Nigeria: Growing Local Production Capacity Through Marginal Field Allocation

10 December 2013

Chika Amanze-Nwachuku writes that apart from the obvious production increase, award of more marginal fields to indigenous firms, will help grow their assets base, making them fully fledged exploration and production companies Penultimate Thursday, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, kicked off the second marginal field licensing round. Under the upcoming exercise, 31 fields are up for grab. Sixteen are onshore fields, while 15 are located in the continental shelf. To ensure transparence in the process, the minister said government has encouraged companies interested in the assets to bid in consortia to enable them leverage upon each other's strengths. She also assured proper technical and financial due diligence would be done on companies that indicate interest in the assets.

The marginal field programme, which evolved from the Petroleum (Amendment) Decree Act No. 23 of 1996, was introduced by the federal government to encourage indigenous participation in the strategic upstream sector of the oil industry as well as to reduce the rate of abandonment of depleting oil fields by international oil companies (IOCs). Under the programme, IOCs were required to farm out to indigenous Exploration & Production (E&P) companies oil fields that were undeveloped for at least 10 years after discovery. A total of 24 fields were allocated to wholly Nigerian companies in the first bid round, which was conducted in 2003, but only eight are currently producing, while the others are in various stages of development. The producing fields include: Energia's Obodeti/Obudugwa field; Midwestern's Umusadege field; Pillar Oil's Umusati/Igboku field; Platform Petroleum's Asuokpu/Umutu field, Britannia-U's Ajapa field and Waltersmith's Ibigwe field. The petroleum minister said these producing companies currently contributed only about one per cent to the nation's daily production mix, while recording additional discoveries in excess of 100million barrels to the nation's reserve base. Challenges Most of the operators had hinged their inability to develop the fields 10 years after, on the difficulty in accessing funds required to develop the fields. At a recent forum on marginal fields organised by the by the Department of Petroleum Resources (DPR), the marginal fields awardees blamed funding constraints, delay in approval processes by the regulatory agency and lack of incentives from the government for the delay in the development of the fields. Managing Director/ Chief Executive Officer of Del-Sigma Petroleum Nigeria Limited, operator of the Ke Marginal Field, Mr. S. O Amachree listed key challenges of meeting up with work programme obligations to include: oil theft, delay in approval processes, fluctuating assistance from foreign and local investors, unfavorable tax regime and multiple taxation as well as the local content development policy.

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