FG to earn N2.7tn from oil blocks

Proceeds from the sale of oil blocks in the country are expected to hit $16.5bn (N2.7tn) by December as the International Oil Companies continue to divest their stakes of shallow water assets.

Already, Shell, Chevron, Total and Agip have sold parts of their stakes in the Nigerian oil and gas industry, raking in $6.7bn. This is expected to reach $8.5bn by the time Oando Energy Resources concludes a $1.7bn ConocoPhillips acquisition this year.

Investment analysts and advisors close to the transactions said another $8bn would be made by the IOCs this year from 13 oil blocks already being put up for sale with bidding round nearly completed.

The Director, CBO Capital Partners, an advisory and investment management firm based in Lagos, Mr. Chuka Mordi, said, “The scaling back of western oil operations in recent years has been a particular theme in Nigerian M&A. With a total completed deal size of over $6.7bn between 2010 and 2013 and approximately 13 transactions in the pipeline, the potential is significant.

“The completion of the ConocoPhillips deal before the end of this year will raise that figure to more than $8.5bn over three years. Once the 13 transactions have been completed, a value of between $4bn and $8bn could be created.”

The IOCs operating in Nigeria began assets divestment 36 months ago when the United Kingdom gas group, BG Group, in 2009, pulled  back funding for the Olokola LNG project on which it partnered with Chevron, Shell and the Nigerian National Petroleum Corporation, and sold rights in three oil prospecting licences – 332, 286 and 284.

Other IOCs have since relinquished their stakes in shallow water oil blocks and more are currently being put up for sale. For instance, Chevron is close to finalising the sale of five shallow water blocks (OML 52, OML 53, OML 55, OML 83 and OML 85), which are estimated to hold as much as 250 million barrels of oil reserves and are valued at $1.5bn.

The Shell Petroleum Development Corporation announced in June 2013 its plan to sell at least four oil blocks in Nigeria’s onshore and shallow water areas.

The South Atlantic Petroleum, First Hydrocarbon Nigeria, a local-arm of the London-listed Afren, and SEPLAT are some of the independent oil firms that have acquired some assets divested by the IOCs.

A number of them, including marginal field operators such as Brittania-U, Vertex, and Sogenal, are also involved in the bids for the Chevron and Shell oil blocks.

Indigenous operators are currently responsible for 226,000 barrels out of the country’s daily output of 2.4 million barrels of oil per day.

The Managing Director, Nigerian Petroleum Development Company, Mr. Iyowuna Briggs, said it was important for indigenous operators to increase their share of daily oil production from the current 10 per cent.

This, he reasoned, would change the rules of engagement in the oil and gas industry.

He said, “I honestly will prefer a situation where indigenous operators will begin to account for a significant percentage of our production. I am looking at a situation where indigenous operators can account for one million barrels of oil per day. This will change the rules of engagement.

“For instance, the IOCs are threatening to leave Nigeria because of certain aspects of the Petroleum Industry Bill. If Nigerian oil companies can produce one million barrels of oil per day, who will give a damn if the IOCs leave or divest. There is an absolute necessity for our indigenous capacity to grow.”

Briggs said marginal field operators would also play critical role in growing indigenous share of oil production in the country.

The Federal Government had in 2003 awarded 24 marginal fields to 31 players but only eight have started producing oil as of December 2013.

Seventeen fields are not producing as a result of financial and technical constraints and the duo of Mr. Chuka Mordi and Bex Nwawudu, both directors at the CBO Capital Partners, have put the development cost of these oil fields at between $40m and $70.

They said some of the fields were discovered over 30 years ago with some infrastructure already dilapidated.  The assets would have development cost of $40m to $70m over a few years, they added.

According to them, marginal field owners are unable to attract equity investors due to poor corporate governance practices.

They also argued that marginal field licensees are small companies with little investment capital had difficulty to attract equity investors.

As such, they urged them to explore other financing options such as the capital market and foreign partners. They noted that the longer the assets were left undeveloped, the lower their value.

Technically, they said challenges existed in virtually all development stages of the field, adding that marginal field owners would need to enter solid technical and financial partnerships to make headway and contribute their quota to the aspiration of the Federal Government to grow the nation’s oil reserves.

The Director, Department of Petroleum Resources, Mr. George Osahon, at a gathering of marginal field operators recently, said, “Of the 24 marginal fields awarded in 2003, only eight are into production, with additional four getting close to starting full production.”

The DPR boss identified lack of access to finance, high taxes, community issues, technical competence, fluctuating assistance from foreign equity partners and low funding capacity of indigenous players as some of the challenges facing marginal field operators in the country.

If the country must meet the industry target for reserves and production capacity, the DPR director said the redundant oil blocks must go into production and up the nation’s oil producti