The News (Lagos)
OLUOKUN AYORINDE
13 January 2004
At last, indigenous oil companies sign farm-out agreements with the Nigerian National Petroleum Corporation to exploit the nation's marginal oil fields will remain memorable for Governor Victor Attah of Akwa Ibom State and 30 other small-time oil exploration companies who were given the right by the Nigerian National Petroleum Corporation, NNPC, to take over 24 marginal fields from four major companies - Shell, Chevron, Texaco and Elf - in farm-out deals.
For the lucky companies, it had been a tortuous journey; they bade for the fields in the last quarter of 2001 and have endured the anxiety of uncertainty on their applications. The marginal fields development concept, which gave birth to the farm-out arrangement, was initiated by Attah. Six months after the governor assumed office, he suggested that the NNPC should substantially divest its interest in the major oil exploration companies and allow states in which the resource flows to become major stakeholders." To give effect to his thought, he engaged Engineer Godwin Omene, former Managing Director of the Niger Delta Development Commission, NDDC, to do a study on marginal fields. These are fields that are capable of producing less than 10,000 barrels of crude oil per day, bpd, but had been abandoned by major oil producing companies due to low reserves and productivity as well as high overhead cost. Omene produced a scholarly yet implementable paper on the subject, which Attah passed on to President Olusegun Obasanjo, who not only accepted it but also ordered its implementation.
Initially, 150 companies submitted application forms for the programme.
One hundred and forty applicants returned the form; some were accompanied by the required pre-qualification bid packages. Of this number, 99 showed interest in more than one field while 48 pre-qualification bid packages in respect of 24 fields were received.
The federal government earned the sum of N19.45 million from the sale of application forms.
By 24 February 2003, the 31 firms which recently signed the farm-out agreement were granted oil prospecting licences to explore crude oil in the 24 marginal fields released by the government to boost local participation in upstream oil activities.
But why did it take so long for the farm-out agreements to be signed?
Former Petroleum Adviser, Dr. Rilwan Lukman, had, in February 2003, said the basic objectives for the allocation included attaining 30 billion bpd production by December 2003. But attaining this level was not the impediment, as gathered by TheNEWS. The major oil companies, which held leases to the marginal fields, were hesitant in releasing them. Attah disclosed that "the majors were lukewarm and appeared reluctant to accept the policy." First, they claimed that the marginal fields were their back-up to meet their quota in case of production shortfall in the main fields. "Then, all sorts of obstacles were placed in the way of negotiations," the Akwa Ibom governor stated.
In April 2003, the multinational oil companies claimed they were yet to receive any formal notification of the bidding process that produced the 31 awardees. They equally placed fresh financial hurdles before the farmers (prospective marginal oil field operators). These hurdles included the demand that the farmers pay a performance bond of N21.8 billion ($168 million) before the farm-out agreement would be signed.
Those who operate separately were to pay N910 million ($7 million) each to their respective leaseholders as abandonment or security fees. The money was to be deposited in an "escrow account" to be agreed upon by both parties.
Most of the oil mineral leases, OML, in which the marginal fields are located were about expiring and it was proper to determine the fate of the new operators when such leases expire. The controversy lingered and negotiation stopped until President Obasanjo ordered the transfer of ownership and control of all oil concessions in the country to the NNPC.
The presidential intervention paved the way for a new round of negotiations, which eventually led to the signing of the farm-out agreement. By the agreement, the farmers are expected to take over the fields and start production activities.
The fields, according to statistics made available to TheNEWS, have a collective reserve of about 1.3 billion barrels while five of the fields have a rich reserve ratio above 50 million barrels. Nigeria currently has a production capacity of a little over two million barrels a day.
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