The Department of Petroleum Resources (DPR), Nigeria has distributed the third letter in the series of correspondences it has been sending to, apparently, the 161 companies shortlisted as bid winners of the 57 marginal fields on offer in the country’s second marginal field bid round.
According to Africa Oil and Gas report, the third letter which was emailed on March 2, 2021, specifies the percentage awarded to the recipient and the signature bonus expected of it by the government. The Federal Government expects the signature bonus to be paid within 45 days, and it could be paid in either the local currency Naira or in US Dollars.
It is also reported that the total signature bonus per field ranges from $5Million to $20Million, with the signature bonus demanded from each company depending on the percentage interest in the field offered to the company as no single field is assigned to a single firm. For instance, 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.
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Names of successful bid winners remain largely unknown, as the authorities are yet to make the list public. 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.
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The likely bid winners
The report suggests that winners of this round include at least 3 marginal field operating companies, at least 3 companies, run by members of the Petroleum Technology Association of Nigeria (PETAN), the umbrella association of oilfield engineering contractors.
Other companies that have reportedly received letters include those promoted by the retired technical staff of some of the oil majors operating in Nigeria, although there has been a lot of talk about underhand dealings in Abuja with names of companies who did not take part in the bidding process awarded oilfields.
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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 the 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.
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What you should know
- Marginal fields are known oil or gas discoveries on an International Oil Company (IOC)-owned block, where there has been no activity in at least the last 10 years. With the agreement of the IOC, the DPR carves out a piece of land surrounding the discovery and this becomes a Marginal field.
- The bid round which began on June 1, 2020, is coming about 18 years after the last similar exercise in 2003 and is open to indigenous oil & gas companies and investors interested in participating in the exploration and production business in Nigeria.
- The 2003/2004 Marginal field bid round was a high-water mark in the annals of licencing rounds in Nigeria in which 120 companies were shortlisted from a bidders’ list of less than 200 companies that applied for 24 fields, with their names all published.
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The big challenge is not knowing who one is running SPV with. And then of course who is designated as the field operator.