Nigeria’s 2024 Oil Licensing Round: A Postmortem.
For many decades, the petroleum industry, Nigeria’s cash cow, was in the doldrums due largely to administrative and management lapses in relevant governmental institutions. Over the years, institutional failure occasioned by sheer disregard for accountability, transparency and responsibility (the core values of good corporate governance) created a myriad of problems that saw the petroleum industry slide inevitably into decadence.
The problems created by institutional failure, including corruption, inequitable distribution of Nigeria’s oil wealth and violent conflict in the Niger Delta region, made the petroleum industry unattractive to investors. The need to overhaul the industry for optimal performance had become imperative.
In 2021, the Petroleum Industry Act (PIA) was enacted to create new institutions in the industry, a move that culminated in the unbundling of the Nigerian National Petroleum Corporation (NNPC). This came with a new regulatory framework for the upstream, midstream, and downstream sectors of the petroleum industry.
A few years after the PIA came on stream and gave birth to new regulatory institutions, it would be worthwhile to assess the level of progress made so far; particularly with respect to the award of oil licenses to investors.
Until recently, the petroleum upstream sector was numb with a debilitating poor governance culture, prompting irregularities in bid rounds, unpaid signature bonuses, and undeveloped oil blocks. It would be recalled that in time past, particularly in the days of military dictatorship, oil blocks were awarded indiscriminately, without recourse to due process.
The failure to pay attention to legal processes in the award of oil licenses gradually weakened regulatory institutions whose inefficiency created old problems that the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has adopted new approaches to resolve, as evident in the conduct of the 2024 oil bid round.
The 2024 oil bid round, the first to be officially conducted under the PIA, was designed to improve transparency in the licensing process. This explains why the bid round commenced with public announcement and its portal launch on April 29, 2024.
Registration and prequalification commenced on May 13, 2024, while evaluation and bid preparation took place between June and November 2024. The process climaxed with a commercial bid conference held last December in Lagos where the CEO of NUPRC, Engr. Gbenga Komolafe threw light on the new governance philosophy guiding the award of oil licenses in the country. According to the NUPRC helmsman, the 2024 oil bid round (including 36 oil blocks across the Niger Delta, the continental shelf and deep offshore) was conducted transparently, in line with President Bola Tinubu’s transformation agenda for sustainable economic growth and development.
Engr. Komolafe had hinted that five oil blocks were withdrawn on account of litigations, while 17 deep offshore oil blocks were added in the licensing round, consistent with his commission’s commitment to optimally harness Nigeria’s vast oil and gas reserves.
There is enough evidence to suggest that the move to effectively utilise Nigeria’s enormous oil and gas reserves is being made at the most auspicious moment. The country’s natural gas reserve, the highest on the African continent, rose by 260 per cent from 2000 to 2022. Globally, Nigeria is the eighth highest producer of gas, trailing only behind countries like Russia, Iran, Qatar, and the United States.
As at January 2024, the country’s proven gas reserve stood at 229.26 Trillion Cubic Feet (TCF), which includes 102.59TCF of associated gas and 106.67 TCF of non-associated gas. In the same vein, Nigeria’s crude oil reserve increased from 37.5 billion barrels in May 2022 to 37.5 billion barrels in January 2024.
Undoubtedly, the additional oil blocks are intended to scale up exploration and production of oil and gas to ensure energy sufficiency and attract more foreign and local investments to the petroleum upstream sector in the best economic interest of the country. Moreover, optimal utilisation of Nigeria’s enormous gas reserves is crucial for the effective implementation of her energy policies and economic planning as contemplated in the Decade of Gas Initiative designed to use gas to promote industrialisation.
The 2024 oil bid round is a radical departure from previous ones. President Tinubu, in his wisdom, decided to reduce the signature bonuses payable by successful bidders. The new incentive introduced by Mr. President drastically reduces the benchmark for investors in deep-water from $200m to $10m, and a sum of $7m for those awarded assets in shallow water. The slash in demand for signature bonuses is laudable for two main reasons; first of which is the fact that it is consistent with what is obtainable in other oil-producing countries.
Secondly, it reduces front entry barriers that place huge financial burdens on would-be investors, most of whom are unable to develop assets awarded to them due to lack of financial muscle to carry on with exploration and production, after expending a fortune on signature bonuses.
President Tinubu leaves no one in doubt that his intention is to reengineer oil bid rounds in the country to create a level playing field for all investors, including foreign and local players in the industry. However, there is a presidential directive that all bidding entities must possess a financial capacity of about $200m in the deep offshore category and $150m for investors in the shallow water and onshore division.
This is a deliberate decision taken to weed out unserious investors who are financially and technically ill-equipped from benefitting in the 2024 oil licensing round. It sends a strong signal to investors and other stakeholders that it is no longer business as usual in the award of oil licenses in Nigeria, in view of the far-reaching reforms being implemented in the petroleum industry.
For its part, the NUPRC has made significant efforts to key into the presidential transparency agenda in the award of licenses. For instance, the commission is in collaboration with the Corporate Affairs Commission (CAC) to regularly update and openly declare a register of oil asset beneficiaries. Additionally, the NUPRC has established an anti-corruption unit to ensure that bid rounds are conducted with integrity. In furtherance of zero tolerance for corruption, it has also established an Oil and Gas Industry Service Permit (OGISP) portal to reduce human interactions in its permit processes.
When service delivery is on the decline, in public administration, new institutions are needed to replace old ones whose inefficiency must have created problems that require innovative strategies to solve. Perhaps one of the most attractive features of the 2024 licensing round, supervised by the NUPRC, is the simplified application process. This is made possible with the use of digital platforms to process submissions and evaluation of bids.
It is also heart-warming to note that the NUPRC, under the able leadership of Engr. Komolafe, has insisted that successful bidders must demonstrate capacity for compliance with environmental sustainability and development of host communities to deal effectively with the avoidable challenge of insecurity in Nigeria’s oil belt.
To summarise, all features of the 2024 licensing round are completely in synch with Peter Drucker’s Management By Objectives (MBO) model, a strategic management technique that outlines organisational goals and devises practical means of achieving them. The intended outcome of MBO is increased productivity and improved service delivery. This has been the main preoccupation of Engr. Komolafe, the product of a strategic managerial ecosystem, since commencement of the 2024 licensing round in April last year. Hopefully, 2025 holds great prospects for the petroleum industry and the Nigerian economy.
Dr. Amieyeofori, Journalist and Conflict Scholar, writes from Abuja.
Disclaimer: This article is entirely the opinion of the writer and does not represent the views of The Whistler.
Nigeria’s 2024 Oil Licensing Round: A Postmortem. is first published on The Whistler Newspaper
