Analysts suggest ways to make oil bid round successful

Nigeria needs to make the bid process transparent, ensure credible investors with verifiable track record participate in the process and ease the regulatory process, analysts have said.

“To prevent the challenges that have plagued bid rounds in the past, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) must pay particular attention to transparency in the bidding process,” said Ayodele Oni, partner, energy practice group at Bloomfield LP.

Oni said transparency in the award process and selecting awardees primarily on the basis of merit and a strict implementation and follow-up on awardees at the completion of the award process to ensure that the intention behind the process is not defeated will improve the chances of success.

International oil companies (IOCs) including Shell, Chevron, and ExxonMobil are in the process of divesting their interests in Nigeria’s onshore and shallow-water fields.

Oni said: “Although this efflux of IOCs may not have a direct impact on the mini-bid round, it would ultimately impact how seriously the stakeholders and NURPC take the process.

“This bid round offers the relevant parties the opportunities to improve the production capacity of Nigeria, and in this present time, when Nigeria is struggling with her crude oil production, every opportunity must be taken very seriously.”

Olufola Wusu, partner and head of oil and gas at Megathos Law Practice, said if the process is done right, it could augment the government’s income and create jobs.

A licensing round is an open invitation by a government to foreign and local oil and gas companies to bid to receive authorisation to drill for and explore that country’s oil and gas acreage. The NUPRC has given repeated assurances of transparency, and it must see it through, Wusu said.

“With the need to replace Russian gas supply and the increase in global energy demand leading to an interest in natural gas from Africa, I reckon that the chances of success are quite high,” he said.

According to him, the challenges the successful bidders/awardees may face include increased cost of financing, increased scrutiny of environmental issues, technology limitation engendering a need to rely heavily on foreign technical partners, litigation with partners due to improper deal structure, and an inadequate understanding of the financial requirements and the technicalities of deep offshore drilling for oil and gas.

Etulan Adu, an oil and gas production engineer, described the bid round as a good step in the right direction if only the investors with the right capacity and finance gets hold of the blocks and not some politically influenced companies that would become another corruption scandal in the future.

“We need independent oil companies to push these blocks first for oil and gas within a decade. Offshore blocks provide stability of production and export. Our daily crude oil production will increase and generate more revenue for the economy,” Adu said.

Previous oil bids have seen the government generate some money from payments of signature bonus but some of the investors failed to make the required investments to develop the fields.

“The real deal is investing in these blocks for production if they are very much economically viable. Most times these blocks end up in some companies that in the long run will not be able to farm in order to bring first oil and gas,” Adu said.

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Some oil operators are calling for the government to begin actively courting independent producers in the wake of the exodus of IOCs from the Niger Delta.

Uduimo Itsueli, chairman of Dubri Oil Company Limited in a recent interview, told BusinessDay that the future of Nigeria’s oil industry would be dominated by independents, whether they are Nigerian or foreign independents, because the IOCs would not come back.

“The independents do not have the clout of the IOCs. So, we need to craft policies that can encourage them. We need to change how we do business. We need to encourage them, grow our own independents. And attract foreign ones quickly,” he had said.

Making the bid process credible will be a first step in guaranteeing this outcome. Jide Pratt, chief operating officer of Aiona and country manager of Trade Grid, said this is important, considering that investment appetite in Nigeria’s oil sector is low, due to the country’s poor fiscal and regulatory framework and the global shift away from fossil fuel.

Pratt said financing will be critical. “Maybe it is time to look for funding from Saudi Arabia and other nations outside Europe as well as lean on the Nigerian Exchange Limited to sensitise investors on investment like the oil blocs,” he said.