Nigeria: Govt to Hold Oil Licensing Round in Mid-2020

20 November 2019

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, has restated that the federal government would launch a new oil licensing round in mid-2020 for both offshore and onshore blocks in a bid to hit its 3 million barrels per day output target by 2023.

The NNPC boss also said the amendment of the Deep Offshore and Inland Basin Production Sharing Contract (PSC) Act was expected by the oil and gas industry.

Mele Kyari said the bidding round will be launched after the government concludes talkswith foreign oil companies on new fiscal terms for oil exploration following recent amendments to the law.

Reacting yesterday to the reservations and criticisms trailing the just-amended PSC Act, the NNPC boss called for commercial conversation between investors in the nation's oil and gas industry and the government in order to address perceived lapses in the fiscal terms for the development of the sector.

He added that Nigeria needs the help of international oil companies to raise exploration activities in the country if it is to meet targets to raise production to 3 million b/d by 2023.

He said the level of anxiety or worries that the passage of the PSC Act amendment had generated were unnecessary, adding that there are rooms for conversation between the government and the investors.

Mele Kyari stated these yesterday in Lagos at the opening ceremony of the 2019 Conference and Exhibition of the Nigerian Association of Petroleum Explorationists (NAPE), with the theme: "Expanding Nigeria's Petroleum Landscape: Digitalisation, Innovation and Emerging New Technologies."

He added that such a conversation was necessary to ensure that all parties come together to produce a clear fiscal term beneficial to all, guarantee increased investment in the oil and gas industry as well as boost exploration activities.

According to him, lack of clarity of fiscal terrain worries the industry, and therefore requires planning and joining the government to make sure that the overall petroleum legislation is harmonised.

Kyari stressed that "despite the amendments, there is room for negotiations and we hope to conclude these negotiations by mid next year."

The Deputy Managing Director of Total E&P Nigeria Limited, Ahmadu-Kida Musa, also added that "There is no doubt that Nigeria has huge barrels of oil assets yet untapped, the government only needed to create the right investment climate for operators,"

Kyari said: "Of course, I am sure people will expect me to comment on the Deep Offshore Act. In the Deep Offshore Act; you must see NNPC in two perspectives. One, as a company completely owned by government as a national oil company, and then, the second part of it, we are also clear in this terrain.

"We may all be aware, the Deep Offshore amendment Act is not unexpected. As a matter of fact, it is a requirement of the law that there should be an amendment to the Deep Offshore Act. We can have issues around what kind of amendment can we do? How far can it go? And what kind of amendment can we put on the table? But in reality, it expired in 2003. The conditions that are required to make changes to the Deep Offshore Act were met even by 2003, but we didn't do anything, we can't blame anyone, it is an opportunity lost, I see that clearly.

"But the reality is that this industry expects something will happen. And that something is very needful and useful for the industry, because we all worry about the clarity of fiscal terrain in our industry but we can plan. And what we can do as an industry is to join the government to make sure that the overall petroleum legislation be put on the table so that when this clarity is brought in our industry, we now know the basis of our investment, how we can cover our costs, and what matters much more, so that people can go back to real work.

"But I also know that despite the Deep Offshore Amendment Act, this is a business, there is room for commercial conversation. I do not believe the level of anxiety or worries that the passage of the Deep Offshore Act amendment has caused. I believe it is unnecessary because there are rooms for conversation. There are rooms for engagement so that this business can continue, and I call on our partners to believe this, let us talk to ourselves."

"But most importantly, we must come together and rally around the government to make sure we have full say on petroleum legislation so that this country can become the best destination for investment.

"And I believe that despite the passage of the Deep Offshore Act and the concerns raised by the industry, investing in this country is the right thing to do. The chance of finding oil here is very high".

The GMD also decried the continuous decline in exploration activities in the country, saying in the last 10 years, not much has been done in exploration activities.

He attributed the situation to lack of clarity in fiscal terms as investors will want to know the basis of their investment in exploration before they can go back to exploration.

He said: "We know clearly that there is decline in exploration and production in our Industry today. In the last 10 years, not much has gone into exploration due to two reasons. One is that there is some level of clarity that is required for oil and gas investment. We know that our attempt to put the appropriate legislation in place since 1999 has not worked. Till date we have not been able to achieve much in that regard.

"And I believe that, as an investor, what will be the basis of our investment? Will I recover my money? Can I recover my costs? And also what margin am I going to make? What stability do I have around what margin of investment I am going to make from this business? And of course, that automatically means that you maintain status quo. Exploration means banking on oil. That we find oil and make sure we produce them and make some money from it.

" If you are not sure that you will make money from it, it will likely mean you will back out of the business, and I can understand that that is one of the reasons why exploration investments low is because of lack of fiscal clarity.

"The second reason is, apart from the spike in crude oil prices that we had in 2012 and there about, we know that crude oil prices have not been at the level that we all want it to be. Of course it is not necessarily going to be fair to everybody but obviously not at the level we are seeing it today. Everybody will like to see a plus $70 crude oil price. And our average for this year is definitely below $70 per barrel.

"And once you have that option, the chances are that you put much of the money in facilities that can bring production."

Kyari also said the third reason for low exploration activities was apathy in the industry and competition from other sources, particularly, renewable energy.

According to him, "the optics around renewable have made it very difficult for oil companies to look more critically with exploration activities. And I know there are some jurisdiction today that are considering banning exploration activities in oil and gas for. And that of course, affects our mood and our decisions to go back into exploration activities.

"But that is the situation. We are unable to increase our reserves. From the level that we know, we have been counting 37 billion barrels and that 37 billion has remained at 37 billion. If we fail to increase our reserves definitely what we will see is massive depletion in the available resources.

"Our target is beneath 40 billion barrels of reserve. Unless we go back to exploration we can't achieve that because the production is ongoing, the additions are not matching with production and therefore, what ultimately we will see in the short term, probably is a decline in the reserve that we have".

He reiterated his position that oil will still be relevant by 2040 contrary perceptions of some people, saying, there could still be oil consumption in the region of 100 million barrels per day globally, even by 2040 due to population increase and increase in needs

yari also called on the members of NAPE to assist the corporation with their expert use, skill and knowledge of emerging technology to achieve its goal of ensuring energy security for the country.

He added: "And as we worry about the situation in our country, we are also proud as a national oil company that we have found oil particularly, in the Cretaceous regions. "Today I can confirm to you that we have made significant find. And that has opened a new frontier for us and as an industry in general.

"Of course we cannot achieve any success without collaboration across the industry, between partners, we as national oil company, our Joint Venture partners, our Production Sharing partners and the independents."

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