Oil industry expert, Mr Joe Nwakwue, has warned Nigeria against the consequences of rushing into a marginal oil field bid round.
He advised that the country needed to slow down and address prevailing issues with existing laws relating to fiscals, tenure and farm out arrangements, funding and governance in order to attract worthy investors.
Speaking at a Webinar on Post-Covid-19 Economics Series with special focus on Marginal Fields auction organised by Facility for Oil Sector Transformation (FOSTER II), Nwakwue warned that if these issues are not addressed and the country rushes into a bid round, credible investors may shy away from the exercise and many of the offers may never reach first oil due to unfavourable terms.
He also faulted the timing which he said, was not quite right as business are strategizing due to the impact of Covid-19, and as such, gambling with bid fee may be difficult for many companies.
The expert noted that although marginal field programme has recorded some success in the past, there is room for expansion and growth if done right.
According to him, in 2003 the federal government granted 24 Marginal Fields licenses to indigenously owned Nigeria firms, as at June 2019, 14 of the fields are technically producing with a total contribution of 40,000bbls, about 2percent of the country’s total production.
In general, marginal fields recorded an average production of 65,000bpd in 2018, e360 learnt.
While acknowledging that a marginal field bid round is long overdue, the expert however, stressed that future sustained success of the programme is dependent on an overhaul of the programme with revised laws.
“A more aggressive asset supply to the market is key to realisation of marginal field programme objectives. The future of the industry is tied to the future of the marginal field programme,” Nwakwue said, while insisting the government should take time and review the existing laws and address other challenges facing the programme.
He listed some of the challenges to include Technical; which has to do with low reserves, absence of nearby facility or infrastructure and low-medium local human capacity availability.
On the financial side, Nwakwue pointed at the poor sources of funding both locally and internationally, high interest rates and short tenors, and high CAPEX, which involves the cost of laying pipelines and other facilities which could obliterate profit margins.
Most importantly, he emphasised the issue of governance in relation to political interference in the entire value chain, fiscal uncertainty and confusion as well as poor regulation.
Highlighting some of the issues Nwakwue said, “Gas royalty rate at 7percent does not work, oil is reduced to 2percent while gas is left at 7percent, that a no no… There needs to be certainty around tenure, the regulator has to come up with a standard template for farmout arrangement. These issues have to be addressed else, many of the offers will not reach first oil because of the unfavourable terms.”