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Oil Blocks Bid RoundFG’s Uphill Task to Attract Investors, Global Interest

By Gideon Osaka

African producing countries have remained optimistic about the prospects of the oil and gas industry in recent times, in spite of the challenges and uncertainties in the global industry. This optimism is evident in the continued commitment to put substantial blocks up for sale as witnessed in the launch and conclusion of oil licensing rounds across African oil-and gas-rich countries.

Licensing rounds are needed to increase oil and gas reserves and maximise production capacity as well as help shore up dwindling revenues. The urgency around this aspiration has been further heightened by oil prices which has relatively settled since the beginning of 2024 with Brent Crude, the global oil price benchmark, hitting $90 per barrel.
Nigeria, direly in need to boost its crude oil production and maximise the benefit of crude price, attract fresh investments and ramp up oil output, is leading the charge in this regard. This has been initiated with the recent announcement of plans to launch an oil licensing round this year with 12 new offshore blocks and seven deep offshore assets that were carried over from previous bid round, as part of efforts to stimulate deepwater oil exploration and increase the country’s reserve base from 37.5 billion barrels of crude oil and condensate reserves and 209.26 trillion cubic feet of natural gas reserves. This represents about 30 per cent and 33 per cent of the entire oil and gas reserves in Africa, respectively.

Nigeria has set its sights to attract new investors to the market, with a focus on indigenous participation. As mandated by Section 7(t) of the Petroleum Industry Act (PIA) which empowers the Upstream Petroleum Regulatory Commission (NUPRC) to conduct bidding rounds for the award of PPLs (Petroleum Prospecting Licences) and PMLs (Petroleum Mining Licences) as the industry regulator, the renewed vigor is backed by the need to exploit and optimise these abundant hydrocarbon resources.

Valuechain findings showed the 2024 oil bid round would be the second offered under the PIA after marginal Field Bid Round was held in 2020, spearheading the issuance of 57 (fifty-seven) fields (located on land, swamp, and offshore terrains) put on offer.

Sharing more details on the licensing round and how investors can participate, the Chief Executive, NUPRC, Gbenga Komolafe, told investors at the African Oil Industry Opportunities Session, a side event at the recently concluded 2024 Offshore Technology Conference in Houston, that the NUPRC on behalf of the Federal Republic of Nigeria has issued a licensing round guideline and published a plan for the 12 blocks (namely PPL 300-CS; PPL 301-CS; PPL 3008; PPL 3009; PPL 2001; PPL 2002; PML 51; PPL 267; PPL 268; PPL 269; PPL 270).

Komolafe noted that in addition to these blocks, seven deep offshore blocks from the 2022 Mini-Bid Round Exercise which covers an area of approximately 6,700 km2 in water depths of 1,150m to 3,100m will also be concluded along with this licensing round, stated that the bid round would end by January 2025. The inclusion of both the new greenfield blocks and those from the previous bid round highlights the government’s commitment to maximizing the potential of its petroleum resources.
“New greenfield oil blocks on offer include six acreages located on the continental shelf, four deep offshore blocks, and two onshore blocks in the Niger Delta. Some criteria that will apply to the 2024 bid round include a demonstration of technical competence, financial capacity, and viability,” the NUPRC CEO announced.
To ensure the seamlessness of the Licensing Round exercise, the NUPRC, in collaboration with the National Data Repository and multi-client partners, will guarantees access to comprehensive and high-quality geological data, to facilitate informed decision-making and strategic investments. The blocks on offer have extensive 2D and 3D seismic data coverage, including multi-beam and analog data. Additionally, a 3D reprocessed Pre-stack Time Migration of remarkable quality is also available to prospective bidders.
It is hoped that with these criteria, the 2024 licensing round will be conducted in a fair, competitive, and non-discriminatory manner, as stipulated in Sections 73 and 74 of the Petroleum Industry Act, 2021.
“With a focus on technical competence, financial capacity, and fairness, the NUPRC aims to ensure that the licensing round is conducted transparently and by the provisions of the Petroleum Industry Act,” it stated.

Valuechain observed that the 2024 licensing round is expected to be a success for Nigeria and a big step towards growing the nation’s oil and gas reserves
A major decision taken by the government that will have a significantly positive impact on the licensing round is the removal of the signature bonus requirement. Signature bonus is a single, non-recoverable lump sum payment made upfront by oil companies to the government for the rights to develop an oil block commercially after successfully winning in the license bid round.

Over the years, payment of signature bonuses remained a huge bottleneck for investors as well as investment into the sector in Nigeria. Players in the industry had explained that globally, payable signature bonuses by awardees of an oil bloc or marginal field rank highest in Nigeria. On many occasions, the huge amount involved in payment of signature bonus was a setback for investors.

The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, announced that, with the abrogation of signature bonus, rather than pay such monies into the coffers of the Federal Government, investors must now be able to prove that they have the funds required to move into exploration.

“What we have resolved going forward and with the 2024 oil bid round is to see that fields won in a bid round must be put into immediate use as against what obtained in past where fields are left idle after assets are won,” he explained.

Stiff competition for investment in Africa
The urgency around why Nigeria needs to get this licensing right cannot be overemphasized, as a result of stiff competition for investment in other African oil-producing countries that have either launched or are in the process of concluding bid rounds. For instance, Angola, one of Africa’s top producers is in the midst of a six-month oil and gas tender that launched last September, with initial results announced recently. The round – part of a six-year hydrocarbon licensing strategy that began in 2019 – features 12 onshore blocks. The round has already seen success in the latter regard, with state-owned Sonangol and oil and gas independent Afentra awarded interests.
French oil major, TotalEnergies recently announced it will invest $6 billion in Angola. Its CEO, Patrick Pouyanne, stated that the company chose Angola over Nigeria due to issues in the country. During the Africa CEO panel in Kigali, Rwanda, Pouyanne said “We have countries that have perfectly integrated policies like Angola. So, we went to Angola and announced a very large $6 billion project at the beginning of the week because their framework is stable.” The energy giant also immediately announced a $600 million investment deal in the Republic of Congo for oil production and exploration, once again overlooking Nigeria, Africa’s largest oil producer.

Mozambique, known for its huge gas resources, recently granted five oil and gas concession contracts to the China National Offshore Oil Corporation (CNOOC) for offshore blocks in the southern African country’s waters as part of the sixth licensing round launched by the Ministry of Mineral Resources and Energy (MIREME). MIREME initially launched the licensing round in November 2021, with 16 blocks offered.

In Uganda, the prospects of the country’s hydrocarbon sector is looking bright – In January, the country kicked off the process for the third oil field licensing round as part of the nation’s effort to increase its oil reserves. Currently, Uganda has approximately 6.5 billion barrels of oil reserves, with at least 1.4 billion estimated to be economically recoverable. More exploration work would bolster Uganda’s petroleum reserves, sustain petroleum production beyond 25 years, and enhance the commercial feasibility of midstream projects, including an ongoing refinery construction in the country. The country will soon export its first crude oil to the international market, making it one of the countries to have joined the oil exporting countries

Equatorial Guinea, an OPEC member and Sub-Saharan Africa’s third-largest oil producer, and the fifth largest oil and gas producer in West Africa started bid licensing round last year, piquing the interest of a strong slate of global players. Equatorial Guinea’s preceding licensing round, EG Ronda 2019, concluded with the signing of three Production Sharing Contracts.

Old problems lurk around
Previous licensing rounds in Nigeria have historically faced challenges, hindering the optimal maximization of revenue for the government.

There have been allegations of corruption in the award of licenses, with reports of bribery and nepotism. In the previous awards, it was discovered that licenses were awarded to cronies, not really because they had the competence or the financial capacity. A Chatham House report, entitled: ‘Thirst for African Oil: Asian National Oil Companies in Nigeria and Angola,’ noted that the 2016 bidding list included indigenous consortia with little or no experience in the oil business. This has undermined trust in the licensing process and discouraged potential investors.
Nigeria would work twice as hard to convince investors that the process would be transparent.

Likewise, constant changes in the regulatory framework which has often been perceived as unstable create uncertainty for investors and deter them from participating in licensing rounds. In the past rounds, the regulator’s decision to merge several bidders with different operational plans, financial resources, and development plans together on a field created so much uncertainty that frustrated the development of the fields. For the 2024 oil bid round, this pitfall must be avoided.

Security challenges, including pipeline vandalism, oil theft, and militancy not only disrupts oil production but also deter investment in new projects. Experts have said the 2024 bid round could confront challenges in an environment where investors are leaving the country as well as dealing with host communities and a rising spate of crude theft that have made the oil-rich Niger Delta unattractive for investments.

Addressing these challenges require concerted efforts by the Nigerian government to improve transparency, enhance regulatory stability, strengthen security measures in the oil industry.