Nigeria held an oil bidding round about six years ago. Hopes for another lease sale in 1Q 2013, after some postponements, have been dashed. A senior official has disclosed that no bid round can take place until the country’s Petroleum Industry Bill (PIB) is passed by the National Assembly (Parliament) in Abuja.

The oil ministry had been promising new leasing. Dieziani Allison-Madueke, Nigeria’s oil minister, had promised in December 2012 that a marginal field bidding round would be held before the end of the year while speaking on the sidelines of the annual Nigerian Economic Summit in Abuja. Again, she said at OPEC’s meeting in Vienna, Austria, during the same month that a bid round would be held in 1Q 2013.

Last week, Osten Olorunsola, director at the Department of Petroleum Resources, said Nigeria won’t hold a fresh licensing round until the PIB, which is key legislation to overhaul the country’s oil and gas sector, is passed.

A major impediment to a fresh licensing round is the PIB. No big-time licensing rounds will occur until the bill passes, Olorunsola told Dow Jones Newswires on the sidelines of the 12th Nigeria Oil and Gas Conference in Abuja Feb. 18-21.

Nigeria held oil licensing rounds in 2005, 2006, and 2007 but none took place in 2009 and 2010 apparently because of the non-passage of the controversial PIB.

“It was clear that no licensing round could be held even when the oil minister was giving assurances that one will be held. Even if one had taken place, it is unlikely that investors will begin the developments of their blocks until the PIB is passed into law,” an oil and gas expert in Lagos said.

For example, Mutiu Sunmonu, country chairman of Royal Dutch Shell’s Nigerian subsidiary, Shell Petroleum Development Co. of Nigeria Ltd., said at the same conference that uncertainty over the PIB was preventing the company from making significant offshore, deepwater investments.

“In Shell, we have two big projects we would like to do as soon as we are sure that the environment and the condition are right. We are all waiting for the almighty PIB to be able to make those decisions,” Sunmonu added.

Though the two projects were not mentioned, Shell has some upcoming projects in Nigeria. These include Gbaran Ubie, Bonga North and Northwest (slated to come on stream in 2014 or after), Bonga Southwest, and Aparo also earmarked for 2014 and beyond.

Sunmonu explained that an investment of $30 billion a year in Nigeria’s oil and gas sector is necessary just to maintain production at current levels.

But the oil majors have slowed investments because of the uncertainty created by the PIB. Oil experts say this will make it difficult for Nigeria to raise its oil reserves to 40 billion barrels from its present 37 billion barrels in a few years and boost daily production to 3 MMb/d.

If the bid round promised by the oil minister had been held, it would have been the first in about six years. In the 2005 bid round, only 30 of the 77 auctioned blocks were awarded to new Nigerian players. Bids were accepted from companies that did not have the wherewithal to pay the promised bonuses, nor did the companies have the capacity to conduct the work programs without additional partners.

The key winners in 2005 were Korean National Oil Co., BG, Petrobras, Centrica, Equator Exploration, and Conoil.

Awards were made during the bid round to Asian oil companies that secured rights of first refusal over some of the prolific oil blocks in exchange for commitment to invest in Nigerian infrastructure projects. Some of the investments have not gone through.

In the 2006 mini-bid round, only companies that gave commitments to build infrastructure development projects and power facilities were pre-qualified to participate. One of the winners of blocks in the mini-bid round included ONGC-Mittal. Eighteen oil blocks were auctioned.

International oil companies (IOCs) operating in Nigeria such as Shell, Chevron, ExxonMobil, Agip (Eni) and Elf (Total) did not participate in the 2007 bidding round though, and relatively unknown companies won a majority of the 45 blocks put on offer.

Oil experts in Lagos said most of the winners that applied as Nigerian companies were consortiums made up of local and foreign companies. Blocks were offered in the inland basins, continental shelf, onshore Niger Delta and the deep offshore regions. There were no bids for the 11 blocks offered in the inland basins, while only two out of the seven offered in the deep offshore were awarded.

Yorkshire Energy World Ltd., one of the local companies with foreign interest, won the deep offshore blocks OPL 258 and OPL 295.

The PIB has been in the works for about five years because of disagreements between government, oil majors, and lawmakers. The bill will bring sweeping changes in the oil industry, including splitting the state-run Nigerian National Petroleum Corp. into three entities: the National Oil Co.; the National Gas Co.; and the National Petroleum Assets Management Co.

When passed into law, the bill will replace all existing oil and gas legislation in Nigeria; revise the fiscal regime for onshore, shallow water, and deepwater oil and gas production; and change the provisions for awarding, renewing, and revoking licenses and leases.

In the draft bill now before the National Assembly in Abuja, oil companies will pay the following tax rates on profits: 50% for onshore and shallow water areas and 25% for bitumen, frontier acreages, and deepwater areas.

The IOCs said the tax terms in the PIB are “so uncompetitive, risk rendering offshore oil and projects unviable, and could halt investments.”

Debate on the PIB is still going on in the National Assembly.

Obafemi Oredein, Special to E&P

Offshore