Critical Notes for Firms Listing in Nigeria’s Marginal Fields Licensing Rounds
Following its marginal fields licensing rounds in 2001 and 2013, the Nigerian Department of Petroleum Resources (DPR) recently released guidelines on the 2020 licensing round. Under the 2020 licencing round, a total of 57 fields located onshore, swamp, and shallow offshore terrains are on offer.
While the ongoing Nigerian Marginal Fields Bidding Round is a purely domestic process, the development of these marginal acreages and discoveries will open up various avenues for partnerships with international capital and technology providers.
In the Nigerian context, marginal fields include fields with reported reserves and production potential, which are however deemed marginal for a variety of reasons including having remained un-produced for a period of over 10 years. Notably, the marginal fields exist under current Oil Mining Leases (OMLs).
One of the key objectives of the marginal fields licencing round is to promote indigenous participation in the Nigerian oil and gas sector and to foster technological transfer, the licensing round is exclusively intended for participation by indigenous companies i.e., companies duly registered to carry out petroleum exploration and production operations in Nigeria with 100% indigenous shareholding.
But upon the award of the marginal field, the awardee may assign up to 49% of its interest to another party subject to approval by the Minister of Petroleum Resources. As a result, and while the bidding process remains an exclusively indigenous affair, foreign technical and financial partners are not outrightly precluded from participation in the development of marginal fields.
As such, direct and indirect participation of international players is possible within marginal plays in Nigeria, be it under services or technical assistance contracts from technology providers or under capital injections from funds or private equity investors. We continue to witness the success of these partnerships and applaud the retention of this key element by the Nigerian government under the 2020 licensing round. Previous rounds gave birth to strong local and regional African E&P companies.
Nigeria’s marginal fields licensing rounds have been the cornerstone of the country’s upstream local content development strategy since the early 2000s. The move has since been copied by other key African oil producing countries, like Angola and Gabon.
Nigerian marginal players such as AMNI Petroleum, Shoreline Energy, Aiteo, Neconde Energy, Seplat Petroleum or Belema Oil are some of the strong discoveries from marginal field rounds bids.
The development of marginal players has also brought a boost to the reduction of gas flaring in Nigeria, with several Nigerian marginal fields recognised under the UN Clean Development Mechanism for their successful reduction of gas flaring and valorisation of natural gas.
The licensing round implicates a carefully laid out process, including the negotiation of farm-out agreements with holders of the OMLs (Farmors) within which the marginal fields exist. The Farmors will be entitled to an over-riding royalty interest as well as a negotiated $/bbl tariff for hydrocarbons transportation/processing.
The Marginal Field Bidding Round is a 12-step process which will roll out as follows: Announcement of the Marginal Field Bidding Round and launch of its dedicated portal; Applicants fill and submit the online registration form along with the required documents after paying the registration fee; Evaluation and prequalification of registered companies;
Others are notification of prequalified applicants; Evaluation by the DRP of the submitted bids, which it forwards to the Honourable Minister of Petroleum Resources for approval; Submission by the applicants of technical and commercial bids after paying the application and processing fees; Granting of access to pry data and lease data to the applicants, who can purchase applicable reports after paying the necessary fees;
Prequalified applicants are granted access to Fields’ Teasers; Notification of Preferred Bidder; Payment of signature bonus by the Preferred Bidder (or the Reserve Bidder); Award of the Marginal Field to the Preferred Bidder; Negotiation and Execution of the Farm-out agreement between applicants and leaseholders.
The DPR said it expects the registration of applicants to take about two weeks, followed by another two weeks of evaluation of submission and reports preparation. Prequalification, which eventually gives access to the data rooms, will be based on the applicant’s incorporation status, technical competence and financial capability. By August 2020, all technical and commercial bids are expected to be submitted. The whole process is done electronically on the https://marginal.drp.gov.ng portal.
Under the DPR Guidelines, the entire process is not expected to take longer than six (6) months, from date of announcement and commencement to signing of Farm-out agreement with the OML holders.
Fees include Registration fee, N500,000; Application fee, N2,000,000 per field; Bid Processing Fee, N3,000,000 per field; Data Prying Fee, $15,000 per field; Data Leasing Fee N25,000 per field; Competent Persons Report N50,000 per field; and Field Specific Report N25,000 per field. In all, the signature of the President is needed to seal the deal on any marginal field award.
Chibisi Ohakah, Abuja