Nigeria’s bad experience with winners of the marginal oil blocks it awarded 10 years ago has prompted the country to introduce stringent guidelines for prospective bidders in its second 2013 marginal field licensing round.

The country’s first marginal field licensing round in August 2001 resulted in the allocation of 24 fields to 31 indigenous Nigerian companies in 2003.

“About a decade thereafter, eight of these fields are producing while the others are in various stages of development,” Nigeria’s Minister of Petroleum Resources Diezani Alison-Madueke disclosed Nov. 28, 2013, while announcing the second marginal field licensing round in Abuja. The round is expected to conclude in 2014.

The companies, she added, currently contribute about 1% to the nation’s daily production mix, while recording additional discoveries in excess of 100 MMbbl to the nation’s reserve base.

For the second oil marginal licensing round 31 fields, including 16 onshore, are being offered, Alison-Madueke said. The fields are in the oil-rich Niger Delta basin.

“In carrying out the exercise, [the] government is determined to ensure that proper technical and financial due diligence is done on companies indicating interest in these assets,” she said. “In this regard, [the] government encourages companies, where possible, to bid in consortia, to enable them leverage upon each other`s strengths.”

Shortly afterward, the Department of Petroleum Resources (DPR), the nation’s oil industry regulator, published guidelines for the bidding process for the 31 marginal oil fields. It also went on road shows to four Nigerian cities – Lagos, Port-Harcourt, Kaduna, and Abuja – to enlighten the public on the application process in the oil licensing round. The road shows ended in Abuja on Dec. 12, 2013, and this, Alison-Madueke said “will be followed by three and a half months of competitive bidding process in line with the federal government’s commitment to openness and transparency in the conduct of business activities in the country.”

According to the guidelines, the licensing round is open only to Nigerian E&P companies, but the companies will have only two years to develop the fields or lose them.

“If within 24 months of consent to the farm-out agreement, a farmee fails to show verifiable evidence of efforts to progress development of the field(s) with or without an approved plan, the honorable minister of petroleum resources shall, on the recommendation of the DPR, withdraw such award of the field and void the farm-out agreement,” the guidelines said.

During the road show on the second marginal field licensing round in Abuja, DPR director George Osahon said the department will no longer tolerate what transpired in 2003. Among the issues faced by the DPR was that 10 years after companies got oil fields in the 2003 rounds, the fields have not been developed.

Any company that is bidding this time must show proof of access to financing and E&P expertise, he said.

“I must say that access to financing is critical in the bid process. We must be able to see from the information provided by the companies that they have access to finance,” Osahon added. “We do not want to give these assets out and wait for another 10 years for them to be developed.” The assets refer to the 31 marginal oil fields offered during the 2013 bid round.

The two-year period to develop marginal fields isn’t the only stringent rule. Only companies with at least 51% equity interests held by Nigerian citizens can bid for the licenses in the 2013 marginal oil round. Also, no shareholder in each participating company can own more than 25% equity shares.

The DPR added in the guidelines that each prospective company wishing to participate in the process can bid for a maximum of three fields, with each requiring separate application, and would be required to pay total fees of US $28,000, including the application, bid processing, data prying, data leasing, and data services fees.

Osahon said the bidding round would be in four stages – pre-qualification, technical and commercial tender, oral presentation, and announcement of winning bids. He added that each participating company must have the technical ability to evaluate and develop the oil field, access to funding, or show proof of relationship with a technical partner with adequate financial resources to operate the assigned field.

Part of the evaluation criteria is that a company shall confirm willingness to pay a signature bonus of $300,000 if successful, the DPR said in its guidelines. On the grant of a marginal field, the signature bonus shall be paid within 90 days from the date of award.

The current licensing round “is geared towards opening up the oil and gas sector of the industry to a wider participation, with a view to creating a robust and virile industry that will positively impact the lives and living standards of the people of Nigeria,” Alison-Madueke said.

Addressing prospective investors and industry operators at the road show Dec. 4 in Lagos, Osahon stated that the licensing round also was designed to “grow reserves and boost production, promote indigenous participation in the upstream sector of the industry, and increase Nigerian content development.”

The DPR said the Nigerian government aims to increase the nation’s oil reserves to 40 Bbbl, production of crude oil to 4 MMb/d, and generate more oil revenue by selling the marginal oil fields.

But oil experts said that four key factors have constrained the activities of indigenous marginal field operators. They are lack of funding, inadequate technical expertise, the relative marginality of the fields, and government policy as regards royalties and taxes.

New fiscal regimes have been proposed in the Petroleum Industry Bill (PIB), Chijioke Nwaozuzu, a petroleum expert, said in a paper published by SweetCrude Reports on Dec. 5, 2013. “If the PIB is passed in its current form, operators will observe a significant reduction in applicable royalties and taxes. A reduction of about 30% in applicable royalties and petroleum taxes has been proposed, which makes it commercially attractive for small operators to develop these marginal fields very profitable,” Mwaozuzu said.

“The future of marginal fields’ development still looks very promising despite these hoops. However, going forward, there are a number of financial, technical initiatives, and government policies that will aid the process of marginal fields’ development. The most important of these is passage of the PIB,” he added.