Nigeria Court Ruling Stymies State Bid to Offer Oil Permits

(Bloomberg) --

A Nigerian court suspended the government's cancellation of eight oil concessions, hampering the state's ability to include the withdrawn permits in a bidding round opened this week.

A judge at the Federal High Court in Lagos granted an injunction on Wednesday, preventing the government from re-awarding the eight permits before a lawsuit challenging the legality of the terminations is resolved. Ten companies, including closely held Bayelsa Oil Co. Ltd. and Del-Sigma Petroleum Nigeria Ltd., filed the case against Petroleum Resources Minister Timipre Sylva and Attorney General Abubakar Malami.

The Department of Petroleum Resources on Monday opened a tender for 57 onshore and shallow-water oil blocks to local investors -- the first auction of so-called marginal fields since 2003. While most of the available fields are those that oil majors such as Royal Dutch Shell Plc chose not to develop, others were recently revoked from Nigerian companies allocated them in the previous auction.

The DPR is restrained “from taking any further steps or action” to sell on the fields to new investors and the plaintiffs can continue operations on their assets “pending the determination of the substantive suit,” the order said. The companies argue their concessions are valid for the remaining lifespans of their fields.

Court Injuctions

The DPR revoked 11 concessions with immediate effect on April 6, stating the companies had failed to develop the fields and bring them to production. The firms, through an umbrella organization called the Marginal Field Operators Group, then wrote to President Muhammadu Buhari asking him to reverse the DPR's decision. The operators of the other three fields have obtained individual court injunctions.

Rather than leaving the assets “fallow,” the companies argue that they have invested about $450 million in the 11 fields over the past 15 years, bringing some of them to the early stages of production and others to “various advanced stages of development,” according to the letter to Buhari. Bayelsa Oil and Eurafric Energy Ltd. have evacuated 106,000 and 72,000 barrels of crude respectively from their permit areas, the companies said.

The DPR declined to comment on any ongoing litigation. The companies whose fields were revoked “have failed to achieve the condition of the award despite additional extension upon extension,” Sarki Auwalu, the DPR's Director of Petroleum Resources, said at a news conference on Wednesday.

Marginal-field rounds are a government initiative to increase domestic participation in the oil sector and generate production from acreage that isn't of interest to larger industry players. Twenty-four permits were allocated in Nigeria's only other auction in 2003 – 11 of which the government is attempting to recover. Marginal fields were responsible for about 3% of Nigeria's total output, or 65,000 barrels per day, in 2018, according to DPR data.

Of 30 marginal fields allocated to date, less than half have reached commercial production, according to Ayodele Oni, a partner at Lagos-based Bloomfield Law Practice. Their current contribution to national production “is far less than the projected output envisaged by the Ministry of Petroleum Resources during the award stage,” he said.