oil riggs

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.