By Adewale Sanyaolu
Nigeria’s weak economy last week got a major lifeline with the announcement that N200 billion and $7 million were injected into Federal Government’s coffers from the 2020 marginal field bid round conducted by the Nigerian Upstream Regulatory Commission (NUPRC).
A marginal field is a field that has been discovered and left unattended for a period of not less than 10 years.
At a ceremony in Abuja last week, the Federal Government through the NUPRC formally presented Petroleum Prospecting Licenses (PPL) to 57 marginal field investors.
The event also witnessed the unveiling of the long-awaited Host Communities Development Regulations that governs how companies conduct operations in an environmentally friendly and community friendly manner.
With an economy hemorrhaging, a N7.26 trillion 2022 budget deficit, stakeholders have hailed the NUPRC led by the Commission Chief Executive (CCE), Gbenga Komolafe, for closing out on the 2020 marginal field exercise which had commenced prior to his appointment.
Some of the industry observers who spoke to Daily Sun in separate interviews described the marginal field sale as a transparent exercise with all stakeholders being carried along from the commencement of the exercise to the close-out stage.
An oil and gas investment analyst and Managing Director of Harbour Nigeria Limited, Mr. Biodun Adedeji, described the coming on board of Komolafe as a blessing for the industry, saying at a point of the investors had lost confidence in the process because it was taking longer than necessary.
‘‘Remember that this deal was consummated during the COVID-19 when there was restriction on foreign travels and oil price at an all-time low of $30.
This was also a time that most foreign lenders were skeptical of the oil industry due to lockdowns.
But, the encouragement of Komolafe lifted the spirit of bidders. He encouraged those in the race to forge ahead and today, we have reasons to give kudos to him for this sense of direction.’’
N200bn, $7m boost to ailing economy
Recall that President Muhammadu Buhari, had in April written a letter to the House of Representatives, informing the parliament that the deficit in the 2022 Appropriation Act has risen by N965.42 billion to N7.35trillion.
Consequently, the President said the Federal Government would borrow funds to fill the gap.
Buhari, therefore, called for an amendment to the Federal Government’s budget and the fiscal framework for 2022.
According to the President, there have been new developments both in the global economy as well as in the domestic economy, which have necessitated the revision of the 2022 Fiscal Framework on which the 2022 budget was based.
Buhari said, “These developments include spikes in the market price of crude oil, aggravated by the Russian-Ukraine war, significantly lower oil production volume due principally to production shut-ins as a result of massive theft of crude oil between the production platforms and the terminals. The decision to suspend the removal of Premium Motor Spirit (PMS) subsidy at a time when high crude oil prices have elevated the subsidy cost has significantly eroded government revenues.
Following these developments, it has become necessary to adjust the fiscal framework and accordingly amend the 2022 Appropriation Act to ensure its successful implementation.”
The President said the adjustments to the 2022 Fiscal Framework include an increase in the projected oil price benchmark by $11 per barrel, from $62 per barrel to $73 per barrel; a reduction in the projected oil production volume by 283,000 barrels per day, from 1.883 million barrels per day to 1.600 million barrels per day; an increase in the estimated provision for PMS subsidy for 2022 by N3.557trillion, from N442.72billion to N4trillion.
Other adjustments include a N200billion cut in the provision for federally-funded upstream projects being implemented, from N352.80billion to N152.80billion; an increase in the projection for Federal Government independent revenue by N400bn; and an additional provision of N182.45bn to cater for the needs of the Nigeria Police Force.
While some stakeholders which included Publisher of Oil and Gas Report, Mr.Toyin Akinosho and and Profs Wunmi Iledare and Adeola Adenikinju, had argued in an interview published in the Daily Sun edition of August 3, 2020, with the title ‘‘Pit-holes to avoid in 2020 marginal field bid round’’. argued that the timing of the bid round exercise was inappropriate in view of the global economic meltdown.
Like Nostradamus, Partner Bloomfield Law Practice, Dr.Ayodele Oni, appears to have seen the merit in the deal and had supported the move to offer the acreages for sale.
‘‘I am of the view that, since the Nigerian government does urgently need the money, it make sense to go ahead with the bid process, notwithstanding the fact that oil prices have dropped. This is better than having the fields remaining un-utilized, left un-worked and then going to borrow funds from third parties, on terms which may not be friendly’’
He argued that his position is based on the fact that oil prices have stabilized over $30/ barrel (closer to $40) and the signature bonuses and such other fees could be useful.
This, he said, is in addition to the fact that marginal fields operators are traditionally allowed to produce the technically allowable output, regardless of issues around production quotas.
‘‘An example of the usefulness of incomes form such processes, was the report that the federal government of Nigeria paid its counterpart funding for the Siemens deal, from the Signature Bonuses Account. Hence, such funds always come in handy, rather than borrowing under onerous terms.
Marginal fields to raise production,
For several years, Nigeria has failed to meet its target of 40 billion crude oil reserves due to a number of factors which include the inability to hold and conclude a marginal field auction process with that last held in 2003/2004.
However, it is expected that the conclusion of the 2020 marginal field deal with increase the oil and gas reserve figures.
Indeed, latest national annual report on reserves by NUPRC as at January 1, 2022 suggest improvement in figures compared to past years.
According to the report, a total of sixty-one (61) operating companies submitted their 2021 annual report on reserves in line with the provisions of the PIA, 2021.
Analysis of the report indicates that the nation’s oil and condensate reserves status as at 1st January 2022 was 37.046 billion barrels, representing a slight increase of 0.37per cent compared to 36.910 billion barrels as at 1st January 2021. On the other hand, the National Gas reserves status as of 1st January 2022 was 208.62 (trillion cubic feet) TCF, representing an increase of 1.01per cent compared to 206.53 Trillion Cubic Feet (TCF) as at 1st January 2021.
It was for this reason and many more that the Minister of State for Petroleum Resources, Mr. Timipre Sylva, at the PPL ceremony last week, charged the 57 marginal field investors to quickly develop their assets and enjoy the full benefits of the Petroleum Industry Act(PIA), which seeks to among other thing, increase crude oil production, grow reserves and reduce cost of production.
Strategy to grow gas output
According to Komolafe, the conflict between Russia and Ukraine and its attendant disruption to the global gas demand-supply chain has provided Nigeria with a unique opportunity to fill this gap through the implementation of several natural gas developmental initiatives.
‘‘As the Federal Government has declared the years 2021 – 2030 as the Decade of Gas, the Commission is taking steps to expand and develop the nation’s huge gas resources through enhanced gas exploration, development and utilization schemes, which will lead to gas reserves growth, increased gas production, maturation of domestic and export gas market, as well as gas flare elimination.”
To achieve this, he said the Commission is currently engaging all lessees on their Natural Gas Flare Elimination and Monetisation Plan to ensure compliance with Section 108 of the PIA and to boost supply to the rapidly growing gas market.
More so, in the face of the global energy transition and the need for cleaner sources of energy, gas is being positioned as our immediate transition fuel to lower the nation’s carbon emission footprint in line with our climate change commitment.
‘‘Additionally, we are encouraging investors to leverage on the generous gas fiscal incentives in the PIA such as zero hydrocarbon tax, reduced royalty rates, tax consolidation provisions amongst others, to take Final Investment Decisions(FID) on their proposed upstream projects.
With a proven gas reserve base of 208.62TCF (as at 1st January 2022), we are on track to increase our reserves volumes to 220 TCF in less than 10 years and 250 TCF thereafter,’’.
Currently, he said Nigeria produces about 8BSCF/D of gas, out of which circa 20 per cent is delivered to the domestic market, approximately 40 per cent is exported to international markets, 30 per cent is utilized for producer’s internal consumption.
Based on the provisions of the PIA, he disclosed that the Commission has issued the annual Domestic Gas Delivery Obligation (DGDO) to all lessees.
This, he said, allows the Commission to drive gas production growth as operators are made to balance its export appetite with increasing domestic supply of gas.
Other initiatives being implemented by the Commission to increase gas production and utilisation include; Commencement of mandatory conduct of gas well deliverability tests for all gas producers to establish operating limits. This, he said, enables the Commission determine production potentials and guides the industry towards its maximum optimum capacity.
Constant engagement with operators on the need to drill below the conventional oil window to target gas rich zones for production and increase the nation’s gas reserves, Steering operators with saturated reservoirs to ensure their well placements drive optimal exploitation of oil and gas resources.
Others are; Currently revising the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 and its associated Guidelines, to incorporate methane emissions capture, to ensure the elimination of gas flaring/venting and monetisation of gas resources in the country, Implementation of the provisions of the PIA 2021 on Gas Flare Elimination and Monetization, as a means of unlocking more gas availability to the market, adding that companies are made to commit to a robust plan that eliminates gas flaring by bringing them to the market, accelerating facilities development and debottlenecking projects as a tool to incentivize gas production projects from the upstream sector to meet midstream and downstream demands and enforcement of approved associated gas development solution in all applicable oil development.