Nigeria’s oil bid process leaves investors in doubt
Sixteen years after the last bid for big oilfields, Nigeria is offering seven deepwater offshore blocks to investors but old problems involving regulatory concerns have investors worried.
It is the first bid round since the passage of the Petroleum Industry Act (PIA) – a law that Nigeria is yet to fully implement its provisions or develop enough regulations to form a coherent policy.
The proposed 2023 mini-bid round aimed at spurring new exploration and drilling activities in Nigeria’s deepwater is coming at a time when multinationals are abandoning oilfields in onshore and shallow-water areas of the Niger Delta.
Nigeria has attempted to confront challenges facing oil production, especially crude theft, but many analysts still believe the reforms are too few and far between.
Oil industry professionals who spoke to BusinessDay said poor implementation of the PIA, political interference, ugly experiences with the last marginal bid round, and declining fossil fuel investments are challenges that will dog the new bid round.
“Nigeria has a terrible history with deep pockets of investors who have participated in previous bid rounds,” an investor who participated in Nigeria’s last marginal bid round said. “Transparency, accountability, and political will are big concerns for anyone with a fat book of $200 million bidding for a deep offshore bloc in Nigeria.”
“The last marginal field bid round, alongside the Seplat/ExxonMobil deal, is still fresh in a lot of investors’ memories. How do you convince investors with big balance sheets things are different now?” he asked.
Adewale Ajayi, a partner at KPMG, raised concerns about international oil companies’ (IOCs) appetite for investment in Nigeria’s oilfields.
“Apart from one IOC, the others have practically not invested in the country. In fact, production from deepwater blocks has been declining steadily,” Ajayi said in his LinkedIn post. “There are many competing investments for the limited funds available on account of the current global efforts to transition to clean energy.”
Nigeria’s offshore domain is one of the most fertile hydrocarbon provinces in the world, yet assets with 13 billion barrels of oil equivalent remain untapped in the waters of its oil-rich coast.
It was former President Olusegun Obasanjo who set two growth targets for the nation’s oil and gas industry: to increase oil reserves to 40 billion barrels and production capacity from 2.5 million barrels per day (bpd) to four million bpd by 2010.
Four licensing rounds were held during his administration – in 2000, 2005, 2006 and 2007, although experts say they were marred by controversy as they suffered shortcomings.
Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice, said Nigeria needs to shift from being a rent seeker to a profit-seeking country. “We need to attract the non-traditional investors.”
He said the country needs to pay attention to the full implementation of the PIA in order for it to be an investment destination among competing oil-producing countries.
“I believe the 2023 mini-bid round will attract some of the best investors due to some unique procedures the regulator is introducing,” Alokolaro said.
According to guidelines by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), qualifying applicants are expected to purchase multi-beam, 2D seismic data and 3D seismic data available in respect of the blocks from approved multi-client vendors such as Petrodata Management Services Limited and PGS Geophysical Nigeria Limited, and provide evidence of such purchase as part of the bidding process.
The NUPRC says applicants are required to issue a payment bond in the amount equivalent to 10 percent of the proposed signature bonus set by the regulator.
“Bidders are also expected to accompany their bids with a bid guarantee which is to be obtained from an international bank with a “BBB” rating from S&P Global, Fitch Ratings or Moody’s or a major Nigerian bank acceptable by the NURPC,” it says.
The commission says it provides a list of Nigerian banks acceptable for the above purpose.
Until the lease or licence is granted, the bid guarantee should be extended by the preferred and reserved bidders.
Following the conclusion of technical and commercial bids, the NURPC says it will announce the winning bid, which is the highest value bid based on a combination of the signature bonus and the work programme proposals.
“NUPRC can only raise money through signature bonuses if and only if interest is shown in the licensing round! I just hope that this mini-bid round will not go the way of the 2020 marginal field round,” Ajayi said.
The NUPRC says the proposal must show the details of the work programme detailing the number of exploration wells that the bidder commits to drill during the initial term of the Petroleum Prospecting Licences.
For the purpose of ensuring transparency of the bid round, the regulator says the preparation and submission of technical bids, commercial bids, bid guarantees and evidence of payment of processing fees, application fees as well as data purchase will commence on February 13, 2023 and end by 4:30 pm on April 7, 2023 (bid submission date).
“Electronic bids, which consist of the aforementioned documents, are to be submitted on the bid website not later than 11:59 pm on the bid submission date,” the NUPRC said.
