23 Jun 2021

As 57 marginal acreages open new vista for jobs, investment in Nigeria’s oil industry

History was made on June 1, 2021, when the Federal Government granted licenses to Nigerian investors for 57 marginal oilfields in the country’s oil-rich Niger Delta region.

Director of the Department of Petroleum Resources (DPR), Mr Sarki Auwalu, who announced the awards in Abuja, said the 57 marginal fields offered spanned land, swamp and offshore locations. The award which came barely one year after the Department of Petroleum Resources (DPR) opened a bid process for 57 marginal fields on June 1, 2020, at the peak of the COVID-19 pandemic, amid concerns that the round may eventually not hold due to ravaging impact of the pandemic on economic activities not only in Nigeria but across the global financial and oil markets.

In the oil industry, demand and price of crude oil, Nigeria’s highest revenue earned dipped treacherously as economic activities across the world went mute.
In the face of those odds, Auwalu in a speech announcing the awards, said that at least, half of the successful marginal field investors have accepted the offers and have even made the mandatory payments to signature bonuses to the Federal Government which is targeting about $500million income from sale of the new acreages.
At the presentation of letters to the winners in Abuja, on May 30, 2021, the DPR Director further explained that a total of 591 firms submitted their Expression of Interest forms, out of which 540 were pre-qualified, while 482 were bids submitted by 405 applicants.

In the end, 161 companies were shortlisted as potential awardees, out of which 50 percent have met all conditions and therefore, are eligible for awards today. We are set to ensure opportunities are extended to other deserving applicants to fill the gap,” he said.
However, for oil and gas stakeholders, one of the major conditions for the award of the new acreages to participants is the payment of signature bonus.
With 50 percent of leases already paid for, it is expected that government would have raked in about $250 million in signature bonuses so far, while looking forward to harvesting additional $250 million from other winners who could not pay on the day of the award in the weeks and months .
Beyond its financial gain to the government, another key objective of the project would be its potential to increase job opportunities for Nigerians through fresh investments in the oil and gas sector.
However, given the dearth of fresh investment in Nigeria’s oil and gas industry over many years, the collateral impact of the 57 fresh acreage awards cannot be overemphasized, especially as all are 100 percent indigenous oil and gas companies.
Another critical attribute of the 2021 exercise was with its capacity to further enhance the technical abilities of Nigerian oil and gas entrepreneurs and the sector’s growing manpower base now heading to a complete and convenient takeover of management and operations from foreigners currently at the commanding heights of the industry.
For the Federal Government, raking in an estimated $500million in signature bonuses from the winners of the marginal oil blocks at a time of acute foreign currency scarcity is no mean feat, aside the project’s complementary role in job creation even if at least half of the awards could come on stream immediately.
For President Muhammadu Buhari, who had set the target of pulling 100million citizens out of poverty trap over the next 10 years, the new marginal oil fields awards can be a greater enabler for realising that dream given the multiplier economic outcomes of every oil and gas investment.

A cursory assessment of the projects reveals their multi-dimensional impact on job creation, revenue generation for the Federal Government, technology transfer for indigenous oil and community that are indeed enormous for the nation’s struggling economy. One would also not ignore the impact on Local Content Development initiative in the oil and gas industry and its contributions to national oil and gas reserves
The multiplier effects on the economy that often manifest through increase in Gross Domestic Product (GDP), and job creation employment cannot be over emphasized. But unlike similar award programmes in the past, the processes leading to the award of the 57 marginal field licenses in June of 2021, were adjudged the most transparent by the indigenous oil and gas executives that participated at the bid round.

This was so because the Department of Petroleum Resources (DPR), Nigerian Oil & Gas industry regulatory agency charged with the responsible for the administration of Petroleum laws and statutes as well as implementing policies on oil and gas activities in Nigeria took steps to ensure that the conduct was openly transparent, particularly against the backdrop that it turned out to be an all Nigerian affair.
As an Opportunity House and Business Enabler – DPR brought it supervision and monitoring expertise in petroleum industry operations to bring transparency to bear on the processes leading to the award of the acreages to the delight of participating entities.

This is largely because much of its strategic focus for wealth creation for the Nigerian state was premises around four critical areas that included Bid Rounds (Investments), Reserves Growth, (Global Competitiveness), Production Increase (Revenues) Reduce Cost-Per-Barrel, (Profits &Capital Efficiency).

In a recent media presentation on his winning strategies for development of the nation’s marginal fields, Auwalu Sarki, the boss of the oil and gas agency listed Scalability, (Start Small; Grow Big), Vertical Integration & Diversification(Upstream, Midstream and Downstream /Gas Industrial Hubs) as his key strategic focus and indeed the way to go in building an integrated and competitive oil and infrastructure.
Part of that strategy also includes collaboration and synergy that seeks to empower clusters of contiguous fields to aid synergy and collaboration among operators.

To achieve these milestones, the DPR work programme implementation would involve scientific mechanisms that include appraisal of opportunities and robust field studies.

Moreover, in its attempt to ensure that the leases awarded to indigenous operators are not disruptive of their hosts, the oil and gas regulator said it is targeting a more robust Community Relationship apparatus of operators and communities with Corporate Social Responsibility (CSR), compliance to global operational and local regulatory standards as well as Operational Excellence are strictly adhered to by all stakeholders.

More importantly, the DPR boss had emphasized the imperative of cost control and optimisation using global best practices and benchmarks.

On strategies for crude oil and gas reserve growth against which the 57 licenses were doled out, Sarki listed Deep Drilling, Target By-Passed accumulation, Migration of P3 to P2 (& P1), Improved Oil Recovery (IOR), Enhanced focus on sustainable, FDPs, Frontier Exploration and Bid Rounds. He also outlined strategies for production growth to include recovery from impact of ‘Triple Force’ (COVID, OPEC+, Crude Price), expected production from assets with approved FDPs, marginal field bid round and additional deepwater production.

The outlook over the three year period of 2021-2024 is to boost the nation’s crude production capacity by an additional 600kbpd.
This initiative is also expected to dovetail into its midstream objectives of expanding local refining capacity through empowerment of Modular refineries, Integrated Refinery Complex, Impact of price freedom, Zero Routine Flare for new developments, Gas Flare Commercialisation, Gas Processing Plants, •Central Processing facilities, Fertilizer Plants Petrochemicals.

In addition to wanting to stimulate Domestic Refining the agency seeks through on going reform encourage the development of Gas Based Industry, Gas Pipelines and Flare Gas Capture
For instance, at the signing ceremony of the Pre-Front-End Engineering Design (FEED) for the first-of-its kind Floating LNG Project in Nigeria recently, Sarki had expressed his delight at the event that came following the issuance of the License to Establish the flagship FLNG project by the Department of Petroleum Resources in February this year.

According to him, the prompt transition of project implementation to the commencement of initial basic engineering works was a testament to the doggedness, resilience, and business-mindedness of UTM Offshore, now blazing the trail in major capital midstream gas development by independent, indigenous companies.

He further stated the exercise was in line with President Muhammadu Buhari, administration’s commitment to support policies that will boost investment in the Nigerian oil and Gas sector following his declaration that “Nigeria is Open for Business”. He argued that the DPR, under the supervision of the Minister of Petroleum resources, has continued to implement policy and regulatory reforms driven by commitment to attract new investments, create value and improve the contributions of the Oil and gas sector to Nigeria’s GDP.

“With the commencement of preliminary engineering of this Liquefied Natural Gas project, the drive by Mr. President and the Minister to make the 2021 – 2030 Nigeria’s decade of gas is fast becoming a solid reality.

As a Department, we will continue to provide opportunities and enable the businesses of promoters and investors in the oil and gas industry for economic growth stability and sustainability of Nigeria and for the mutual benefit of all investors and industry participants. Our Licenses, Permits and Approvals will continue to serve as stimulants for value addition and enablers of development.” He said
Sarki also pledged the agency’s unflagging support to seeing the winners through the successful execution of the landmark project in a safe, cost-effective, and timely manner whilst ensuring adherence to applicable Nigerian laws and regulations and global best practices, all in a bid to ensure successful project development and optimum return on investment.

He however called on all stakeholders to take advantage of the resources of the National Oil and Gas Excellence Centre (NOGEC), which was commissioned in January 2021 as the one- stop shop techno-economic resource to enhance safety, value, and cost efficiency in the industry, assuring the DPR will plow its wealth of experiences in major capital development projects to bring all relevant resources to bear on the project for overall sustainability and enhanced value to all stakeholders.

DPR’s National Oil and Excellent Centre (NOGEC) was commissioned to drive the three-fold objectives of Safety, Value and Cost Efficiency in the industry and currently hosts a number of key centre of Search, Rescue and Surveillance (SeRAS) Command & Control Centre, the National Improved Oil Recovery Centre(NIORC), Oil & Gas Alternative Dispute Resolution Centre (ADRC) Oil & Gas Competence Development and Integrated Data Mining & Analytics Centre (IDMAC) Centre (CDC).

How award will impact Nigerian Content Despite being Africa’s leading oil producer, Nigeria happens to be one of the few OPEC members whose oil industry is still under the control of by expatriates.
This has led to a situation where top management and executive positions are held by foreigners. It was therefore in an effort to correct this imbalance that the oil and gas industry birthed the Nigerian Oil and Gas Industry Content Development (Local Content Act) in 2010 to promote indigeneous participation in the Nigeria’s oil and gas industry for the purpose of improving the economic and social well being of those engaged in operating in the oil and gas industry.

This Act also provides for the development of Nigerian content in the Nigerian oil and gas industry, Nigerian content plan, supervision, coordination, monitoring, and implementation of the Nigerian content.
It outlined the requirement of organization wishing to operate in the Oil and Gas Industry in Section 2 of the Local Content Act, which states that “all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution”.
It defines Nigerian content in Section 106 as “the quantum of composite value added to or created in Nigeria through the utilisation of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards”.

A key objective of the Local Content policy is to increase Nigerian participation in the oil and thresholds for the use of local services and materials for the promotion of technology and skill to the Nigerian labour in the oil and gas industry.
With award of the 57 acreages to local investors, the expectation is that the initiative would now offer Nigerian indigenous manpower in the oil and gas industry a rare opportunity to showcase their potential and stop playing the second fiddle in an industry that has brought enormous wealth to several oil and gas jurisdictions across the globe.

In addition to creating the much desired jobs, communities in the oil bearing areas of the country stand the chance of enjoying much higher standard of living through the wealth that would be generated from the investments.