The federal government is planning to revoke unused oil exploration leases that companies were granted but have not been able to carry out any exploration activities on them.
This is as crude oil traders have raised concerns about Nigerian products after the Nigerian National Petroleum Company (NNPC) Limited changed its price model to supply the commodity.
Bloomberg reported on Tuesday that NNPC is planning to adopt a price model that will result in pricing crude supplies against the monthly average of dated Brent — which is the physical crude benchmark.
Chief executive officer, of the Nigerian Upstream Petroleum and Regulatory Commission (NUPRC), Gbenga Komolafe, who made this known said that only companies with viable technical and financial backup would get to keep their leases
“Based on the PIA (Petroleum Industry Act), the commission is focused on delivering value for the nation so only firms that are technically and financially viable will keep their leases,” Komolafe told Reuters on Monday.
Komolafe said the commission would initiate reviews of these leases and awards of new leases would be “subject to specific terms and conditions.”
According to latest data from the NUPRC, although about 53 exploration leases were issued from 2003 till date; over 60 per cent of the prospecting licences issued to local and foreign oil firms had expired.
Out of the 53 licences, 33 have since expired and not renewed, including four which are held down by contract disputes. The leases have not been automatically revoked, but the regulator is no longer willing to let the companies hold on to leases indefinitely.
The PIA enacted in 2021 empowered the regulator to review the technical and financial capabilities of companies holding oil exploration leases.
Investments in oil exploration in the country have been few and far between as oil majors exit onshore and shallow water assets due to rising insecurity and sabotage of oil infrastructure and legal disputes with communities in the Niger Delta.
The sector has since been bogged down by low investments in exploration activities, coupled with low crude oil production as a result of theft from pipeline vandalism.
Meanwhile, Bloomberg reported NNPC disclosed this in a circular, revealing the state oil company is ending the pricing model based on dated Brent average settlement in the five days after loading.
NNPC did not respond to LEADERSHIP’s inquiry regarding the price change as at the time of filing this report.
While NNPC did not give reasons for the switch, the oil firm said it would stick to initial nominated loading dates for pricing purposes.
Traders, according to the report, are worried about the changes, expressing concern that the cargoes could be more prone to volatility similar to bigger oil markets.
The decision will also make it more complex for the traders to compare cargoes from the Mediterranean and North Sea, as well as WTI Midland, to NNPC shipments to Europe.
Nigerian crude has been recording increased demand in Europe due to the embargo placed on Russian oil by the European Union due to the invasion of Ukraine.
In November, executive director, crude and condensate, NNPC Trading Limited, Maryamu Idris, had said Nigerian crude oil grades have become a steady preference for many European refiners.
Idris said six months before the war in Ukraine, 678,000 barrels per day (bpd) of Nigerian crude grades went to Europe — compared to 710,000 bpd six months later and 730,000 bpd so far this year.