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Marginal fields licensing round 2013: Prospects, delays (3)

By Chijioke Nwaozuzu

The evaluation criteria includes: information on shareholding of Applicant Company; technical and managerial skills; ability to pay the signature bonus; compliance with provisions under the Nigerian Content Act; extent of compliance with local corporate social responsibility; and experience / technical ability in operating oil fields.

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A signature bonus of US$ 300,000 is to be paid per field.

Payment is to be effected within 90 days from the date of award of a field. Given this elaborate set of criteria, it is unlikely that the exercise will be completed within a six- month time frame.

2001 & 2013 guidelines,potentials for delay

There were significant differences between both guidelines.

Firstly, the 2001 guideline did not provide a timeframe for the completion of the licensing round, and indeed took around 24 months before completion. Contrarily, the 2013 guidelines stipulated a timeframe of six (6) months for the bid round, which may not be feasible in practical terms considering the robustness of the evaluation criteria.

Secondly, the stipulated signature bonus of US$ 300,000 in 2013 bid round represents a 100% increase from the 2001 licensing round which signature bonus was US$ 150,000. It is likely that the reason for this increase in the size of the signature bonus was to qualify candidates with significant financial muscle.

Thirdly, unlike the 2001 round external financial advisers were included in the selection committee under the 2013 guidelines. Perhaps, this inclusion was made to vet the financial capabilities of applicants and will likely result in significant delays to the bid process since some of the financial institutions are not based in Nigeria.

Fourthly, one of the newly included criteria for qualification in the 2013 round is the requirement of “25% maximum equity for shareholders within an applicant company”. Perhaps, this approach was based on past experiences with successful bidders in the 2001 round whereby some of them failed to carry out the development of their fields and still were reluctant to introduce new investors in the companies. The “25% equity provision” may have also been intended to resolve the twin issues of ownership disputes and non-alignment of interests.

Fifthly, the 2013 guidelines specified that successful bidders will be selected on the basis of the highest score using the evaluation criteria. The 2013 guidelines also stated that on completion of the bid evaluation process, the selection committee will make a recommendation to the Minister of Petroleum and subsequently to the President. The 2001 guideline did not specify such recommendations, and this current provision will not only delay the selection process but may affect the public perception of transparency in the process. If this process of recommendation feeds into the politics of 2015 elections there may be further delays in the release of the list of successful applicants and a further undermining of the integrity and credibility of the process.

Without a doubt, the marginal field licensing round will provide opportunities for indigenous companies who lack the capacity to purchase any of the oil blocks divested by the FOCs to form a consortium to bid for any or some of the marginal fields.

The methodology for the 2013 licensing rounds is aimed at correcting past mistakes. Firstly, the issue of technical partnerships has been given much attention because of the previous mismatch of partnerships which has led many of the 2001 awardees to end up in litigation with their technical partners. Most of them were engrossed in fighting in court instead of developing work plans and field development programmes.

Secondly, the 2013 bid round sought to address the issue of financing to ensure the bankability of marginal field projects. The basic approach to enhancing the bankability of these projects is to ensure that the return on investment (ROI) and the Net Present Value (NPV) of these fields are reassuring for banks and other financial institutions. Most marginal fields are relatively low in reserves, and so those fields that are contiguous (i.e. close to one another) should be brought together and synchronised to make them more bankable.

Thirdly, the reputation of this programme could also be enhanced by granting incentives (in the form of concessions) to performing awardees to enable them secure more fields while forcing non-performing awardees to relinquish their assets.

Conclusion

Baring the expected delays arising from the vetting of applications by external financial institutions and the likelihood that the upcoming politics of 2015 elections may affect the timing and outcome of the process, the marginal field development programme is still a positive idea.

 


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