On November 28, 2013, Nigeria's Department of Petroleum Resources (DPR) announced the 2013 Marginal Fields Licensing Round, a new licensing round for marginal fields blocks in previously explored and frontier regions of the country. The DPR has now released a set of guidelines that provide details on the process, stages and application requirements for companies interested in taking part in the 2013 Marginal Fields Licensing Round (the Guidelines).1 This update provides an overview of some of the Guidelines’ key contents.

What is on offer?

There are 31 marginal fields being offered in the 2013 Marginal Fields Licensing Round (16 onshore and 15 offshore). A comprehensive list and details of the fields are available on the DPR website.

Bidding process

The bidding process commenced on December 12, 2013, and is being conducted in six key stages:

·         Submission of application by interested companies; (December 12, 2013, − January 3, 2014)

·         Evaluation of submitted prequalification applications; (January 6−7, 2014)

·         Announcement and notification of prequalified companies by email; (January 17−24, 2014)

·         Submission of detailed technical and commercial bids by prequalified companies; ( Feb. 21−March 7, 2014)

·         Evaluation of technical and commercial bids; (3 weeks → March 7−28, 2014) and

·         Announcement of winning bids (April 11, 2014).

The overall process is anticipated to be completed in less than six months.

Eligibility

To be eligible, a company must be a registered Nigerian company. In addition:

·         at least 51% of the beneficial interest of the company must be owned by Nigerian citizens;

·         no single shareholder may own more than 25% of the shares in the company;

·         the company must have upstream oil and gas experience; and

·         the company's memorandum and articles of incorporation must authorize the company to conduct oil and gas exploration and production activities.

Foreign companies may participate in the process by either incorporating a Nigerian branch with the Corporate Affairs Commission of Nigeria in line with the above eligibility requirements, or by entering into joint venture arrangements with one or more local Nigerian companies. According to the DPR, the Nigerian government will be favourably disposed to joint applications.

Application

Application forms can be downloaded from the DPR website. The application must be accompanied by a Certificate of Incorporation of the applicant company, Form CAC 7 (Particulars of Directors), Form CAC 2 (Statement of Share Capital), Tax Clearance Certificate for the past three years, and the application fees.

The fees are US $1,600 (application fee) and US $3,200 (processing fee). Applicants wishing to access data would be required to pay additional fees of US $3,000 (data prying), US $15,000 (data leasing) and US $2,000 (data management service fee). These fees are payable per field.

Each company can bid for a maximum of three fields with each field requiring a separate application. Complete application packages are due by January 3, 2014. They may be submitted to the DPR office in Lagos, Nigeria, or to the London, UK, office of the Nigerian National Petroleum Corporation (NNPC).

A committee comprising representatives of DPR, leaseholders and financial advisers will assess the submissions with the aim of identifying the company most likely to be successful in operating the marginal field as well as further developing the Nigerian oil industry. Companies that are prequalified are notified and given further instructions on how to prepare and submit a more detailed technical and commercial bid.

Comments

Nigeria has the largest oil and gas reserve base in Sub-Saharan Africa with an estimated 37 billion barrels of oil and 180 Tcf of gas. Currently, over 1,000 oil fields have been discovered with only 35% producing. To maximize the production capacity, diversify oil production sources, increase oil and gas reserves, and prevent waste, the Nigerian government has since 2001 promoted the licensing of marginal fields.

Marginal fields are generally fields discovered by large international oil companies or the state-owned NNPC and which, due to other pressing investment options, were either not developed or relinquished. These fields represent promising investment potential for junior companies with streamlined operations.

Reports suggest that these fields may hold an estimated two billion barrels of oil. For example, 24 fields were awarded in the first licensing round for marginal fields (which was completed in 2003). Since then, over 100 million barrels have been produced from these fields. Currently, eight are still producing (averaging an aggregate gross production of 27,200 barrels of oil per day and 35 million standard cubic feet per day of gas) while the others are in various stages of development. Calgary-based and TSX Venture-listed Canadian companies such as Mart Resources Inc. and Oando Energy Resources are currently significant players in marginal field investments in Nigeria.

The 2013 Marginal Fields Licensing Round provides new opportunities for Canadian oil companies to enhance their investment portfolio in Africa and Nigeria. The attractive risk/reward profile of investing in Nigeria has traditionally included the country’s numerous proven/undeveloped field opportunities, high quality of crude oil produced, established infrastructure for transportation and export of oil, and incentive-based fiscal regime (including lower sliding-scale royalties and substantially reduced petroleum profit taxes).

As described above, foreign companies may participate in the 2013 Marginal Fields Licensing Round by either incorporating a Nigerian branch in line with the eligibility requirements or by entering into joint venture arrangements with one or more local Nigerian companies. Furthermore, based on historical experience, it is likely that joint venture opportunities will arise after the licensing round in respect of awarded fields, since the DPR allows the successful parties to bring in financial and technical partners to jointly develop and produce the fields.

Footnotes

1 Department of Petroleum Resources, "Guidelines for the Allocation and Operation of Marginal Fields, 2013," available at http://dprnigeria.org.ng/