Olufola Wusu

Fola Wusu

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The Honorable Minister of Petroleum on the 28th of November 2013 at a press conference flagged off the Second Marginal Field Licensing Round 2013, with 31 (thirty-one) fields on offer; 16 (sixteen) of which are located onshore, while the remaining 15 (fifteen) are in the continental shelf.

Ahead of the commencement of the road show by the DPR, as indicated by the Honorable minister, it is necessary for us Energy lawyers, Advisers, E&P companies, States, Communities interested in bidding for Marginal fields and for Companies that are leaseholders in the particular Oil blocks to familiarize themselves with the provisions of the recently released Guidelines for Farm out and Operation of Marginal Fields 2013.

Its main aim is to efficiently regulate the Farm Out and Operation of Marginal Fields in the 2013 bid round in Nigeria. There are a total of 26(Twenty Six) SECTIONS in the “Guidelines for Farm out and Operation of Marginal Fields 2013”

Shortcomings of Past Marginal Field Licensing Rounds

Discretionary decision-making, lack of openness discouraged competition and reduced returns to Nigeria, including but not limited to unpaid signature bonuses.

Inconclusive deals led to partial achievement of the goal of increasing indigenous participation. The outcomes were public controversy, multiple lawsuits, revoked awards, and legislative probes.

Broad Objectives of 2013 Marginal Field Licensing Round
Section 4 of the “Guidelines for Farm out and Operation of Marginal Fields 2013” states 6(six) broad objectives of the 2013 Marginal Field Licensing Round. However, Nigeria needs to develop an Energy Policy for optimizing its natural resource for current and future generations, and ideally, attach each licensing round to that policy.

Definition of Marginal Fields
“A Marginal Field is any field that has oil and gas reserves booked and reported annually to DPR and has remained unproduced for 10(Ten) years.” It excludes unproduced discoveries. Operating companies are mandated to carry out field studies of their undeveloped fields and report status to the Department of Petroleum Resources on a regular basis. DPR should press operating companies withholding data on Marginal Fields for full and immediate turnover.

The Process
The process is kicked off with a formal announcement, a guideline to guide the process from start to finish, then town hall sessions to clarify the process and the guidelines.

Seismic Data
Geological risk is one of the major concerns of E&P companies going into bid rounds. These companies need to confirm the quality of assets on offer, and that the assets are supported by sound data. This may be one of the key factors determining the prices governments will fetch for their acreage.

The appointment of one of the “three biggest” Oil Field Service companies, as a technical adviser (Data Services) to DPR may be an attempt to boost efficiency. For others, this may give the said company an “Unfair Advantage” over other Oil Field Service companies…

Criteria for Evaluation
There are 9 (Nine) criterion for evaluation of interested companies. Under “Nature of Company”, provision is made for States and Communities to come together to incorporate companies to bid for Marginal Fields. We may even have communities where these marginal fields are located, forming companies and bidding for fields in their own community.

Forming of Consortia
In support of the Guidelines’ attempt at developing a balanced, depoliticized criterion for supporting local content, the Honorable Minister of Petroleum suggested that prospective bidders adopt the strategy of Forming of consortia. This model does not compromise the sector’s development potential. Locally owned companies may come together to present stronger bid packages, bidders are however, allowed to select their own partners, it is hoped that the consortia formed will create strong technical, financial, or management synergies.

Method of Selection
The 2013 Marginal Field Bid Round will be based on participation of interested companies and entities. This provision was designed to cure the anomalies experienced in botched bids, where companies that did not participate in the process were awarded fields.

Negotiation of Agreement
Parties are to promptly negotiate agreements in respect of their fields. Where they are unable to reach an agreement within 90(Ninety) days, either party may notify DPR, then the Minister of Petroleum shall adjudicate over such a dispute.

Payment of Signature Bonuses and other fees
A successful company is to pay the signature bonus within 90(Ninety) days. If it fails to pay the signature bonus after the 90 days has expired, the company will be given a revocation notice, which will last for 30 days.

Encumbrance
Farmee is allowed to raise funds for its operations, however Farmees are going to have to raise funds for Marginal Field Operations, without being able to use the Marginal Fields as collateral as no encumbrance is allowed on it.

Equitable Consideration
It is expected that the parties in coming to agreement on the farm out consider all equitable considerations and in the event that the parties fail to agree, the parties may report such dispute to the Honourable Minister of Petroleum. The Honourable Minister of Petroleum’s intervention in disputes is an innovative step. Some questions arise; does the Minister have a ready team of dispute resolutions experts? Does the minister plan to hire Arbitrators/Mediators/Negotiators? How does the Minister plan to resolve such disputes? What rules will govern dispute resolution spearheaded by the Minister?

Drill-Or-Drop Rules
The presence of drill-or-drop rules for marginal field operators should help ensure assets are developed. The requirement that “where the farm out agreement is to be terminated between the farmee and the Farmor the farmee shall give 90(Ninety days) notice and shall be required to pay the required fee” does not indicate whether or not the farmee will still be under such obligation if it was the Farmor that initiated/catalysed the termination.

Gas Production
The Farmee /Marginal Field operator is in effect responsible for gas utilisation in the area farmed out. However, it is pertinent to note that there are no visible incentives for marginal field operators involved in gas operations.

Common usage of Facilities
Marginal Field operators are encouraged to share facilities such as delivery lines and loading terminals. The Honourable Minister is empowered to compel a facility owner to share its facilities with another party. This provision maybe challenged in court on the basis of a possible infringement on the right to property.

Safety and Environment
Farmee is to provide a safety and environment programme which should be in accordance with regulations, guidelines and standards.

CONCLUSION

The guidelines vests the jurisdiction to resolve some Marginal Field related disputes in the Honourable Minster of Petroleum, this does not however, in this Counsel’s opinion preclude aggrieved parties from going to Court. This is a significant provision as disputes between Marginal Fields operators resulted in lengthy law suits that ended up staling the projects.
Lastly, the idea of the road show and inputs of the E&P companies is certainly a step in the right direction as a synergy of ideas is more likely to make the process successful and will also reduce the possibility of anyone crying wolf, even if their bids are unsuccessful. Above all, this is not a substitute for legal advice please contact counsel for a detailed review of the above mentioned guidelines.

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos

Olufola Wusu Esq. © 2013

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…