What it takes to get a Marginal Oil and Gas Field in Nigeria

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Following its marginal fields licensing rounds in 2001 and 2013, the Nigerian Department of Petroleum Resources (DPR) recently released guidelines on the 2020 licensing round. Under the 2020 licencing round, a total of 57 fields located onshore, swamp, and shallow offshore terrains are on offer; while the ongoing Nigerian Marginal Fields Bidding Round is a purely domestic process, the development of these marginal acreages and discoveries will open up various avenues for partnerships with international capital and technology providers.

Nigeria’s marginal fields licensing rounds have been the cornerstone of Nigeria’s upstream local content development strategy since the early 2000s and previous rounds gave birth to what are now strong local and regional African E&P companies. The move has been so successful that it is now being followed by other key African oil producing countries such as Angola and Gabon.

In Nigeria, previous rounds have given the opportunity for local players to make a difference in a sector that had been until then dominated by international oil companies and international independents. Nigerian marginal players such as AMNI Petroleum, Shoreline Energy, Aiteo, Neconde Energy, Seplat Petroleum or Belema Oil are now strong operators able to develop technically challenging fields, just to name a few. The development of a marginal players has also brought a boost to the reduction of gas flaring in Nigeria, with several Nigerian marginal fields recognised under the UN Clean Development Mechanism for their successful reduction of gas flaring and valorisation of natural gas.

Marginal Fields

In the Nigerian context, marginal fields include fields with reported reserves and production potential, which are however deemed marginal for a variety of reasons including having remained un-produced for a period of over 10 years. Notably, the marginal fields exist under current Oil Mining Leases (OMLs).

Eligibility and Bid Evaluation

As one of the key objectives of the marginal fields licencing round is to promote indigenous participation in the Nigerian oil and gas sector and to foster technological transfer, the licensing round is exclusively intended for participation by indigenous companies i.e., companies duly registered to carry out petroleum exploration and production operations in Nigeria with 100% indigenous shareholding.

International Participation: a Not-so-small Margin

However, upon the award of the marginal field, the awardee may assign up to 49% of its interest to another party subject to approval by the Minister of Petroleum Resources. As a result, and while the bidding process remains an exclusively indigenous affair, foreign technical and financial partners are not outrightly precluded from participation in the development of marginal fields once contracts are awarded and fields need to be developed. Due to the capital-intensive nature of oil and gas operations, and current liquidity constraints due to the historic crash of oil prices and the Covid-19 pandemic, it is very likely that existing and future Nigerian operators of marginal fields will be on the look out for regional and international partners. As such, direct and indirect participation of international players is possible within marginal plays in Nigeria, be it under services or technical assistance contracts from technology providers or under capital injections from funds or private equity investors. We continue to witness the success of these partnerships and applaud the retention of this key element by the Nigerian government under the 2020 licensing round.

Bid Process and Timelines

The licensing round implicates a carefully laid out process, including the negotiation of farm-out agreements with holders of the OMLs (Farmors) within which the marginal fields exist. The Farmors will be entitled to an over-riding royalty interest as well as a negotiated $/bbl tariff for hydrocarbons transportation/processing.

The Marginal Field Bidding Round is a 12-step process which will roll out as follows:

Announcement of the Marginal Field Bidding Round and launch of its dedicated portal;

Applicants fill and submit the online registration form along with the required documents after paying the registration fee;

Evaluation and prequalification of registered companies;

Notification of prequalified applicants;

Evaluation by the DRP of the submitted bids, which it forwards to the Honourable Minister of Petroleum Resources for approval;

Submission by the applicants of technical and commercial bids after paying the application and processing fees;

Granting of access to pry data and lease data to the applicants, who can purchase applicable reports after paying the necessary fees;

Prequalified applicants are granted access to Fields’ Teasers;

Notification of Preferred Bidder;

Payment of signature bonus by the Preferred Bidder (or the Reserve Bidder);

Award of the Marginal Field to the Preferred Bidder;

Negotiation and Execution of the Farm-out agreement between applicants and leaseholders.

The DPR notably expects the registration of applicants to take about two weeks, followed by another two weeks of evaluation of submission and reports preparation. Prequalification, which eventually gives access to the data rooms, will be based on the applicant’s incorporation status, technical competence and financial capability. By August 2020, all technical and commercial bids are expected to be submitted. The whole process is done electronically on the https://marginal.drp.gov.ng portal. Under the DPR Guidelines, the entire process is not expected to take longer than six (6) months, from date of announcement and commencement to signing of Farm-out agreement with the OML holders.

Fees Payable

S/N0

Description

Amount

1

Registration fee

N500,000

2

Application Fee

N2,000,000 per field

3

Bid Processing Fee

N3,000,000 per field

4

Data Prying Fee

N15,000 per field

5

Data Leasing Fee

N25,000 per field

6

Competent Persons Report

N50,000 per field

7

Field Specific Report

N25,000 per field

Approving Authority

The approval of the President, subsequent to the payment of all bonuses and fees brings a marginal field award into effect.

Distributed by APO Group on behalf of Centurion Law Group.

About ZION ADEOYE, Managing Director: Zion is Managing Director at Centurion Law Group and is responsible for Legal Affairs in Project Finance, Infrastructure, Real Estate, Taxation and Energy law. He continues to advise a cross-section of clients across Africa on big ticket energy deals, especially in South Sudan, Uganda, Nigeria, Zambia, Equatorial Guinea, Congo, Ghana, Gabon and Senegal.

Zion graduated from the University of Ibadan, where he obtained his LLB and completed his B.L at the Nigerian Law School, Lagos. He is currently undertaking an Executive LLM in Global Business Law at Columbia Law School, New York, and completing his MBA in International Oil and Gas Management at the University of Dundee, Scotland.

He is a member of the Nigerian Bar Association and the Association of Independent Petroleum Negotiators (AIPN).

Email: [email protected]

About ONEYKA OJOGBO, Associate and Nigeria Country Relations Consultant: Oneyka Ojogbo is an Associate Attorney at Centurion’s Germany and South Africa offices with significant experience in banking, energy, infrastructure and projects financing.

She has advised clients on capital market and cross-border M&A transactions across Africa and Europe. Oneyka has valuable experience working extensively in research, negotiation, advisory and document preparation and review capacities on projects, corporate, finance and investment transactions of varying complexities and across multiple sectors of the economy.

Oneyka has an LL.M. from the Columbia Law School, a B.L. from the Nigerian Law School and an LL.B. From the University of Ibadan.

Email: [email protected]

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