“DON’T’ RUN, JUST DRILL”: EXAMINING THE BASIS FOR THE THREAT OF REVOCATION OF MARGINAL OIL FIELD LICENCES IN NIGERIA

In a chat with news outlets on April 15, 2024, Hon. Heineken Lokpobiri, the Minister of State for Petroleum Resources (Oil), revealed that only five (5) of the? sixty (60) licences issued during the 2021 Marginal Field Bid Rounds (the “Bid Rounds”) are currently in use, and that the Federal Government of Nigeria (FGN), in whom all property and ownership of petroleum within Nigeria is vested, would not hesitate to take back marginal field licences from awardees who had failed to get funding for the development of such marginal fields.

“I don’t need to know you to renew or sign your licence and I will also not look at your face for me to cancel it. Out of those who benefited from the last marginal bid round, out of about 60, maybe only about five have started producing. Their licences will expire sometime this year because it is for three years, and renewable for another three years. But the condition is that you have a work plan. if you don’t follow your work plan, I also have the discretion to cancel it.”

If you are wondering why the Minister would have been concerned by those numbers, you only need to go back to the law, to find the answers.

First, for those who are not aware, in 2020, the FGN, through then Department of Petroleum Resources, now the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”), undertook the Bid Rounds under the Guidelines for the Award and Operations of Marginal Fields in Nigeria, 2020 (the “Guidelines”), with the aim of creating opportunities for the development of several oil and gas discoveries that exist in Nigeria, but have been left unproduced, unappraised or abandoned for up to ten (10) years.

This they did, by carving out such fields in existing oil mining leases, to independent and indigenous companies who had been evaluated and deemed financially capable of developing such fields, for an agreed period.

In doing so, the FGN was motivated by the need to:

a.??? Grow production capacity by expanding the scope of participation in Nigeria’s petroleum sector, through diversification of resources and inflow of investments;

b.??? Increase oil and gas reserves base through aggressive exploration and development efforts;

c.???? Reduce cost of production;

d.??? Provide opportunity for portfolio rationalization;

e.??? Promote indigenous participation in the sector thereby fostering technological transfer;

f.????? Provide opportunity to gainfully engage the pool of high level technically competent Nigerians in the oil and gas sector; and

g.??? Promote common usage of assets/facilities to ensure optimum utilization of available capacities.

One would therefore agree that in issuing the marginal field licences, the government had the overall aim of urgently catering for the need to drill and explore fields that had hitherto been abandoned for several years. One may deem it as a marriage of necessity, considering that on one hand, the FGN had control of fields which were not developed, and had created a process for interested persons to apply to develop them. On the other hand, the licencees had been evaluated on their technical and financial capacity to salvage such fields, and promptly begin the anticipated development work.

Secondly, the Paragraph 16 of the Guidelines provides that if within sixty (60) months of consent to the farm-out agreement, a licencee fails to show verifiable evidence of progressive efforts made towards the development on the field, the Minister shall be entitled to, upon the recommendation of the NUPRC, withdraw such consent and void the farm-out agreement. An important proviso to note is that in showing proof of effort to develop the field, such efforts must be in accordance with the technical plan contained in the work programme already approved by the NUPRC during the evaluation process.

In all, the Minister’s comments are a stark reminder to licencees of the contractual obligation they have to “show workings” in relation to the development of the licences held in their names. While it would perhaps be bad for the integrity of such licencees, were the threat of revocation by the Minister to hold true, the stark reality is that there is indeed a legal basis for the risk of termination currently posed to such non-developing licencees, except their development work ensues, in earnest.