at those presentations included DPR representative, who chaired the jury; a ranking technical staff of the IOC on which the marginal field lies (who is the farmor) and a representative from the NNPC. What that jury composition suggested was that the key stakeholders on a marginal field were all involved in determining who was going to develop it. The signature bonus was a flat $150,000. Companies were granted fields on the basis of convincing the jury with technical and financing argument on field development. In spite of all that rigour, 11 fields still did not achieve production 16 years after the farm out agreements were signed. Compared with the 2003/2004 process, the current round is a long walk in the dark.

Nigerian bid rounds have deteriorated in the quality of transparency since the 2003/2004 marginal field bid round, but the ongoing round surpasses all in its high level of opacity.



6 comments

  1. Ehis Oribhabor says:

    We are into well intervention work and have been working in the oil and gas sector for some couple of years now and do wich to subscribe in the Africa oil and gas.
    Services we are involved in are:
    1. Completion Brine Filtration Services
    2. Slickline well intervention operations
    3. Suppliers of Sensia/Cameron flow measurements products
    4. Sales of rig wash/degreaser
    5. Suppliers of Marine hoses for FPSO’s and hydraulic hoses for cranes and others
    6. Calibration services
    7. Sale of loss circulation materials-LCM
    8. Drilling project management
    9. Etc

  2. Gideon J. says:

    Very much enlightening and informative.

  3. Ehis oribhabor says:

    Please note that in my last submission, i did not include my company name believing that a notification mail will be sent to me for further update on my company details. The company information’s are shown below for clarifications, please.

    Company Name: Techniques International Corporation Nigeria Limited
    Operating Address: 1A Elelenwo Road, Rumuokwurushi, Port Harcourt, Rivers State, Nigeria
    Contact Name: Ehis Oribhabor
    Job Title: Business Development Lead.

    Regards

  4. Kayode Ayeni says:

    I believe the bidding companies did due diligence in their submissions and the SB ranging from 5-20 mln$ hopefully was justified by economics. The challenge of the forced collaboration is definitely there but a determined investor will overcome the challenges having weighed all the risks appropriately. The key for them is to get a good arrangement on the Operatorship. There’s got to be transparency in operations and a solid non-operated venture technical team to safeguard the interest of the parties that are not operating. The operation must be agile and lean to maximize returns on the marginal fields.

    Anyway, we hope for the best for the investors.

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