April 28, 2020
Undoubtedly, the ongoing COVID-19 Pandemic caught the world and its leaders unawares. While world leaders are seeking quick and long-lasting fixes to the malady, there is a growing concern on the global economic implications of the lockdown actions instituted by most countries to combat the rampaging virus. Though some have argued that the low record of the incidence of infections in Africa puts the continent in a favourable position to attract new capital for local investment purposes, individual countries in Africa must seek ingenious means of repositioning their economies to maximise the opportunities that the prevailing circumstances present. On 8 April 2020, it was reported by some electronic media outlets that Nigeria’s President had approved the request of the Minister of State for Petroleum Resources to schedule a bid round for marginal fields acquisition in Nigeria. While the decision to conduct the bid round is a step in the right direction, the attractiveness of the oil fields to be auctioned in a post COVID-19 world may be challenging, given the oil price collapse in the international market, and the unfavourable fiscal regime for marginal field operations in the country. Regardless of the current state of oil prices, it is expected that demand will stabilise soon after the containment of the COVID-19 with consequent impact on oil prices.
Historically, the marginal field licencing round was conceived in 2001 to principally promote indigenous participation in the Nigerian upstream oil and gas sector, by encouraging Nigerian-owned companies to acquire fields whose reserves are booked and reported annually to the Department of Petroleum Resources (“DPR”), but have failed to produce for a period of over 10 years.
The Federal Government sought to promote marginal field operations to grow production capacity, and to increase the country’s oil and gas reserves. In furtherance of this objective, the DPR awarded a total of 24 licences to 31 Nigerian companies in 2003. As at 2018, the number of marginal field companies stood at 28 with licences issued to operate in about 30 fields, while commercial production is attributable to 15 companies operating in 16 fields.
Perhaps, recognising the non-performance of some of the marginal field operators, the DPR earlier this month was reported to have revoked marginal field licences issued to 11 companies.
The non-performance of some of these marginal field companies may be connected with the prevailing unfavourable fiscal regime that limits return on capital invested in marginal fields operations in the country. Where these indigenous companies with limited financial capacity and technical expertise are encumbered with obligations to remit royalties, levies, fees and taxes; it affects their ability and capacity to take on exploration and production activities.