The domestic oil sector has been embroiled in an argument following the cancellation of oil licences to some firms. But, is the Department of Petroleum Resources (DPR) justified to have revoked unused oil field licences issued to potential operators over a decade ago? Yes, says industry experts and economists, who insist that national interest and survival of the country supersede other interest, MUYIWA LUCAS reports.
For a long time, the precarious state of the country’s revenue has remained a source of concern to stakeholders. Given the government’s ambition of spending billions of dollars on the country’s rail network in coming years, and other key infrastructure, the need for improved revenue cannot be overemphasised.
Already, about $5 billion worth of projects has been kicked off this year alone by the Federal Government, especially in the transportation sector.
Interestingly, with an infrastructural deficit requiring over N10 trillion to fix, the country has had to rely on external loans to finance these projects. One of the high end project is the $2.8 billion Abuja-Kaduna-Kano (AKK) gasline project. The project, a 614-km infrastructure, being financed by Chinese lenders, however, experienced a jolt last week as the major financiers failed to disburse the needed funds as quickly as expected to continue work.
This has pushed the government to begin a $1 billion search to prevent work stoppage on the project. This is why experts agree that the country can no longer continue to allow revenue generating resources waste away, especially in the face of the country’s dwindling economic fortunes.
And as tempers are yet to simmer over the revocation of some oil field licences, the inactivity on some of the money-spinning oilfields is believed to be taking a toll on the economy. Stakeholders have argued that it is unacceptable that such a development continue when there is a dire need for money to execute major projects.This position is further buoyed with the diminishing financing Asia, especially China, is giving to African countries.
A Baker McKenzie report in April pointed out that Chinese bank lending to African infrastructure projects has fallen across the continent, from $11 billion in 2017 to $3.3 billion last year.
Oil field revenue to the rescue?
Stakeholders are worried that succor could have come from the revenue that could have been generated from abandoned oil fields left unproductive for over a decade had they been put to use. For instance, from the signature bonuses expected from the 57 licences issued recently, $500 million is expected to accrue into government coffers. This amount is outside royalties and taxes that would be paid once the fields become operational.
This is why experts are convinced that the recent revocation of oil field licences of operators that have left their fields unexplored for over a decade is a welcome development. To the DPR, these fields could be made productive and earn the country revenue in terms of royalty and taxes payable to government from operations on the fields. This will also serve as a bail out to the government against its shrinking revenue when they are revoked and re-awarded to a more competent company.
“If the oil blocs lie fallow and people are not producing from them, we are losing revenue from the field, we are losing job creation opportunity from the field; we are losing what should be the contribution to the GDP as well as field development fee. What is the essence of having something you cannot use? Is it not better you drop it for other companies with capacity to explore?” Mr. Ademola Adigun, an expert asked rhetorically.
According to Adigun, the first attempt to indigenise the sector was in 1990 when the General Ibrahim Babangida administrtaion awarded oil blocs to some Nigerians who were thought to have financial capabilities to make the investments. He said of the award, only about four oil fields have been mined- Famfa, Conoil and others.
He regrets that while a lot of people get these licences or win these bids, they, ultimately, sell it off to those who lack capacity, thereby stalling the exploration of the field and, by extension, depriving the country of revenue accruals. “We have two problems in the sector right now; we have declining take from the barrel and we have declining returns from crude. Now, we are limited to 1.45 million barrels a day by OPEC quota and unable to ramp up 2.1 million barrels per day,” Adigun argued.
DPR justified
Yet, the outcry over the DPR’s action has been loud. Some operators have queried the reasons for this, arguing that the industry regulator acted wrongly. However, the immediate past Chairman, Society of Petroleum Engineers (SPE), Joe Nwakwe, said there is a distinction between regulation and governance. He argued that the Petroleum Act gives the power to award and revoke oil blocks to the Minister of Petroleum Resources and that power has been delegated to the DPR.
A petroleum engineer, Adebayo Alamutu, corroborated Nwakwe’s position. “The minister has delegated the power to award and revoke oil block to the DPR, which is the regulator. The DPR, on the other hand, has said that it revoked the licences over lack of competence and needless rendering of national assets unproductive for many years. Now it has, in the best interest of the country, awarded the oilfield to a company it considers competent to make the field viable by generating revenues for Nigeria,” he said.
Test for PIB
For Adigun, the situation is a test case for the newly passed but yet to be signed into law Petroleum Industry Bill (PIB). He is also happy that the PIB has addressed what should be done to marginal oil fields awardees who fail to get the blocs into production with a timeframe specified by the regulator. ”One of the greatest things that have happened, which is in the PIB, is the idea of ‘Drill or Drop. The ‘Drill or Drop’ provision in the law (PIB) will prevent process abuse and usurpation of regulatory responsibilities or powers,” he said. He decried a situation whereby oil firms sit on mining leases for years without getting them into production capacity. He described such scenario as ‘wasteful and unproductive’ for a country that is facing severe revenue challenges.
Adigun urged politicians and others to put national interests above personal and sectional interests and allow the PIB to be signed into law after almost 20 years of the country’s struggle to get a more progressive law that addresses the problems facing the industry.
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