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The fate of about 30 oil-mining leases (OML) due to be renewed between now and June next year may be hanging in the balance as political activities have stepped up in the country.
BusinessDay investigation shows about 53 Oil Prospecting Licences (OPL) and Oil Mining Lease (OML) of different oil blocks have expired between 2010 and March 2018 while another 53 OPL and OMLs will expire in 2019 alone, according to an oil and gas industry report obtained from the Department of Petroleum Resources (DPR).
Oil and gas industry analysts most of whom chose to remain anonymous said they did not see anything happening between now and next year as politics has taken the centre stage to the detriment of the economy which is already being pushed to the background.
A former staff of the Department of Petroleum Resources (DPR) told BusinessDay that since it is only the Petroleum minister that must sign the renewal of OMLs it would be pretty difficult now because of elections.
“You know that the president is the minister of Petroleum Resources that is empowered by law to sign the renewal and if he does not see any compelling reason to that he may take his time to do so anytime he deems fit.”
He however noted that the non-renewal of the license does not stop operators from carrying on their activities in those fields provided they are still producing.
In 2018, there are 5 OMLs and 3 OPLs due for renewal which include; OML 121 operated by Amni International Petroleum Ltd whose licence expired on 12 of February 2018; OML 59 operated by Continental Oil and Gas Limited, licence expired on 5 June 2018; OMLs 104 operated by Mobil Producing Nigeria Unlimited licence expired on 13 of January 2018; OML 98 operated by Pan Ocean Oil Corporation whose licence will be expiring on 7 July 2018 (next month); OML 113 operated by Yinka Folawiyo Petroleum corporation Ltd licence expired on 31 May 2018; OPL 907 and 917 operated by Afren Global Energy Resources Limited both expired on 19 February 2018 while OPL 310 owned by Optimum Petroleum Development Limited licence expired on 9 June 2018.
In 2019, there are a total of 42 OPLs and OMLs due for renewal however two are due just before the country’s February 2019 general elections which are OML 114 operated by Moni Pulo Ltd with an expiry date of 2 January 2019, followed by OPL 322 operated by Dajo oil Limited with an expiry date of 26 February 2019.
The Federal government had in the past delayed renewing some licences for international oil company (IOC) operated fields.
According to those familiar with the matter, the law under which most of the companies operate merely states that if the oil companies want to continue operations they should apply for renewal of their license.
BusinessDay also observed that most times when companies applied for renewal of licenses government officials would tell them to carry on, while some renewals are made several years after initiating them.
“Application for renewals usually begin around 18 month before their present contracts expire and it’s always stipulated in their terms for either a joint venture (JV) or Production Sharing Contract (PSC),” a Lagos based oil analyst told BusinessDay.
Major International oil producer Shell has decided to be silent on whether it will renew oil blocks it currently controls at expiration by 2019 or relinquish interest.
“Like all other OML operators and in line with industry regulations, SPDC as operator of the SPDC Joint Venture (SPDC JV) routinely applies for renewal of expiring oil mining leases of the JV, We do not wish to go into details,” Bamidele Odugbesan, media relations Manager of shell Nigeria told BusinessDay.
“We continue to strengthen our position in the country for the long term by optimising our onshore oil footprint while making investments in other areas, particularly deep water and the gas value chain, including domestic gas,” Odugbesan said by mail to BusinessDay.
While the OPLs and OMLs are left pending the country is also losing billions of naira from proceeds of Signature bonus.
Signature bonus are often paid for the award of an OPL, this bonus is a fixed fee which is paid by the prospecting company to the federal government immediately after the completion of negotiations and award of License.
Some of the OMLs due for renewal also have controversies and ongoing litigation attached to them.
DSV Petroleum Limited operating on OPL 251 whose licence expiring date was not disclosed has not paid its Signature bonus of $50.5 million while North South Petroleum Ltd is also yet to pay its signature bonus.
Oranto Petroleum Limited operating OPL293 whose licence expired on 20 February 2012 has also not paid its Signature Bonus of $55 million which was agreed to be paid on three instalments which the first will be $15 million, while the second of $20 million and 3rd of $20 million.
Furthermore, Yorkshire Energy Ltd posted the winning Signature Bonus of $60m and $105m for the OPLs 258 and 295 respectively however submitted two personal cheques for the sum of £30m and £55m representing 50 percent of the offered signature bonus on OPLs 258 and 295 respectively instead of bank drafts in US Dollars. The expiring dates for the two OPLs were not revealed on DPR reports.
Subsequently, the blocks were withdrawn along with other blocks based on the recommendation of Committee set up by the then President to review 2006 to 2007 bid rounds activities. The withdrawal was later upturned. The company has been appealing for re-award of the two blocks in order to make payment.
Efforts to get update from the DPR on the current status of these oil blocks, proved abortive as the agency despite several emails and text messages remained silent.
Payment of Signature bonus is due within 90 days from the date of signing the applicable agreement. However, where the company fails to effect payment of the applicable sum within 90-days period, a revocation notices will be issued which elapse after 30 days, upon which the Licence will be revoke. This implies that the maximum period allowed for payment of signature bonus is 120 days.
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.
According to NEITI in its latest report, past upstream licensing processes in Nigeria have fallen well short of best practices and failed to secure maximum value for the country’s assets.
This it said, led to public controversy, including lawsuits, indictments, cancelled or revoked awards, and legislative probes.
“Many deals fell through, and barely half of the fields auctioned between 2000 and 2007 have seen serious drilling. The stated goal of increasing indigenous participation was not well served. Most of the marginal fields awarded during the 2000s have not produced,” NEITI said.
NEITI added that past licensing rounds in Nigeria were not tied to any comprehensive asset development strategy or broader economic development plans. Nigeria, it said, needed to develop a strategy for managing its natural resource base for current and future generations, and tie each licensing round to that strategy.
The increase in funding pressure from the JVs, prompted the Federal Government to adopt the PSC model which was model from Indonesia in 1993 as the preferred petroleum arrangement with IOCs for onshore and offshore operations.
Under the PSC arrangement, the OPL and the OML is held by the NNPC, which engages the IOC or indigenous private investor as a contractor to conduct petroleum operations on behalf of it and the NNPC. The contractor is responsible for financing all costs of the various stages of petroleum operations such as exploration, development and production within a concession area under an OPL for a period not longer than 10 years.
When the exploration is successful, the IOC will be entitled to recover its costs, together with reasonable profit when commercial production begins and also pay royalty, Petroleum Profit Tax (PPT) and other bonuses to FGN. If the operation is not successful, the contractor will bear all losses.
While the renewal procedure may be a familiar terrain for the likes of Shell Nigeria which has 17 OML’s producing some 425,000 Barrels of oil equivalent per day (boed) and NPDC with Joint Venture licences of 7 OML’s producing 110,000 boed; however it will be a new experience for indigenous oil giants like Aieto and Seplat who operate six OMLS with a production capacity of 170,000 boed.
OLUSOLA BELLO & DIPO OLADEHINDE
