PIB non-passage may deter investors participation in licensing round

Stakeholders in the oil and gas have said that the non passage of the Petroleum Industry Bill (PIB) could deter prospective investors from participating in the proposed marginal field licensing round exercise.

According to them, the fiscal regime that would guide the operations of the proposed marginal fields is embedded in the bill and failure to pass it before the licensing round takes place could create uncertainty regarding how investors could operate.

They also want the government to review the $300,000 signature bonus downward. This will be in such a way that it would be easy for indigenous firms to participant without much financial stress. The stakeholders said that the exposure of the banking sector to the oil and gas industry may make financial institutions to want hold back on loans to would-be participants.

Reacting to the development, Abiodun Adesanya, President Nigerian Association of Petroleum Explorationists (NAPE), said:  “We have been hearing stories of an imminent marginal field licensing round. The delay in the announcement may not be unconnected with the ongoing work on the PIB. My guess is that the fiscal regime for the new marginal field licensing round may not be widely different from the one used in the last exercise. That may have formed the basis for what is contained under marginal fields in the draft PIB presently with the legislators.

“Therefore to avoid an uncertain situation of being awarded these fields with the fiscal framework susceptible to modification when the bill is finally passed, some discretion would naturally be expected by would-be participants if they know what they are doing. A way around this is to request for some stabilisation clauses for protection if the award is made before the passage of the bill,” he said.

On whether the financial institutions in the country would support the exercise, Abiopdun Adesanya who is also the Managing Consultant of Degeconek Nigeria limited said he imagines that some financial institutions would still participate. But it is going to be difficult to get Nigerian banks to fully embrace the funding of the development of these round of marginal fields in the way and manner they did with the earlier ones. Moreso if the current liquidity in the banking sector persist.

“They would certainly be more cautious and so raising capital would not be as easy as before. The approach to developing these fields are changing already and banks would have to adjust. For example, contractor financing and/or turnkey mode of developing the fields using service companies is increasingly becoming popular”.

Godwin Izomor, managing director and chief executive officer of MG VOWGAS Nigeria limited, said the beauty of marginal field is that, as a Nigerian one is not allowed to pay royalty to the government. He added that those who have money to invest can invest in marginal fields.

He stated that owing a marginal field is lucrative depending on how it is handled.

“If you are able to put your acts together you can make  your money from marginal field. But the problem in this country is that many people want to get the marginal field for the title sake not because they are interested in developing the fields. However, serious minded Nigerians should be able to invest in marginal field,” he said.

On role of the banking institutions as regards providing loans to the investors, he said the banks are the  problems  of Nigerian businesses.

“Their interest rates are too high; they put their money where they want to make quick money. They don’t invest in long time projects. If you are going to buy a marginal assets for instance, the bank that is going to borrow you money should know that you are going to drill, lay pipes to evacuate the crude to somewhere so that it can be taken to global market.  But the  banks would have  the patience to wait until you finish all  these  process  before  they  would start asking  for  their money. If you go into the business and you don’t have proper planning it would fail.

Reacting to the call that government  should allow  the signature  bonus for the marginal  field  to be  too high, he said there is no free lunch anywhere in the world.

“You want government to give subsidy on petroleum products, subsidise education. They want government to do everything. The world is moving from public sector to private sector. Therefore Nigeria should pay for everything they consume, either power, marginal field or anything. They have to pay because they are going to make the money. They are not going to make it for government.  It is your money because marginal field holders don’t not pay royalty.  I would suggest that the government should place certain value on the assets. But she should also realise that Nigerians would struggle to make the money they would investment on the assets. So the price should not be too much high for them to purchase it,” he said.