‘How Six Offshore Licences Were Developed Over The Years’
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has disclosed that only six out of the 42 deep offshore licences it granted in the last 30 years have been developed.
This was revealed by the Head of the National Oil and Gas Excellence Centre, Mr Victor Otobo, who represented the Chief Executive of the NUPRC, Gbenga Komolafe, at the recent Kenna Partners Energy Dialogue held in Lagos under the theme, ‘Divestments, Re-Investments, Deep-Offshore Development and the Future of Oil and Gas in Nigeria’.
A statement by Kenna Partners quoted Otobo as saying, “The commission has granted 42 licenses for deep offshore development over 30 years but only six have been developed so far.”
He cited funding constraints and technology as the major impediments to deep offshore development, noting that the commission has, therefore, streamlined the tax regime, removed the bottlenecks, and provided clarity to potential investors to encourage investments.
The taxes, he noted, had been streamlined by the Petroleum Industry Act, to just the Hydrocarbon Tax and Royalties, effectively doing away with the Petroleum Profit Tax and reducing the tax burden on operators.
He reiterated the commitment of the commission to creating an enabling regulatory environment that fosters divestment and re-investment in the industry.
“The first step to divesting interest in an asset awarded by the Federal Government is to send a notification of divestment, following which the company sends an application stating how they intend to divest. The commission then conducts its due diligence to ensure the assets are without encumbrances and free of any potential transfer of liabilities.
We then ascertain the abandonment and decommissioning plan before preparing a report for ministerial consent.
“Most challenges encountered in this process come after ministerial consent, as new assignees struggle to meet their financial obligations. This led to the creation of the Alternative Dispute Resolution Centres in Lagos and Yenegoa to swiftly resolve such disputes,” Otobo remarked.
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, who was represented by the Director of Upstream at the ministry, Kamoru Busari, stated that the ministry was aware of the funding challenges confronting the global energy sector, thereby working to create an enabling environment to attract investment.
“When we observed the global energy transition and defunding of oil and gas projects, we started a dialogue with other oil-producing African countries to start our bank to fund our projects, not to be frustrated into following the Western transition plan. This led to the creation of the $5bn African Energy Bank by the African Petroleum Producers’ Organisation, which is now hosted by Nigeria,” the minister stated.
The Senior Partner at Kenna Partners and a Senior Advocate of Nigeria, Prof. Fabian Ajogwu, emphasised the need for a thorough examination of the energy sector.
He pointed out that international oil companies were withdrawing their investments from Nigeria while reinvesting in other African countries.
“Security challenges, host community issues, and cost per return could be part of the reasons behind the divestments, which necessitates the indigenous operators acquiring the assets to develop comprehensive strategies that address these issues.
“New assignees must do their due diligence and have a plan to engage properly with the host communities, a plan to operate a leaner model, and a plan to address security concerns,” Ajogwu opined.
He noted that while operators had to pay close consideration to the health, maintenance, capital requirements, and governance structures for their new ventures, the opportunities that come with the re-investments by IOCs in the untapped deep offshore potential lessened the effect of divestments.
“The deep offshore is regarded as one of the most promising exploration areas in the world. For Nigeria, it is huge as it holds vast untapped hydrocarbon and has far fewer challenges than the onshore operators have. The risks, and possibilities of sabotage and theft are lower, but the costs are higher, however, technological advancements have provided more cost-efficiency for operating there today than it was 10 years ago.
“The government must, therefore, create an environment that attracts foreign direct investments in the subsector through lower royalties’ rates, simplified regulatory framework, a clear process for licensing, and incentives for gas development,” Ajogwu stated.
