• Tue. Jul 16th, 2024

FG Prioritizes Production Bonus To Attract Local, Foreign Investors In Oil Blocks

The Federal Government has shifted its strategy for attracting investors to Nigeria’s oil blocks, emphasizing the use of production bonuses instead of high signature bonuses. This move aims to make the bidding process more appealing to both local and foreign investors.

Production bonus payments are made by operators to the host country upon achieving oil and gas production milestones, contrasting with the high, non-recoverable upfront payments traditionally required as signature bonuses. This change is intended to lower entry barriers, thereby encouraging more investors to participate in Nigeria’s oil and gas sector.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which oversees the nation’s oil and gas industry, has been proactive in implementing these changes. The goal is to boost oil and gas production, enhance Nigerian Content Development, attract Foreign Direct Investment (FDI), and contribute to global energy sufficiency. Additionally, the strategy seeks to expand gas utilization opportunities and create employment, providing significant value to both the government and investors.

Globally, the shift aligns Nigeria’s oil and gas industry with other countries that have lower signature bonuses. For example, signature bonuses in the Middle East and North Africa average around $10 million, while in Thailand and Indonesia, they are approximately $3 million and $1.5 million, respectively. This alignment is expected to facilitate the completion of numerous projects, leading to increased production capacity, job creation, community development, and improved energy availability nationwide.

The NUPRC has received widespread commendation for its efforts. NJ Ayuk, Executive Chairman of the African Energy Chamber, praised Nigeria’s updated fiscal policies, highlighting their competitiveness for deepwater exploration and potential benefits for gas monetization. Similarly, Prof. Wumi Iledare, Executive Director of the Emmanuel Egbogah Foundation for Petroleum, criticized high signature bonuses as regressive, noting they made oil provinces less attractive.

Mazi Colman Obasi, National President of the Oil and Gas Service Providers Association of Nigeria (OGSPAN), stressed the need for a conducive investment environment, which he believes will attract foreign capital.

At a recent pre-bidding conference in Lagos, NUPRC Executive Commissioner Engr. Gbenga Komolafe discussed the global trend of reducing signature bonuses, noting Nigeria’s proactive alignment with these practices under President Bola Ahmed Tinubu’s administration. Komolafe emphasized that Nigeria’s new policies are designed to remove investment barriers and align with international best practices, boosting the attractiveness of Nigeria’s oil and gas sector.

The Federal Government, through the NUPRC, has announced the commencement of the 2024 Licensing Round, aimed at attracting robust local and foreign investments. This was first announced at the NEITI Dialogue Session and followed by subsequent announcements at the OTC in Houston, Miami, London, and Paris.

The NUPRC is committed to conducting the licensing round transparently and competitively, ensuring a level playing field for all investors. The process is supported by the legal framework of the Petroleum Industry Act (PIA) 2021, which promotes best practices and investor confidence.

Engr. Komolafe also highlighted the Commission’s efforts in acquiring more geological data, leading to the identification of additional prospective blocks. These newly identified blocks will be added to the current bid round pool, alongside the seven deep offshore blocks from the 2022 Mini-Bid Round.

The 2024 Licensing Round represents a significant step in Nigeria’s efforts to optimize its abundant hydrocarbon resources and attract substantial investment to drive economic growth and development.

Hyacinth Beluchukwu Nwafor

Hyacinth Beluchukwu Nwafor is a seasoned journalist and the CEO/Founder Belch Digital Communications, publishers of Hybrid News Nigeria.

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