Nigeria’s Depleting Oil Reserves And Government’s Indeterminate Bid Round Pronouncements 

FILE PHOTO: A pump jack operates in front of a drilling rig at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford

For over a decade Nigeria has not conducted its oil bid round to shore up production in order to actualise the dream of raising reserve to 40 billion barrels and 4 million daily production. YEMISI IZUORA in this analysis looks at continuous but unrealistic assurances from government officials on planned oil bid round

It has been said that the failure to plan is on its own a plan to fail. Nigeria has over the years paid lip service to plan to raise its oil reserve to 40 billion barrels and meet 4 million barrels a day production. This certainly has not happened.

Every goal needs a plan and every plan needs a roadmap. A roadmap makes sure that gaps in the plan are identified and can be closed as needed in the future.

It also serves as a guide for the team during their journey, allowing them to recognise and act on events that require a change of direction.

In October 2016, President Muhammadu Buhari’s government unveiled its own roadmap to develop a stable and enabling environment that will maximise investment opportunities in the oil and gas industry and generate increased growth in the Nigerian economy which was developed by the then Minister of State Petroleum Services, Emmanuel Ibe Kachikwu, as the 7 Big Wins.

The first Win in the roadmap revolves around policy and regulation referring to
the government’s aspiration to develop robust policies and laws to remedy existing challenges in the Industry. The plan is to break the existing Petroleum Industry Act into three bills for easier passage by the National Assembly into laws that focus on the governance of the petroleum industry.

The Bill is yet to see the light of the day.

While the country still unsure when it will call for the next bid, it was discovered that out of 390 oil blocks in the country, 211 are yet to be allocated by the Federal Government, says the Department of Petroleum Resources, DPR.

With many other countries extending efforts to ramp up their oil and gas production and reserves, industry experts have voiced concerns about the lack of oil licensing rounds in Nigerian since 2008.

According to the DPR, 179 blocks have been allocated as of December 2017, comprising 111 Oil Mining Leases and 68 Oil Prospecting Licences.

The country has seven basins, namely Anambra, Benin, Benue, Bida, Chad, Niger Delta and Sokoto.

In Anambra, 12 out of 19 blocks have not been allocated; in Benin, 39 out of 50 are open; in Benue, 41 out of 43 are still idle, while none of the 17 blocks in Bida has been allocated.

In Chad basin, 40 out of 46 blocks are open; in the oil-rich Niger Delta, 34 out of 187 blocks are still idle, while Sokoto’s 28 blocks remain unallocated.

Industry operators argues that exploration is critical in order to increase the nation’s oil and gas reserves and no one can explore if the right to prospect is not granted, and cannot grant unless there is a bidding process and one cannot bid if the environment is not conducive.

They observed that more blocks were being awarded in other countries even though Nigeria is more endowed than those places.

For instance in the Gulf of Mexico in the United States, they do bidding round twice a year but the last time Nigeria did any licensing round in Nigeria was 2007 and many of the oil blocks currently producing in Nigeria are those awarded in 1993.

They argued also that days of discretionary awards should be over because discretionary award is a process of converting common wealth to personal wealth, and the society really doesn’t benefit from that.

In October last year, (2019) the Minister of State for Petroleum Resources, Mr. Timipre Sylva, disclosed that the federal government plans to conduct oil blocks bid rounds in 2020.

This comes amid growing concerns about government’s inability to hold oil blocks bid rounds in the last 12 years, which could result in dwindling oil reserves and production, with attendant consequences on oil revenue and the economy as a whole.

Sylva, who announced the forthcoming oil blocks bid rounds in an interview with Bloomberg Television, however did not disclose precisely when it would take place in 2020, the oil acreages that would be put out in the expected rounds or the processes to be adopted. This is because the minister himself is not properly informed.

On the same day, the federal government notified that it had sealed a €70m economic cooperation agreement with the Germany, which would enable the European country provide assistance to Nigeria in key areas of the economy.

Speaking in a Bloomberg Television programme, Sylva, noted that plans were on to conduct oil block bid rounds next year because the country primarily had not awarded fresh oil leases since 2007.

He said apart from the revenue Nigeria could gain from the fresh bid rounds, it wanted to get more people into its oil sector, hence, the decision to hold bid rounds next year.

Previous efforts to hold licensing rounds for major and marginal oil fields during the tenure of Dr. Ibe Kachikwu as Minister of State for Petroleum Resources were not successful, as President Muhammadu Buhari was said to have rejected the processes submitted to him for approval.

However, Sylva said in the Bloomberg interview when asked about new oil licensing rounds: “That’s very much on the table for next year. It will be within next year hopefully.”

On the reasons for the new rounds, he said the need to raise revenue was part of it, adding: “But also to expand the space in Nigeria. There have been no bid rounds in Nigeria since 2007 and we think that it is due for us to have a bid round in Nigeria. It is too early to talk about it now, but I will tell you later.”

Oriental News Nigeria reports that not too long ago, the visiting CEO of Total, Patrick Pouyanne, called on Nigeria to issue new exploration licences, saying the country’s oil and gas sector had been dormant in recent years in terms of exploration and new projects.

He said uncertainties and the ongoing discussions over Nigeria’s oil industry regulation, the Petroleum Industry Bill (PIB) has made the oil sector dormant for years.

Assent to the PIB was declined by President Muhammadu Buhari over what the Presidency said were contentious provisions in the bill.

Nigeria last had a round of exploration licenses tenders in 2011.

Pouyanne said, “I hope the new government that will come after the election will launch new tenders for awarding new exploration licenses.”

He also disclosed that Total will approve plans to proceed with the Ikike project in Nigeria in the coming months, adding that the oil giant also aims to expand its liquefied natural gas (LNG) project in the country.

Total is one of the strongest players in the African oil sector, holding more proven reserves on the continent than any of the other top global oil companies.

The 60,000 barrels-per-day (bpd) Ikike project is one of several projects the group has earmarked on in Nigeria for a final investment decision, including the 70,000 bpd deepwater Preowei project, which would help Total increase its oil production.

“There is a huge potential in Nigeria, it is probably the most prolific country in west Africa in terms of oil and gas and it is time to launch new projects and we are working on many of them,” Pouyanne told journalists on the sidelines of a meeting of Nigerian and French businesses in Paris.

He said Total also have the Preowei on the same area as Egina offshore Nigeria, adding that the company was working on connecting Preowei to Egina. The 200,000bpd Egina field began production on the 30th of December, 2018, according to the Group Managing Director of the NNPC, Dr. Maikanti Baru, in his 2018 end year message.

On the planned expansion of Total’s Nigerian LNG project this year, Pouyanne said, “The market is very good today to do that, it is a very interesting project and the partners are in line to develop it.”

Again this year the Group Managing Director, GMD of the Nigerian National Petroleum Corporation, NNPC, Mele Kyari made similar utterance about readiness of government to launch a new oil licensing round.

Kyari also said that more efforts would be concentrated in production of Natural Gas Liquids, NGLs and natural gas, to better comply with its crude production quota under the Organisation of Petroleum Exporting Countries,  OPEC+ agreement.

According to him, Nigeria is  still on track to launch a new oil licensing round in the first half of 2020 for both offshore and onshore blocks but would not specify a date.

The licensing round is part of Nigeria’s bid to hit a 3 million barrel a day b/d output target by 2023, he told reporters on the sidelines of the Atlantic Council Global Energy Forum in Abu Dhabi, at the weekend.

Many international oil companies have said the country needs to offer more attractive fiscal terms. Nigeria in early November increased taxes on companies operating in its deepwater blocks.

Kyari said Nigeria’s legislature was in the process of reviewing its petroleum law which will take care of the concerns.

Natural gas liquids (NGL) are components of natural gas that are separated from the gas state in the form of liquids. This separation occurs in a field facility or a gas processing plant through absorption, condensation or other methods. Natural gas liquids are classified based on their vapor pressure:
Kyari, noted that the shift is to increase gas production and that OPEC quotas only apply to crude oil production, not condensate.

“You can produce condensate which is not part of the OPEC commitments,”  “We are focusing our production to more gas-based reservoirs so that we can continue to grow our production while maintaining balance in the market.” he said.

Nigeria’s December oil production was 2.2 million b/d, he said and declined to say how much of that was crude and how much was condensate. The country was fully compliant with its quota of 1.77 million b/d for crude, he said.

“We have met our commitment by December,” Kyari said on a panel at the forum. Nigeria was currently counting production of its new Egina grade as condensate, he said.

Egina crude has a gravity 27.5 API , significantly heavier than typical condensates , and a sulfur content of 0.17 per cent, according to a source. The oil is expected to have high yields of gasoil and distillates.

S&P Global Platts’ latest survey of OPEC production estimated Nigeria’s December crude production at 1.84 million barrels a day  b/d.

Starting this month, (January) Nigeria’s quota drops to 1.75 million b/d under the OPEC+ coalition’s agreement to deepen its production cuts through March.

Nigeria has been criticized by many of its OPEC+ counterparts for its habitual flouting of its production cap.

The United Arab Emirates, UAE energy minister Suhail al-Mazrouei told reporters at the forum that Nigeria, along with fellow serial compliance laggard Iraq, had improved their performance in December.

“December compliance of both Iraq and Nigeria have improved and we thank them for that,” Mazrouei said.

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