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The Nigerian partners in arrangements through which oil mining leases (OMLs) and Oil Prospecting Leases (OPLs) were acquired have the spectra of bank foreclosure and an uncertain future hanging about their operations over the tardiness of the Nigerian government in renewing their expired leases.
According to data from the Department of Petroleum Resources, the main regulator of the Nigerian Petroleum sector, by June 2019, 53 oil leases comprising OMLs and OPLs would have expired. Ibe Kachikwu, minister of state for petroleum resources, on July 3, updated the list saying there are now 80 open acreages currently under review.
“I think this is another area where the government has failed to demonstrate its readiness to deal with issues before they become sticky,” says Chuks Nwani, an energy lawyer.
For these companies, it’s get stickier because it is like running a factory in a building where the lease is in contention, or driving a rented car without a license.
Operating without clarity and unsure of what kind of investments to make, they face an uncertain climate which adds to their business risk. Some say their bankers are threatening foreclosures due to the uncertainty surrounding renewal of their leases.
Expired leases revert back to the government who can either re-award it or call for new bid rounds, but operators have a right of first refusal. Many have applied but the government has not responded. One operator said that an approval Kachikwu granted some companies last year were later revoked.
However, the minister in his speech at an oil conference in Abuja on Tuesday, said: “One of the reasons why we have done so well is the fact that quite frankly, in my three years of serving as petroleum minister of state, I haven’t received a single call from the president urging me to do an allocation to somebody or give a block to somebody, I have not received such a call.”
Considering that major policy decisions and reforms have stalled on the inaction of the Federal Government in the last three years, it is not clear if this president’s non-interference stems from a lack of awareness or just a paucity of ideas.
Two years since it began talking about a licensing round, the process has stalled and not even the DPR, knows why.
Four months after the Petroleum Industry Governance Bill (PIGB) was passed into law, the president has not signed the bill, or expressed an opinion about its content to indicate he is even aware of such a law.
Despite all the anti-corruption rhetoric, the NNPC has still not produced an audited account in three years and is seen treating national revenue with the indelicate care akin to a goat forgotten in a yam barn.
Last year, the NNPC was reportedly seeking to raise $3 -$5billion to implement cash for crude swap deal with some of the world’s top commodity traders to fund new projects and cash call obligations. Not much has been heard of the plan and remittance to the Federal Account continues to be eroded in the guise of paying cash call debts.
The government also planned to sell some of the country’s shareholdings in joint venture (JV) companies to raise N710billion to fund the 2018 budget and move them into unincorporated joint ventures with separate governance framework, separate board of directors and separate management structure representing the interest of each shareholder.
The sharp rise of crude oil prices reduced its urgency, now the NNPC says it wants to raise to raise funds from the capital market to fund some projects.
Analysts say this speaks to deeper issues in Nigeria’s oil and gas sector that seems to be running on auto pilot since this government came to office.
“The problem is we don’t know who is in charge of the oil sector,” Nwani said.
Emmanuel Afimia, an energy lawyer who runs his own firm suggests that perhaps the things were happening underground.
“This inaction regarding renewal of these licenses will definitely cost the country a fortune,” says Nwani.
The Nigeria Extractive Industries Transparency Initiative (NEITI) said in its current oil and gas report that discretionary decision-making and lack of openness drove down competition and returns to Nigeria, including over $2 billion in unpaid signature bonuses.
This is more than N701bn bailout paid gas producers to keep gas plants in operation.
