Nigeria sees development of marginal fields needs policies

Jan 13, 2004 01:00 AM

The development of marginal fields has been a topical issue since the late 80's. Indeed, the administration of President Obasanjo at inception identified the development of marginal fields as one of the areas requiring policy formulation.
In this direction, the administration put in place appropriate machinery to develop a policy framework which involved extensive consultations with all stakeholders in the industry. The recourse to consultation among stakeholders was imperative given the divergent opinions among them. For instance, the joint venture operators that had the marginal fields in their leases expressed a number of concerns among which are:
-- Competence of small players to operate the marginal fields;
-- Inability of small players to indemnify the farmers;
-- Other legal issues involving vicarious liabilities;
-- The issue of OPEC quota production limitation;
-- Danger of policy reversal without due process.

In spite of the concerns of the joint venture operators on the marginal field, it should be noted that government was able to convince them on the inevitability of its position.
This position of government was premised on the following standpoints:
-- Success of the Nigerian entrepreneurs in the exploration and production business which started in the early 1990's leading to stimulation for identification of similar opportunities including the issue of marginal fields development;
-- Over 40 years' history of exploration and production has bequeathed Nigerians with technical and managerial competence required for managing the full cycle operations of an oil and gas business;
-- Portfolio rationalization whereby operators dispose of their assets by farm-out or selling the opportunities that do not fit their portfolios to others. That is, a situation whereby joint venture operators sit it out on large tracts containing opportunities, is considered inconsonant with worldwide practice;
-- Development of marginal fields on sole risk basis would not involve funding by government or joint venture partners.

Having gained the consent of the various stakeholders, the government outlined a three-phased bidding process, which was based on open competitive bidding in line with the present administration's commitment to the twin principle of openness and transparency.
The three-phased process took the following form:
-- Pre-qualification stage which was conducted by the Department of Petroleum Resources (DPR). No more than five companies were at this stage pre-qualified for a particular field.
-- Field Specific Bids (submitted and orally defended in separate technical and commercial proposals) which were evaluated by a committee comprising DPR and leaseholders, (NNPC/Operators) Negotiation of detailed farm-out terms by operator with DPR having adjudicatory role.

It was based on the criteria earlier enumerated that in February last year, 31 companies emerged successful in the 24 fields put on offer. These fields are located either onshore or in shallow offshore areas of the Niger-Delta.
The objectives of the present administration as stated on August 31, 2001 when government called for invitation to tender for the allocation of marginal fields included the need to:
-- Provide an opportunity to gainfully engage the pool of high level technically competent Nigerians in the oil and gas business;
-- Provide incubation for indigenous companies, which can over time, venture into large scale exploration and production operations in the less conventional terrains;
-- Provide greater opportunities for technology transfer;
-- Accelerate the nation's production capacity growth;
-- Boost employment opportunities in the country;
-- Create multiplier effects on the economy;
-- Encourage participation of new entrants thereby promoting competition in such key indicators as unit technical cost, unit margin and value added, among others.

It is pertinent to note that these objectives are as relevant as they were in 2001. Much therefore rests on the new leaseholders to prove themselves worthy of the confidence the nation reposes in them such that they ensure that the laudable objectives of the policy are achieved. In view of this, I wish to crave your indulgence to offer some words on the way forward to the new awardees.
First, the new leaseholders of the marginal fields need to know that the commitment of the present administration to cede operation of marginal fields to indigenous companies is aimed at preparing them for upstream operation so that in the near future, they will be able to venture into the mainstream exploratory activities. Farmees are therefore expected to do all within their powers to ensure that this laudable dream of the present administration becomes a reality.

In the same manner, government expects that the new leaseholders would strive to attain some level of maturity and development within a reasonable period of time after the signing of this agreement. It is also the expectation of government that in the next few years, many of the leaseholders should be able to explore other opportunities in the industry, especially small to medium scale gas development.
It is hoped that at some point in time, sufficient mutual confidence must have been developed to enable the new leaseholders to venture into exploratory activities in both the onshore and shallow offshore terrains. The government also expects that new lease holders will also set the example for the majors by patronizing indigenous Nigerian companies in their operations to the fullest extent possible.

The leaseholders should also be reminded that the opportunity government has offered them to make inroads into upstream operation is a challenge. "You are expected to be active participants in the operations of respective fields, as government would not tolerate a situation where any lease holder becomes a sleeping partner in their company. New lease holders are implored to consider forming partnership and leverage risks while striving to create structures that will endure.”
While the administration of President Obasanjo is committed to empowering local entrepreneurs, the hard truth which the new lease holders need to avail themselves of, is that, they must justify government's confidence in the ability of Nigerians. This is because the marginal fields development programme is one avenue through which government plans to achieve its objective of improving local content in the Nigerian petroleum industry.

It is for this reason that the government decided to allocate the marginal fields to only indigenous companies. These are companies incorporated under the laws of the Federation of Nigeria for the purpose of exploration for and production of crude oil and natural gas with at least 51 % indigenous shareholding.
"As agreements by the various stakeholders involved in the marginal fields farm-out process are being signed, I look forward to the positive impact the leaseholders would make on the reserves base and production capacity of the country. I wish to sincerely commend all the various stakeholders whose cooperation led to the agreement-signing ceremony. In particular, I appreciate the understanding of the joint venture operators to cede the marginal fields based on mutual respect and consultation. It is my belief that given similar cooperation to the farmees during the operational phase, can further raise the efficiency level of operational activities.”

“Furthermore, I wish to implore the multinationals to note that the signing of this agreement signifies that they would need to be more forthcoming in offering technical assistance to the new operators and also to be ready to make available, their existing facilities in order to ensure the success of this policy. I wish in fact to say that they share equal responsibility with government in the success or failure of this policy.”
"The operation of the marginal fields requires the cooperation of the entire Nigerian business community. In this respect, I wish to enlistthe support of financial institutions in the country to be prepared to offer long-term facilities to the new leaseholders as it is a well known fact that upstream activities are capital intensive. In fact, it is the dream of government that venture capital will gradually become available in support of long-term activities of this nature."

Source: Vanguard
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