08 Feb 2021

Auwalu: Ongoing Marginal Fields Bid Round to End This Quarter

The Director and Chief Executive Officer of the Department of Petroleum Resources, Mr. Sarki Auwalu, in this interview on Arise News Channel, THISDAY’s sister broadcast station, provides update on the ongoing bid exercise for the 57 marginal oil fields. Emmanuel Addeh and Peter Uzoho bring the excerpts:

Where are we with the 57 marginal fields and what is the guarantee that this time around, the concern about merit, capacity, competence will be addressed, even more importantly, the interest of the Niger Delta communities, who insist that those marginal fields should be prioritised with regard to host communities’ rights?

The marginal field, when we started, we reviewed the first and learnt from the experience. You know we had 24 fields awarded in 2003, unfortunately, only 13, out of the 24 are producing. So the 11 non-producing were revoked just to guarantee revenue for the nation and we didn’t really include those 11 that were revoked. We got the ones that we know that are prolific, that is about 57 of them and we had a very good interest in them because in those 57, we had over 630 applicants, we pre-qualified about 500 and about 370 companies applied for 477 applications. This confirms interest in the assets. The criteria were very open, exclusively marginal fields for Nigerian companies, and one of the key criteria for pre-qualifying any company is that, you must have impeccable evidence that you include the people of the community, you have a spread of Nigeria outlook of the company, you have strong financial base. We quite did a lot of due diligence on all the companies that applied.

We contacted relevant government agencies like National Financial Intelligence Unit, Department of State Security, Federal Inland Revenue Service to really help us to qualify and validate all the information supplied by the applicants. And we put it on a portal that is up and running which every applicant can really go inside, seek for information with regard to the application because we provide robust guidelines in which people will have a transparent information on all the companies.

Above all, we, at the department, since we are business enablers and opportunity providers, provided competent person reports, field-specific reports and accessibility for data prying. Despite COVID, we have a virtual data room that you can enter and see and make an offer, so that the field will be developed. And most importantly, we emphasise community involvement because if you don’t have host, you cannot really operate. We guarantee freedom for operation as the communities are fully involved in each and every applicant. So that is what gives us confidence.

Where we are now, out of above 300 companies, we have 161 shortlisted companies. We are hoping to give them accounts because this is the first time in this nation whereby we seek approval to allow the acquisition cost to be paid in naira, which simplifies it for Nigerian companies. So you can pay your signature bonus either in dollars or in naira. That is a very big achievement which a lot of companies are now happier because we know that communities are involved, Nigerian naira needs to be strengthened, we don’t want to put pressure on it much.

So immediately after the payment of signature bonus and compliance with the farm-out agreement, farm-out demarcation area, then we issue the award and we bring the companies together in which they can now arrange to enter the fields. We hope to finish the entire programme before end of Q1 this year. Going forward, we give about 90 days in which the OML holders will have discussion because no two fields are the same, so that, we allow these assets to be developed. We believe it will increase the reserve of this country as well as providing a lot of stimulant to the economy. So that’s the summary of the marginal fields.

The last bid round almost two decades ago was fraught with litigations and some challenges that hampered the development of those fields successfully producing for the nation. Are we not about to make the same mistakes regarding those 11 licences that were revoked and now being added to the bid basket?

First, the 11 marginal fields that were revoked were not among the 57. So, completely, this particular bid round does not include the 11 revoked marginal assets and those 11 revoked marginal assets, the litigation is on whether or not the Petroleum Act provided for revocation. Yes, indeed, there is provision for revocation. So, this particular marginal fields that we are running is out of litigation. We do not have any encumbrances from any of the 57 because the 11 that are in court are even discussing with us to go out of court. They are seeking to see how government will reconsider them based on the work they have done before. We are assessing the work and looking at the possibility, (if they come out of court), whether government will consider re-awarding to them or to anybody that is ready to pay good and valuable consideration on those assets. But for this exercise, those 11 assets are out of it. So, that is why we are confident and that is the reason why we have this huge interest in the ongoing 57 assets.

What technology do you have in place as regards this process and how much have you been able to clean DPR itself as regards the processes and how all of these go?

DPR is a technology-based organisation and generally, we are perceived to be a regulator but we are not just regulators, we are business enablers and opportunity providers. Because no investor will actually come without licence from us and no company will participate in the industry without our licence and there is no activity that will be conducted without our approval. So, the technology behind the robust marginal field bid exercise is internal.

We beg not to really include external expertise because we do have capacity. So we use the National Data Repository capacity which is a repository that has been there in existence in excess of 15 years, and we leverage on that. We developed a portal internally and we created data room, we give access to all the applicants and people that indicate interest. Actually, for the bidding process, we use a lot of IT, we do have the infrastructure.

If you remember, I mentioned the National Data Repository. We try as much as possible to be as remote as possible and have a lot of access to information because when you want to bid for any asset, all you need to decide is data. So, we make data available through creation of virtual data room and having an access and interface that any interested bidder can really come virtually, enter the virtual data room, access the data, pry the data, download the data and see and make his own decision on whether or not he is interested in that particular asset.

So, we are proud to say that all the software that we use mostly are modified internally by DPR staff. That is to really limit the leakages and exposure because it is a competition. So, we use a lot of IT infrastructure, we use a lot of Artificial Intelligence in terms of data prying and we use a lot of IT interface between the applicants and DPR. And we work round the clock to make sure that you have access 24/7 because you can access the data from anywhere and the time constraint is no longer an impediment. That is what we use in the marginal fields bid process. The portal is still active. Every day, the portal updates itself with where we are, where we are going, where we are coming from, so that applicants are comfortable that they are following the process more or less on real time bases.

How much is the Department of Petroleum Resources hoping to make from the signature bonuses and the payment for the oil fields?

Yes, in the application, you can see that the application fee and the processing fee is 500 million per field. We have 477 applications and the cost of data prying and data leasing is averaged between 65,000 to $115,000 and we have about 477 applications. So, for that, you can see that that is what has already been made out of the process. Then, for the signature bonus, you know, since it’s a competition, there are those with big pockets, that will put crazy amount, whether it is high or low. So, what we did internally was to look at the Competence Person Report and objectively estimate the average signature bonus on that field. After all, the good and valuable consideration for every asset is being computed by DPR. So, we use that as estimate to guide us on the average signature bonus that we expect, which some fields are high, some fields are low. So, that is what we put together and we estimate to have not less than $500 million which is very on the conservative side.

Is the DPR going to provide a list of the companies that have been shortlisted and information, to show us that the process is actually open and transparent and so that these complaints about opaqueness can be addressed?

So, for the publication, when we started this process, we did not publish the list of applicants and when we pre-qualified the companies, we did not publish the names of pre-qualified companies, and when the companies that applied went through our due diligence, we did not publish those companies also that passed our due diligence to NFIU, DSS, EFCC. So, now that we shortlisted, we should not really publish the names of those because it’s not all the 161 that may be successful in complying or trying to meet up with the requirements in the next stage. So, it is actually premature to say that you will publish the names of companies that are yet to get any award. So, when we finish the process, obviously, people will get to know who really win.

After all, we are yet to get winners, and in the process, all through, we are consistent as par our publication that only people that are interested in the process, they will be contacted and that is what we are doing. So, we want to be consistent on that and the people that are interested in the process have already been contacted. When we finish with the process, it will definitely be open and we will publish those people that are successful finally and they have their awards. I think that is even better for the nation and better for the competition because we are avoiding any third party interference because government really believes in us, and we believe the investors are having confidence in the process. So, that is why we follow our process of not publishing the names of people that were shortlisted because not all of them may be successful in the long run.

What are the guarantees that there will be no application of discretion in the assignment of these marginal fields? And there have been complaints that in DPR, in the Ministry of Petroleum Resources, that there are checkpoints, almost analogous to Police checkpoints, even for people to be able to get letters notifying them about the status of the process?

Actually, I’m not aware of any checkpoint and you know, it is just like exam, people always complain when they write exam and fail. The process is open and we have a system whereby it records every company’s activity in the portal and this portal is open. So, if you apply, whatever you put there is recorded and the marking scheme for what you are supposed to submit, whether technical, financial, economic, and field development strategy is there. In fact, that is what limits the discretion. There cannot be discretion in the process because if you discreetly award, then what is the bases since no two fields are similar? Remember, there is farm out agreement, there is farm out area demarcation, there is commercial negotiation with the OML holders.

So, by the time you said you are going to do discretion without the basic information that is required in the process, that is not possible. So, that is our confidence that the discretion is very impractical. And again, people that do not have notification whether they are qualified to apply or they were not shortlisted, obviously, you don’t expect them to keep quiet. They will rather feel that they have adequate submission that qualifies them but not everyone of the applicants should have. So, we took the best. There are fields that have five applicants, there are fields that have 50 applicants.

So, you can see you can’t have 50 applicants in one field and cannot take the best five. You cannot have a field with 20 applicants and cannot take the best four. So, if you check how we even arrived at the 161, objectively, we looked at fields with respect to the number of applicants on the field and we selected the best. And we put together the 57, you have five applicants, you take the best one; 10 applicants, we take two; 15, we take three; 20, we take four, and we got all these together and that was how we came up with the number we shortlisted. And we know not all of these numbers may be able to complete the process and that number will shrink again. So, the process started with 600 plus, we got to 500 plus, we got down to 300 plus, now we got to 161. We don’t know the number we will get down to. So, the process is on and we are optimistic that because of the process we put in place, a lot of people that feel they must have, if they are not successful to be shortlisted, they must really say whatever that is in their mind.

Tell us about the National Oil and Gas Excellence Centre launched recently by the president?

NOGEC, that is the Oil and Gas Excellence Centre was inspired by the highest level of government. Remember, the president, in his first January 2020 speech, made mention that Nigeria was ready for business and he called for diversification of the sector and how to get the economy running by diversifying it with oil and gas. So, the Minister of State also took it up and created ministerial priorities and said how can we really get this inspiration of president to life? So, the DPR went to the drawing board and we looked at it and now got three things. For oil and gas business to be sustained, there have to be safety, there have to be cost efficiency, there have to be value. So, the National Oil and Gas Excellence Centre was born on these three prongs, that is safety, value creation and cost efficiency; and it is all about diversifying the industry in a way that will develop the economy, get the sector to really contribute to the GDP and create more transparent and more sustainable industry. So, the National Oil and Gas Excellence Centre was born and recently commissioned by the president.