Global Insight Perspective | |
Significance | Indian and Chinese companies have secured exploration licences in waters offshore Nigeria, and the federal government has also allocated two licences to groups from the Niger Delta. |
Implications | A new strategy has been implemented in this licensing round, with the federal government keen to tie upstream licences to investment in domestic infrastructure instead of large signature bonuses. |
Outlook | The licensing round will be considered a success for each party involved, with potentially huge hydrocarbons deposits to be found offshore and other countries paying for the development of infrastructure in Nigeria. Asian companies will now work alongside Western oil companies within Nigeria amid growing competition to secure energy supply. |
Results of Mini Licensing Round
Seventeen new oil licences were awarded in Nigeria on 19 May. The round saw India and China lock up potential new energy sources for their growing economies. This time, Indian and Chinese NOCs managed to secure their licences through offering billions in investment in Nigerian downstream and power sectors, rather than large signature bonuses. Two of the licences in the latest bidding round have been reserved for groups from the Niger Delta, part of a strategy by the federal government to placate the restiveness of the oil-producing region.
There was little competitive bidding at the auction, because the right of first refusal over all 17 blocks had been agreed with bidders with a reserve price. In a new strategy, Nigeria awarded the licences for relatively small signature bonuses, even though the licences are in deepwater zones with the potential for billion-barrel discoveries. The companies have secured the rights for commitments to downstream projects and huge investment in Nigeria's domestic infrastructure, instead of larger signature bonuses.
China National Petroleum Corporation (CNPC) has been awarded four licences while paying only US$16 million in signature bonuses. The deal was agreed last month, when Chinese President Hu Jintao visited Nigeria (see Sub-Saharan Africa: 1 May 2006: China Increases Security of Supply with Energy Deals in Nigeria and Kenya).Two licences in north-eastern Lake Chad went for only US$510,000 each, while two in the southern Niger Delta - 298-ON and 471 - cost US$5.01 million and US$10.01 million, respectively. For the drilling rights, CNPC has agreed to pay US$2 billion, which will see the oil company take a 51% stake in the Kaduna refinery, with a mandate to restore the faltering facility to its 110,000-b/d capacity. The refinery sector was not maintained during the last years of Nigeria's military rule and has been running at below capacity since that time. CNPC will also pay for the construction of a hydropower plant in Mambila in Plateau State (see Nigeria: 27 April 2006: Nigeria Gives China Four Oil Licences for US$4-bil. Infrastructure Investment). CNPC was keen to enter Nigeria, since it already has a presence in Sudan, Niger, Chad, Algeria and Mauritania.
A consortium of India's Oil and Natural Gas Corporation (ONGC) and Mittal Steel has won licences for Blocks 285 (212) and 279 (209) in return for signature bonuses of US$50 million and US$75 million, respectively. However, the Indian consortium has committed to invest US$6 billion in a new 180,000-b/d refinery, 2,000-MW power station and an east-west railway in Nigeria. The joint venture between ONGC and Mittal Steel, known as ONGC Mittal Energy Ltd (OMEL), previously attempted to bid on hydrocarbon projects, but lost out in Kazakhstan (see India: 10 October 2005: ONGC Mittal Considers Options Beyond PetroKazkhstan).
Niger Delta Groups Win Licences
Two oil firms from the Niger Delta have been awarded licences in the latest round. Clearwaters Consortium won OPL 289, and Niger Delta United Limited was allocated OPL 233. This decision by the federal government is part of its initiative to include groups from the Niger Delta more in the country's oil industry. Profits from these licences will be reinvested in the Delta region. The federal government has promised these licences to organisations that were present at last month's symposium in Abuja, the Presidential Committee on Socio-Economic Development of the Niger Delta. At the meeting, President Olusegun Obasanjo promised 20,000 new jobs and significant investment in the region (see Nigeria: 19 April 2006: Niger Delta Committee Convenes; Employment in the Region Promised). However, the Movement for the Emancipation of the Niger Delta (MEND) has accused the government of trying to 'bribe' Delta people with these allocations and has promised further attacks.
Outlook and Implications
This latest licensing round in Nigeria saw a new strategy implemented, with Asian NOCs taking advantage of Nigeria's desire to tie upstream licences to investment in infrastructure. This has been a tactic previously used by Angola in recent licensing rounds and a tactic of which Chinese NOCs have taken advantage. The massive investment in domestic projects by Indian and Chinese companies is compensated for by the potentially huge hydrocarbon deposits in the deepwater fields. The decision to allocate OPLs to groups from the Niger Delta is a cunning ploy, which the federal government hopes is viewed as a way to use the region's resources to fund a better future for the Delta indigenes. Overall, this new licensing round has brought companies from India and China - both desperate to locate and secure new sources of energy to feed their rapidly growing economies - into a country that has previously been operated by Western oil companies. These new deals are part of a larger pattern of intensifying competition for resources between Western and Asian countries in Africa.