In less than a week from now, a new future may be unfurled for indigenous operators in the Nigerian upstream sector. That future will be characterized by serious-minded marginal field operators who will stop at nothing to make sure their impact is felt in the oil and gas industry and up the somewhat insignificant 2.1 percent, marginal operators currently contribute to the nation’s total crude production.
But before we get to that future, the fate of our present marginal field operators – over 30 of them, according to the Department of Petroleum Resources (DPR) website – will be decided. Some will have their licenses revoked, while others will have theirs renewed. Their outcomes will solely hinge on their ability to beat the gun, to become operational or at least meet minimum work requirements on their fields on or before the Federal Government/DPR’s March 31st, 2015 deadline. It must be noted however, that the former strikes one as impossible for those who have so far been unable to bring their fields onstream.
In the hopes that the threat, which was issued in December of last year, would put nonperforming marginal operators on their toes and ramp up meaningful developments in the subsector, the benefit of doubt was given to the upwards of 15 nonperforming operators. But have any of them – since the threat was made – met the grade? No, not one. This may be perhaps, due to the plummeting oil prices.
Recently the Head of Energy, Ecobank Research, Mr. Dolapo Oni, said low oil prices would make it difficult for the operators to raise money as the lead time for those fields was long. He said, “It is a bad time for them. Most of them will be unlikely to scale the deadline, especially those that do not have access to foreign markets to raise money will find it difficult to scale the hurdle”.
More so, oil production is a highly technical and capital intensive venture. Lack of access to funds, insecurity, technical capabilities, ownership and personal tussles, and community issues have also been listed as some of the challenges bedeviling the efforts of companies in the subsector and some of the reasons why some of their licenses might be revoked.
Most of the operators have long come to the sad conclusion that their licenses might most likely be revoked. Particularly as a result of the fact that they were issued these licenses in 2003 so as to increase our reserves, production, local content and indigenous participation in the upstream oil and gas business but have so far been unable to adequately achieve these aims. Regardless of the lead time of any of the fields, 10 years is enough for most of the non performing operators to have proved themselves worthy of their licenses.
However, it must also be noted that in view of the aforementioned challenges and current economic situation, it is likely that the government may change its mind about revoking the licences and possibly grant an extension. This might particularly be the case, if the operators can show the DPR that they have fulfilled certain minimum mandatory work commitments or that they have made sufficient plans to raise the funds required to carry out what they need to do in the coming months. Furthermore, the intense lobbying by some of the owners of the these licences to prevent their revocation as well as the present focus on general elections in the country may also serve as additional factors which may contribute to a possible extension by the government.
What is most clear for the DPR going forward is that such licenses should not be granted to companies with poor access to finance, weak management structures and limited industry experience. Furthermore, perhaps some steps which could be taken to improve the current situation could include creating an indigenous operators fund to assist marginal field operators, increased partnerships and technical collaborations among the operators as well as beefing up security around pipelines and production facilities to avoid disruptions at producing marginal fields.
Written by Noma Garrick and Joel Pereyi for Energy Mix Report.