67 oil block licenses illegally awarded between 2005-2011

A classified document obtained by Business Times has revealed how 67 oil block licenses were discretionally awarded by the Minister of Petroleum between 2005-2011.

The awarded oil blocks, we learnt, resulted to revenue losses for Nigeria, no thanks to the management of the bid rounds who gave out the licenses to unqualified bidders, eventually leading to lower demand and fewer qualified bidders, uncompleted deals which weakened government returns and lower development acreage.

Under the Nigerian Petroleum Act, the Federal Ministry of Petroleum Resources through DPR, exercises its regulatory functions. The DPR was formerly known as the Petroleum Inspectorate, which was part of the NNPC. However, following the commercialisation of the NNPC, the inspectorate was removed from the NNPC and renamed as the DPR.

The responsibilities of the DPR include issuing permits and licences for all activities connected with petroleum exploration and the refining, storage, marketing, transportation and distribution thereof.

The DPR is responsible for the day-to-day monitoring of the petroleum industry. It supervises all the petroleum industry operations carried out under licences and leases in the country, with a view to ensuring compliance with the applicable laws and regulations in line with good oil field practices. The DPR also establishes and enforces environmental regulations.

Under the Licensing regime, DPR issues Oil Exploration Licence (OEL) permitting a licensee to explore for petroleum in the licence area for one year .Renewable upon satisfaction of certain conditions.

After the OEL, licensee is given the Oil Prospecting Licence (OPL) which grants licencee exclusive rights of exploration. Duration is determined by the Minister

Lastly is the Oil Mining Lease (OML) granted to holder of OPL upon satisfaction of all conditions of the licence or the Petroleum Act and having discovered oil in commercial quantity (i.e. a flow rate of 10, 000bpd), duration is for 20 years, renewable upon fulfilment of prescribed conditions.

However, some of the things which has marred the process is in-discretionary allocation of oil blocks to unqualified bidders who end up abandoning them for either lack of money or lack of expertise and technology to develop the fields, thereby denying the country revenues from the oil blocks. Also over the years, the process had been characterised by secrecy.

A document by the Task Force quoted in the Ribadu Report, confirmed our investigation. According to the Task Force, the Department of Petroleum Resources, DPR, provided it with information indicating that 67 licenses were indeed awarded between 1 January 2005 and 31 December 2011; with an outstanding balance of $566 million unpaid in signature bonuses.

Signature Bonus is money paid by owners of oil blocks to DPR to have their licenses signed by the Department.

For the 7 discretionary allocations reviewed, the Task Force found $183million outstanding and due to the nations treasury.

We were however informed that of the total $749m outstanding in signature bonuses, $321m was legally disputed”, according to the Ribadu Report.

Thankfully, the $566 million unpaid signature bonuses is presently being investigated by the House of Representatives, leaving out the issue of illegally awarded oil blocks.
Reacting to the recent report that oil blocks were awarded illegally, Director of the Department of Petroleum Resources, Mr. Osten Olorunsola, said at a conference in Houston, United States, that the president is empowered by law to make such allocations.
Meanwhile, the last public oil bid was conducted during President Olusegun Obasanjo’s regime.

In 2010, Petroleum Minister Diezani Alison-Madueke said government was trying to “sort out some issues” surrounding the previous bid rounds before it starts fresh ones.
A player in the oil industry, who craved for anonymity, told Business Times that the government’s action discourages competition among indigenous oil operators and also send wrong signals to international investors.

Reverend David Ugolor, Executive Director, African Network for Environment and Economic Justice (ANEEJ), said this was not the first time such secret allocation of oil blocks was done by a president.

In any case, the development contravenes global best practice of open competitive bidding and as such should be discouraged,” Ugolor said.

Nigerians are also kept in the dark as to how much accrued to the country from the exercise. The unresolved regulatory issues has not allowed potential investors, both local and international, to make huge financial commitment in the sector. Nigeria is losing huge resources from the dwindling investment in the sector and there is also loss of potential revenue from royalties,” he added.

Ifeayi Izeze, an Abuja-based consultant on strategy and communication, said the controversies surrounding the delay in passage of the Petroleum Industry Reform Bill (PIB) could be blamed for the delay and shifting date for the 2012 oil bloc bid round.
When Business Times contacted the spokesman for the Nigerian Extractive Industry Transparency Initiative (NEITI), Mr Orji Ogbonnaya Orji, he said it is not the responsibility of NEITI to decide how oil bid rounds will be conducted. He however added that NEITI expects to be invited to observe the process in line with constitution.
Investigations revealed that the 67 discretionary allocations were in the marginal oil fields which were secretly given out to companies belonging to cronies, family members and associates.

Former GMD of NNPC Mr. Funsho Kupolokun during his presentation to the Ad-hoc Committee of the House of Representatives investigating Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) granted by past administrations, said the committee needed to address the manner of allocation of the oil blocks given the fact that the law allows the minister to go by way of competitive bidding or using discretionary power.

However, industry experts have said secret allocations are against international best practices, and a slap on the face of the government’s declaration that the process of awarding oil licenses were to be done publicly through competitive bidding.