The Federal Government has re-engineered Nigeria’s oil bidding process by removing entry barriers and emphasising production bonuses.
This enables investors to channel their scarce resources into immediate development and early production.
In the past, emphasis was placed on the high signature bonus, which discouraged local and foreign investors from investing while hindering the early development and commencement of oil and gas production and unlocking many multiplier effects.
Under the new arrangement, the industry regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), has removed entry barriers, including reducing the signature bonus—a single, non-recoverable lump sum payment made upfront by oil companies to the government for the rights to develop an oil block commercially after successfully winning the license bid round—to only $10 million for deepwater assets and $7 million for shallow water and onshore assets.
The strategy aims to grow oil and gas production, enhance Nigerian Content Development, attract Foreign Direct Investment, contribute to long-term global energy sufficiency, expand opportunities for gas utilization, and create employment opportunities while adding value to both the government and investors.
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Commenting on the development, experts such as the Executive Chairman of the African Energy Chamber, NJ Ayuk, and the Executive Director of the Emmanuel Egbogah Foundation for Petroleum, Prof. Wumi Iledare, said the move illustrates the sensitivity of the Commission to global developments, particularly the sustainable rise in Capital Expenditure (CAPEX) going into funding renewables in the spirit of the global energy transition.
They added that it shows an accurate understanding of trends in other oil and gas regions, where governments have drastically reduced signature bonuses to attract investors and financiers.
Available data indicates that in the Middle East and North Africa, the signature bonus currently stands at about $10 million, while Thailand and Indonesia have minimums of about $3 million and $1.5 million, respectively.
This means that Nigeria’s oil and gas landscape is now in alignment with the rest of the world.
Moreover, the current bidding process allows investors to bid for the 2022 blocks based on the new incentivized terms instead of the previous $50 million.
It was gathered that Nigeria will be able to complete many projects, leading to various multiplier effects, including increased production capacity, employment, contracts, community development, local content, and gas-to-power initiatives, thus providing more energy to households and businesses nationwide.
Additionally, Nigeria will generate substantial revenue in the form of production bonuses when investors begin their oil and gas production.
The Executive Chairman of the African Energy Chamber, NJ Ayuk, said: “Nigeria has established a robust framework that is set to attract foreign exploration companies with modernized fiscals that are competitive for deepwater exploration.
We at the AEC believe the most lucrative balancing point between creating a welcoming environment for international companies and achieving Nigeria’s own national goals is important. Key to this bidding round will be the role of independents and indigenous players in exploration.
The bidding round also paves the way for gas monetization that will bring significant benefits to Nigeria and international markets.”
Similarly, the Executive Director of the Emmanuel Egbogah Foundation for Petroleum, Prof. Wumi Iledare, said: “A high signature bonus is regressive.
It makes a petroleum province with a high signature bonus less attractive.”
The National President of the Oil and Gas Service Providers Association of Nigeria (OGSPAN), Mazi Colman Obasi, added: “Investors need a conducive environment to put their money.
Once the right environment exists, foreign capital will begin to flow in.”
At a recent pre-bidding conference in Lagos, the Executive Commissioner of the NUPRC, Engr. Gbenga Komolafe, said: “A review of Welligence Energy Analytics reports on licensing rounds across the globe, including Brazil, Guyana, Angola, the Middle East, North Africa, and Southeast Asia, revealed that the era of huge front-loaded signature bonuses is over.
Accordingly, Nigeria, under President Bola Ahmed Tinubu as the Minister of Petroleum Resources, has proactively and intuitively removed barriers to entry for investment in exploration blocks offered in both the 2022 deep offshore bid round and the 2024 licensing round, in line with international best practices.”
He added: “President Bola Ahmed Tinubu and the Minister of Petroleum Resources have embarked on a transformative agenda that aligns with stringent global standards and commitments.
The recent Presidential Executive Orders issued in March this year aim to improve the efficiency and attractiveness of Nigeria’s oil and gas sector.
They introduce measures to balance the implementation of the Nigerian Oil and Gas Industry Content Development Act, 2010, ensuring that oil and gas development is not hindered by local content bottlenecks.
The Executive Orders also include directives on reducing contracting costs and timelines to enhance the global competitiveness of our oil and gas industry and achieve a higher rate of return on oil and gas investments.
“Nigeria is endowed with abundant crude oil and condensate reserves and natural gas reserves, representing over 30% and 33%, respectively, of the entire oil and gas reserves in Africa, in addition to a mix of other renewable energy resources.
To exploit and optimize these abundant hydrocarbon resources, Section 7(t) of the Petroleum Industry Act (PIA) empowers the NUPRC to conduct bid rounds for the award of PPLs and PMLs under the Act and applicable regulations.
“It is on this premise that the Federal Government of Nigeria, through the NUPRC, recently announced the commencement of the 2024 Licensing Round both in-country and internationally.
It would be recalled that we announced the commencement at the maiden edition of the NEITI Dialogue Session 2024, where the bid processes were thoroughly interrogated by civil society and the media.
This was followed by announcements at the 2024 OTC in Houston, a roadshow in Miami organized by Zeste Advisory, the African Energies Summit in London organized by Frontier Network, and the Invest in Africa Energy Summit in Paris organized by Energy Capital Power. The Commission aims to attract robust local and foreign investors to participate in the bid exercise.”
