Tackling The Niger Delta's Problems- With Oil
December 20, 2000

By a Special Correspondent
Lagos, Nigeria

The government in Abuja has announced that several marginal oil fields in the Niger Delta which have remained unexploited for years are to be put to good use. They are to be allocated to indigenous, Nigerian companies.

Setting out the government's guidelines on the fields, Rilwanu Lukman, Adviser to President Olusegun Obasanjo on Petroleum and Energy, told journalists in Abuja that such firms were to be put forward by state governments, local government councils, and oil-producing communities.

Marginal fields are unattractive to multinational oil companies because they may be too small to operate profitably, may be located in difficult terrain and therefore be costly to exploit, or may have small reserves that make investment by the major oil companies uneconomic.

Lukman said government had identified 116 of these fields, and was ready to allocate them to indigenous firms for development. But industry sources say there are about 300 of these fields, all located in the Niger Delta.

"The whole idea is to address the problem of the Niger Delta more comprehensively," says Ugochukwu Okoroafor, head of Corporate Banking and Energy, Afribank, Nigeria's fourth largest bank.

Indigenes of the Niger Delta, home to Nigeria's oil and gas resources, have long cried out against what they say is neglect of the area by successive governments of the country. This has led to calls in the area to place control of resources in the hands of local governments.
Anger at neglect and exploitation in the area have also led to open protest, sometimes violent, as indigenes attack oil companies, vandalising their installations and sometimes killing oil sector workers or taking them hostage.

Taking a stake in their future

With this announcement, government is inviting Niger Delta communities, state governments and local government councils in the oil area to acquire a stake in the oil industry by putting forward companies to bid for the identified marginal fields. The hope is, industry sources say, that once the indigenes have a stake in the sector, they will show less antagonism to operators in the industry, especially the multinational firms.

The announcement will also give government time to finalise its plans for a development programme of the region. In July last year President Obasanjo submitted to the National Assembly a bill for the establishment of the Niger Development Commission, to be responsible for the development of the area.

But 17 months after the bill was submitted to the Assembly, and several months after both the Senate and the House of Reps passed the act into law--by overriding president Obasanjo's veto, the Commission is yet to commence operations. The Chairmanship of the Commission is zoned to Abia State, one of the nine states covered by the operations of the NDDC, in the first instance, for a year. Disagreement between the president and the Senate, however, on the choice of a chairman has stalled the Commission's work up til now.

President Obasanjo's choice for the Chairmanship is Onyema Ugochukwu, his Special Assistant on National Orientation. But the Senate twice rejected Ugochukwu, based on opposition to his nomination by the three Senators representing Abia State. The three Senators argued that although Ugochukwu hails from Abia State, his particular constituency does not produce oil. They demanded that any acceptable nominee to the post would have to hail from the oil-producing part of Abia State.
Despite this, president Obasanjo submitted Ugochukwu's name for the third time and with news that the Senate, on Tuesday, approved Ugochukwu's nomination to the NDDC chair, progress may now be made.

Giving details on the marginal fields to be made available, Lukman said they contain a total reserve of 1.3 billion barrels of crude oil. He explained that five of the fields each have a reserve ratio above 50 million barrels. The five fields, he added, have a collective 291 million barrels of crude oil. He said that 20 other fields have a reserve ratio of between 15 million to 50 million barrels each, with a combined reserve of 489 million barrels. Of the remaining 91 fields, he said, each has a reserve of 15 million barrel or less, with a combined reserve of 489 million barrels of crude oil.

Bidding to start in February

Bidding for some of the fields that have been categorised is scheduled to commence before the end of February 2001, Lukman explained. He said government would adopt a three-phase process. expected to last approximately 12 months, for the allocation of the fields.

With the planned licensing of the marginal fields and the expected release of results of the Year 2000 Licensing Round, the Nigerian oil industry is set for increased activity in 2001.

Under the 2000 Licensing Round, the government put on offer 22 oil blocks, half of which is located in the rich deep/ultra-deep offshore. The results are expected this month, and media reports say they could be announced this week.

Multinational oil companies are expected to win a majority of the blocks, given their financial and technological advantages over their local counterparts. The location of most of the blocks in the deep/ultra-deep offshore makes them both risky and costly to develop, and therefore puts them beyond the reach of most of the indigenous firms.

Already, multinational firms dominate the Nigerian oil industry, with joint ventures between the Nigerian National Petroleum Corporation and six of these firms accounting for 98 percent of Nigeria's total output of 2.2 million barrels per day. Currently, indigenous firms produce a paltry 100,000 barrels per day, a level of output the government says it wants to raise.

A key role for indigenous firms

Lukman said government's plan to give the marginal fields to indigenous firms was based on its recognition of the role they could play in the development of the oil sector, given their size and peculiarities.
"They have been the source of finance for developing mature fields and those with volatile economies in North America and Europe. As the major oil companies move to explore riskier, more capital-intensive and rewarding areas like the deep offshore, opportunities are created for these independents," he said.

"These independents eventually take over depleting reservoirs and those with less robust profitability that meet their aspirations. The independents tend to be more flexible and decisions tend to be faster," Lukman explained further.

To realise these goals, says banker Okoroafor, it will be important to ensure that the process is not bogged down by intra-community disputes. Some of the tension in the Niger Delta has been caused by intra-or inter-community quarrels over facilities provided by oil companies operating in their localities. The policy, he said, "is a courageous move, but we should be careful because the devil is always in the details."

He adds that it is also important to ensure that oil industry standards and best practices are not compromised, "even in an environment where these things are being liberalised."