A marginal oil field refers to oil deposits, discovered in commercial quantities during the process of exploration, and that is yet to be mined in the last ten years. Nigeria has proven crude oil reserves of 36.89 billion barrels, expected to last through the next 20 – 25 years. Domestic and international investors are invited to bid for the oil fields; following which the government gives up the right to mine these fields for an agreed time. A BudgiT report cited that there are about 178 marginal oil fields. 24 of these were allocated in 2003, but there have been only about 33% utilization rate.
The Department of Petroleum Resources (DPR) announced the commencement of the 2020 marginal field bid rounds in June 2020. The bid will feature 57 marginal fields up for competitive bidding. This includes 46 new fields and 11 former fields, which were rescinded by the DPR. Interestingly, the DPR had, in 2013, attempted to conduct a bid process, but this was met with political and institutional shenanigans.
There is no doubt that the predicament of the federal government in raising revenue and ensuring fiscal sustainability in the medium term warranted the bidding of Nigeria’s precious oil fields. The revenue from the bid process will be used to augment fiscal revenues and provide a source of FOREX to the national coffers. It would be best if the oil fields are still controlled and managed by the Nigerian government, but the lack of an efficient National Petroleum Company has resulted in low mining, refining, and value-added capacity.
Following this development, the DPR said over 600 companies have applied to be prequalified for the current bid rounds involving 57 marginal fields. This is not surprising because the oil and gas sector presents a steady flow of lucrative future cash flows to investors. With this excess demand, it is undoubtedly a fact that there will be a lot of politicking and favoritism in allocating the oil fields. The cumulative settlement for these fields by investors will surpass the target revenue. Most of these funds will go into private accounts as typical in Nigeria.
While the federal government is primarily concerned about raising money from the oil fields, the interest of Nigerians must be at heart. Domestic oil companies with the purchasing power should be given a fair play in the bid rounds to promote local content creation in Nigeria’s oil and gas industry. Investors must be made aware that they must achieve more than 50% field utilization. The overall bid process must be open and transparent, allowing the right companies to own the oil fields.
Written by Michael Ogunremi