Nigeria has a poor track record in awarding oil blocks. Many of the past awards of oil blocks and marginal fields were tainted with fraud and cronyism, with some cases still in litigation. For example, more than 20 years after an offshore oil block, Oil Prospecting Licence 245, was allocated, it is still at the heart of a corruption trial in Milan, Italy.
Recently, the Department of Petroleum Resources launched the first marginal field bid round in more than 16 years, with 57 fields said to be available for indigenous companies and investors interested in participating in the exploration and production business in the country. The bid round is aimed at growing production capacity by expanding the scope of participation in the industry, and increasing oil and gas reserves base through aggressive exploration and development effort.
The regulatory agency, in its guidelines for the 2020 Marginal Field Bid Round, said applicants should demonstrate the ability to undertake expeditious and efficient development of a marginal field, and provide evidence of the ability and willingness to pay the offered signature bonus, if successful. It said the pre-qualification exercise would be done on objective criteria, guided by rules of general application. This is encouraging.
The 1998 round was a bleak reminder of everything that was wrong with military dictatorship. The then Minister of Petroleum Resources, Dan Etete, allocated OPL 245 to Malabu Oil and Gas Limited — a company which he controlled – with just $2m of the required signature bonus of $20 million paid. In 2011, after years of legal wrangling, Shell and Eni agreed to buy OPL 245 for a total payment of $1.3 billion. The Italian prosecutors are currently seeking an eight-year prison term against the head of Eni, Claudio Descalzi, a 10-year term against Etete, as well as the recovery of the $1.1 billion. The Italian court is expected to give its verdict on the case later this year after the oil companies present their defence at hearings scheduled for September. The Federal Government, in December 2018, had filed a $1.1 billion lawsuit against the two oil majors in a London commercial court in London, describing the acquisition of the oil block as “part of a fraudulent and corrupt scheme that involved the payment of bribes.”
Nigeria is the biggest casualty in the fraud surrounding OPL 245, which has been adjudged as one of Africa’s most valuable oil blocks, containing an estimated nine billion barrels of oil, which unfortunately, have been left untapped for years. A global anti-corruption and accountability watchdog group, Global Witness, calculated in 2018 that the deal deprived the country of double its annual education and healthcare budget. It said research by Resources for Development Consulting, a group of economists, lawyers and auditors, found that Nigeria’s losses over the lifetime of the project could amount to $5.86 billion, compared to terms in place before 2011.
The Malabu scandal epitomises the opacity and gargantuan corruption that have defined the Nigerian oil and gas industry for decades and caused huge losses to the country. The Natural Resource Governance Institute, in its 2017 Resource Governance Index, described licensing as the weakest link in the country’s oil and gas value realisation component, with a score of 17 of 100, placing it 77th among 89 country-licensing assessments. “This score and ranking reflect high levels of opacity in key areas of decision-making, including qualification of companies, process rules and disclosure of terms,” the NGRI said.
The last time an oil-licensing round was conducted in the country was in 2007, in the twilight of the Olusegun Obasanjo presidency. Four licensing rounds were held during his administration, although they were marred by controversy. Today, it is utterly depressing that some oil blocks and marginal fields remain dormant because they were awarded to companies that lacked the ability to develop them. In the past bid rounds, some indigenous firms with little or no experience in the oil business got oil assets because they had access to the corridors of power. Out of the 24 marginal fields awarded to 31 indigenous firms in 2003, only nine are currently producing, according to the DPR.
What should be done now? The Federal Government should revoke the licences given to the companies that have not demonstrated the capacity to develop the oil blocks or marginal fields awarded to them. It is interesting to note that the President, Major General Muhammadu Buhari (retd.), who doubles as the Minister of Petroleum Resources, said in 2017 while unveiling the National Petroleum Policy, that oil and gas licences and leases would no longer be awarded under opaque procedures. According to the DPR, over 600 firms have applied to be pre-qualified. It said following the completion of the pre-qualification and selection processes, recommendations would be forwarded to the Minister of Petroleum Resources and subsequently to the President, pursuant to the Petroleum Act, 1969 for approval. This is the right way to go.
Buhari, in an interview with journalists in Washington DC during a four-day visit to the US in July 2015, said he would “end political control of the awarding of drilling and exploration rights by introducing a system of independent, transparent auctioning for licences.” Now is the time to walk the talk. The ongoing marginal field bid round represents a litmus test of the regime’s seriousness or lack of it with respect to improving transparency and accountability in the oil industry.
The President must ensure that the bidding process is fair, transparent and competitive. Transparency, says the Nigeria Extractive Industries Transparency Initiative, is prescribed in the extractive sector both as an antidote to corruption and resource capture and as a precursor of accountable, inclusive and optimal application of natural resources. Politicians and vested interests should not be allowed to hijack or manipulate the exercise. To allow the exercise to be riddled by corruption and cronyism is to jeopardise national interest. It is logical that consideration should be given for host community/state participation, as well as a commitment to projects and/or proposals aimed at the socio-economic development of the oil-bearing communities.