Introduction
A major factor for any marginal field operator in Nigeria, is access to funding for the development of their marginal fields. In this regard, the Nigerian Upstream Petroleum Regulatory Commission ("NUPRC") recently announced that it has deployed some initiatives to assist the awardees ("Awardees") of the 2020 marginal field bid round ("2020 Bid Round").
As a background to this announcement, 161 petroleum prospecting licenses ("PPL") were awarded by the NUPRC in 20221 . According to the Commission Chief Executive of the NUPRC, Engr, Gbenga Komolafe, this award was prompted by a "need to entrench the indigenisation policy of government in the upstream sector of the oil and gas industry and build local content capacity"2 . This need has, however, not yet been met owing majorly to funding challenges which have impeded the pace of oil exploration and financial development.
In view of the above, this publication seeks to discuss the key initiatives implemented by the NUPRC ("Initiatives") and how the Awardees can benefit from the same.
Expectations of the Marginal Field Award
The expected revenue analysis generated from the 2020 Bid Round is an indicator of the government's strategy to create a suitable platform for marginal field development in oil exploration. The NUPRC's move to deploy the Initiatives was driven by a need to prevent a repetition of the shortfalls of the 2002 bid round which resulted in, not only a loss of revenue, but also the non-development of more than 50% of the allocated fields with many others, subject to litigation.
NUPRC's Initiatives3
The Initiatives deployed by the NUPRC, include the following:
1. A plan for a production-based lending engagement to help the Awardees source the capital required to commence full field development. The plan is proposed to be between the NUPRC, the Awardees, exploration and production service providers and Nigerian banks. The lending engagement is to be offered for a service fee, recoverable by the service providers upon the attainment of first oil by the Awardees.
2. A corporate governance framework for upstream petroleum operators to address imminent challenges brought about by corporate governance structural bottlenecks. The framework is designed to establish sustainability, meet corporate governance requirements, and facilitate capital attraction from investors.
3. The revision of the subsisting Extended Well Test ("EWT") Guideline , to enhance early cash flow and accelerate the production journey to first oil.
Since the award of PPLs in 2022, the NUPRC has also taken steps to provide statutory guidance towards the progression of the assets to field development and to set the stage for engagements on issues required to fulfill initial work program obligations. These steps include:
(a) The convocation of the regulatory induction programme for Awardees to provide them with an essential understanding of the statutory protocols which they are required to adhere to, while exercising their license, from award through to first oil.
(b) A week-long meeting in December 2022, involving the NUPRC, the Awardees and initial asset owners to deliberate on, and resolve, critical matters relating to the assets, including Royalty and Tax Administration, Data Exchange Protocol and Leasing, Field Development Plans and Host Communities' Development. It was reported that during the meeting, the parties successfully overcame all barriers to a smooth take-over process by the Awardees; enhancing the facilitation of an efficient operation of the asset, until first oil.
Conclusion
While there are other challenges and risks that marginal field exploration poses to marginal field operators and investors, such as security concerns, crude theft and sabotage, funding remains a major challenge in facilitating the operations of marginal fields. In consideration of this, the NUPRC's strategy for securing petroleum operations on the marginal fields through the Initiatives, is indeed timely and necessary. It is hoped that the efforts of the NUPRC will yield the expected impact, particularly on the nation's economy, in the coming days.
Footnotes
1. Bunmi Aduloju, "Marginal fields: NUPRC awards licenses to 161 companies, rakes N200bn, $7m", last accessed March 22, 2023@10:50am
2. As stated by Mr. Gbenga Komolafe at the PPL award ceremony held in the Federal Capital Territory, Abuja, on Tuesday 28 June 2022.
4. The Extended Well Test Guideline4 was provided by the NUPRC (formerly known as the Department of Petroleum Resources) pursuant to section 38 and 44 of the Petroleum Act (Cap P10) Laws of the Federation of Nigeria, 2004, to provide operators with appropriate guidance on statutory requirements to apply and carry out the EWT.
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.
