Marginal Field Licensing: Stimulating Efficiency?


Thursday, April 08, 2021 / 02:25 PM / by CSL Research/ Header Image

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According to a publication released by the Department of Petroleum Resources (DPR), the petroleum industry regulator revoked four of the five Oil Mining Licenses belonging to Addax Petroleum. Tagging the activities of Addax on the blocks (OML 123, 124, 126 and 137) as economic sabotage, the head of the DPR, Mr. Sarki Awalu disclosed that less than 50% of the asset had been developed prior to the revocation.


Furthermore, Reuters reported that the agency had immediately awarded the operations of the field to Kaztec Engineering and Salvic Petroleum Resources, with the official handover of the assets to follow.


Addax, a firm owned by China's Sinopec Group has been under the radar for a while going by the DPR's visit to their facility in September 2020. In this time, there have been concerns on its ability to maintain the fields (for instance, Addax consistently defaulted on its obligation of domestic supply of gas). According to the head of DPR, the operator has repeatedly refused to invest in the fields in such a way as to optimize output and curb flaring, hence, the need for the agency to ensure the transfer of the field to new investors.


The DPR has continued to improve on its engagement to ensure that compliance with all statutory provisions that guides the Petroleum Industry in Nigeria. This recent move, however, is not expected to proceed without a challenge, considering that moves by the regulator to revoke eleven of such licences last year prompted at least two court cases. The regulator had thought the eleven licences would constitute a part of the 56 marginal fields up for licensing but for the court's position. Thus, we opined that the regulator might have another day in court given that it has a responsibility to prove the allegations that led to the revocation.


Looking forward, we note that the regulator is setting a tone that inefficiencies would not be tolerated from operators in the Nigerian oil and gas industry, which in effect bodes well for the prospect of the sector in terms of creating employment opportunities, improving government revenue vis-a-vis royalties, and supporting export of crude oil. Nonetheless, we opine that the agency should thread with caution so that its intention does not appear as being hostile given the importance of these fields to the nation.

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