Oil & Gas
Five lessons for Nigeria from Norway’s oil licensing round
by ISAAC ANYAOGU
September 20, 2017 | 2:10 am| | | Start Conversation
Norway’s oil licensing rounds announced earlier in the year for the exploration for oil and gas in mature offshore areas has attracted bids from 39 companies, up from 33 firms last year, the Oil and Energy Ministry recently.
Since 2013, Nigeria has not managed to get its oil marginal fields round off the ground. Africa’s largest economy can learn a few lessons from Norway.
Set definite timelines
While the technical aspects are important, Norway pays strict attention to timelines. In August/September 2016, the country’s Ministry of Petroleum and Energy invited oil companies to nominate blocks in opened areas on the Norwegian shelf for the 24th licensing round.
In March 2017, the Ministry of Petroleum and Energy sent blocks nominated for announcement on a public hearing process. On 21 June 2017, Norway announced the 24th licensing round. The application deadline for companies is 12 p.m. on 30 November 2017. New production licenses are to be awarded in the first half of 2018.
Investors love definite timelines because it reduces uncertainty. Nigeria’s oil licensing rounds follows no sensible timelines. The oil marginal fields’ rounds have been postponed forever.
Transparency reduces corruption
Nigeria’s oil licensing rounds attracts some of the most unserious investors due to lack of transparent increasing the opportunities for abuse. Lucrative fields are awarded to characters that possess neither the financial and requisite technical competence to run them.
Norway on the other hand runs transparent bid rounds, are well publicised in advance and guidelines published and strictly followed.
This is why it attracts serious investors. Applicants for the last bid round included oil majors Shell, ConocoPhillips, Exxon Mobil and Total, as well as Norway’s biggest oil and gas company Statoil.
Information about the different licensing rounds is found at the Norwegian Petroleum Directorate’s webpage and there is an article about the country’s exploration policy for more information about the licensing system.
Revoke licenses of bidders who fail to develop fields
Nigeria currently has 33 Oil Mining Leases (OMLs) that are not producing largely due to lack of capacity to develop them. Inflexible bid guidelines also contribute to the inability to develop these fields.
Take for example, Nigeria’s marginal field bid rounds. Marginal fields are discovered fields that have been left undeveloped for more than ten years. When the program started in 1999, a total of 28 fields were allocated to 35 indigenous Companies. 12 fields are currently producing the rest are at various stages of development, some barely developed.
Norway has predefined areas (APA), equivalent of marginal fields in Nigeria. It was introduced in 2003 to encourage exploration near existing discoveries. Oil firms usually have between one and three years to decide whether to drill an exploration well, otherwise the production license becomes void.
Applying similar rules in Nigeria will make only responsible bidders turn up for the next bid round.
Reduce the cost of participation
Norway holds separate licensing rounds to hand out acreage in frontier areas apart from predefined areas. During these rounds, companies do not pay for exploration acreage, but future profits from any discoveries are subject to high tax rates.
This is pragmatic and investor friendly, because it reduces risk of investment and motivates active participation.
In Nigeria, all kinds of non-refundable fees are charged throughout the process. It cost US$10,000.00 per block as application fees. Bid processing fee is also $10,000 and applicants have to pay $25,000 just to view data gathered on each block. Applicants are expected to part with $50,000 to evaluate reports on blocks offered bids.
Do not compromise HSE
Norway builds these components in its bid rounds. “Petroleum activities in Norway are subject to stringent health, safety and environment requirements, as well as requirements to safeguard the external environment. This framework is put in place in order to safeguard the environmental values on the shelf.
Though one of the conditions for acreage award in Nigeria is that the company must possess a sound Health, Safety and Environment (HSE) policy, but the level of environmental degradation in the Niger Delta, indicate that environmental issues are treated as an afterthought in Nigeria. Companies bidding for oil acreages must have a proven record of HSE implementation.
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