Mini-Bid Rounds 2022 – On December 21, 2022, the Federal Government of Nigeria through the Nigerian Upstream Petroleum Regulatory Commission (the "Commission") announced licensing rounds for seven (7) offshore blocks covering an area of approximately 6,700 km2 in water depths of 1,150m to 3,100m. Specifically, blocks, PPL300-DO, PPL301-DO, PPL302-DO, PPL303-DO, PPL304-DO,PPL305-DO, PPL306-DO. This legal update summaries the legal framework, bidding procedure and the eligibility requirements for participating in the Min-Bid Rounds 2022.

1. Primary Legal Framework

The Mini-Bid Rounds 2022 is governed principally by the provisions of the Petroleum Industry Act, No. 6 of 2021 (the "Act"), in particular sections 72 to 80 of the Act, the Petroleum Licensing Round Regulations 2022 ( the "Regulation") and the Deep Offshore Licensing Rounds Guidelines dated December 21, 2022 ( the "Guideline"). The Mini-Bid Rounds 2022 is the first licensing round to be conducted pursuant to the Act, which introduced significant changes to the fiscal and regulatory framework for oil and gas exploration in Nigeria. Especially for oil rich countries in developing countries, oil and gas reserves will continue to be of strategic national and political importance. It is probably therefore impossible to completely delink political influence from the bidding process for oil blocks. What is now clear from the new Act, is a legislative intent to make the process better and more transparent. What the Act has done therefore, is to place a clear and enforceable statutory obligation on the Commission to implement a "fair", "open", "transparent" and "competitive" bidding process. The legislative clarity around the transparency of the bidding process is critical especially given the history of political influence in the award of oil blocks in Nigeria. Based on the administrative steps taken by the Commission thus far, it would appear that the Commission is committed, directionally, atleast to implementing a "fair", "open", "transparent" and "competitive" bidding process.

2. Bid Process & Goal

The Mini-Bid Rounds 2022 follows a two-stage bidding process. The first "qualification" stage involves the paring down by the Commission of the initial list of Applicants based on certain specified pre-qualification criteria. The shortlisted Applicants are thereafter invited to participate in the "bidding" stage by submitting technical and commercial bids. Applicants will have access to relevant block data primarily via a virtual data room and an online platform through which Applicants can register and submit relevant bidding documents, although a physical submission of bids is also required by the Regulations. Qualifying Applicants are required to purchase multi-beam, 2D seismic data and 3D seismic data available in respect of the blocks from approved multi-client vendors and provide evidence of such purchase as part of the submission of technical bids. The winning bid will be thehighest value bidbased on the highest aggregate number of points scored by a Bidder upon the combined assessment of the (a) signature bonus proposals submitted by a Bidder and the (b) work programme proposals showing the number of exploration wells the Bidder will commit to drilling during the initial term of a Petroleum Prospecting License ("PPL"). Bidders are expected to submit details of work experience and the proposed work plan for the blocks of interest. In the first instance, the object of the Mini-Bid Rounds 2022 is to award a PPL to successful Bidders in respect of the blocks on offer. Based on the provision of section 72 (1) (a) and (b) of the Act, a PPL grants the licensee the exclusive right to drill exploration and appraisal wells and the non-exclusive rights to carry our petroleum operations within the leased area as well as the right to carry away and dispose of crude oil or natural gas won or extracted during the drilling of exploration or appraisal wells as a result of production tests. Licenses for offshore acreages are issued for an initial term of 5 years extendable for another 5-year term.

3. Pre-Qualification Criteria

To prequalify for the Mini-Bid Rounds 2022, an Applicant needs to meet certain minimum financial, technical and legal requirements. The minimum financial qualification is set at $200,000,000 (Two Hundred Million Dollars). Compliance with the minimum financial qualification may be demonstrated in terms of, the annual turnover of an Applicant or an Applicant's cash at hand, the same amount. The minimum financial qualification can also be demonstrated by an Applicant with the aid of a letter of credit from a reputable financial institution or by demonstrating that Applicant's market capitalization is equal to the minimum financial qualification as well as with either a bank guarantee or a parent company guarantee, in the said amount.

To meet the minimum technical criteria for pre-qualification, an Applicant must have demonstrable experience in deep offshore operations up to a minimum of five (5) years. Technical ability can be demonstrated in a number of ways which includes providing relevant information on the technical ability of the Applicant as well as with relevant information on the technical experience of a majority of Applicant's promoters and/or management team and/or technical partner and/or parent company. Applicants who wish to demonstrate technical competence using a technical partner, are required to provide a technical support/partnership agreement as evidence.

Applicants may apply either as a consortium or as a single entity. For consortium applications, an operator must be designated, who must own a minimum participating interest of 20%. All such Applicants must submit incorporation documents revealing details of shareholders and directors as well as the memo/articles of association, profile of promoters/management team, valid tax clearance certificate as well organizational chart of the Applicant. Non-resident foreign Applicants who decide to participate in the Mini-Bid Rounds 2022 will also need to submit the above documents but would need to incorporate a local entity in the event that the bid for a block is successful. The Regulations make clear that only a company incorporated in Nigeria under the extant Companies Act may be awarded a PPL. Bidders will be required to execute a confidentiality agreement, a bid guarantee as well as provide beneficial owner information using standard formats provided by the Commission.

4. Application/Registration Fees

Applicants are required to pay the sum of $5000 as registration fee and the sum of $20,000 per block as application & processing fee. Applicants will also be required to pay the relevant data purchase fee to approved data vendors.

5. Additional Qualifying Criteria

A pre-qualified Applicant may be disqualified if it or any of its members (in the case of a Consortium):

  1. is indebted to the Government;
  2. has not operated previously awarded licence or lease vigorously and in a business-like manner in accordance with the Applicable Laws;
  3. is prohibited or banned from participation in the Mini-Bid Round 2022 or any bidding process by the Government or any of its agencies;
  4. presents or has previously presented false information or forged document in respect of any bid or tender process with the Government;
  5. presents more than one bid proposal for the same block either as an individual pre-qualified Applicant, as a member of more than one consortium, or through a third-party company over which the pre- qualified Applicant exercises Control or is an Affiliate of the pre- qualified Applicant;
  6. has breached the terms of the Confidentiality Agreement;
  7. uses third parties to circumvent the matters under this paragraph;
  8. has breached the terms and conditions of any existing licence or agreement with the Commission in relation to petroleum operations in Nigeria;
  9. is or becomes insolvent;
  10. undergoes a change of control within the meaning of section 95(14) of the PIA), except it obtains the consent of the Minister;
  11. has been found guilty of an offence which raises doubts about the Applicant's professional integrity as well as that of its shareholders, members or directors;
  12. obtained information relating to the Bid process through unauthorised means;
  13. is indebted to or has its assets taken over by Nigeria's Bad Bank, AMCON;
  14. has not met its obligations around tax compliance in Nigeria;
  15. has not or does not comply with Applicable Laws; or
  16. is not in all respects acceptable to the Nigerian Government.

It is useful to note that the Nigerian Government through the NNPC Limited has the right to participate in up to 60% of any license awarded pursuant to the Mini-Bid Rounds 2022, at any time. The legal basis for this statutory right is section 85(4) (a) of the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.