Nigerian Regulator Warns Companies Against Buying Oil, Gas Assets Without Due Diligence

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has advised prospective buyers of oil and gas assets put on sale during bid rounds to endeavour to carry out proper due diligence checks on the commercial and economic viability of the assets before making payments.

The commission also absolved itself of any responsibility for the commercial decision made by a company to invest in an asset on the basis of the buyer’s analysis of the information made available to it before bidding and paying for the asset.

NUPRC gave the advice in a letter sent to THISDAY in response to an enquiry regarding a complaint by Folstaj International Limited, the awardee of the Udibe marginal field.

Folstaj had claimed that the actual volume of hydrocarbon in the field allocated to it by the regulator was far below what was in the dataset given to it by the commission.

Managing Director of Folstaj, Mr. Tajudeen Yahaya, had during an interaction with THISDAY, stated that the company was still trying to resolve the discrepancy in the reserve volume quoted in the dataset handed to it by the regulator upon which they paid the signature bonus.

 But in an email response sent to THISDAY by the Head, Public Affairs and Corporate Communications, NUPRC, Mrs. Olaide Shonola, the commission insisted that fields on offer in the 2021 Marginal field bid round were offered on the basis of well-known contractual principles.

It argued that all prospective bidders were expected to have carried out proper due diligence and commercial analysis of the data available before making a decision to buy any of the assets on offer following an award.

The Gbenga-Komolafe-led NUPRC further said that the commission cannot be responsible for the commercial decision made by a company to invest in the asset on the basis of its own analysis of the information made available to it before bidding and paying for the asset.

The regulator added that the commission had no powers to replace or substitute a field on the basis that the field proved not to be economic based on the determination of an awardee.

The NUPRC’s response read: “Sequel to your letter, requesting information from the Nigerian Upstream Petroleum Regulatory Commission, regarding issues raised by Folstaj International Limited for reassignment of another marginal field due to low volumes at the Ndibe Marginal field.

“The Nigerian Upstream Petroleum Regulatory Commission wishes to categorically make it clear that, Fields on offer in the 2021 Marginal field bid round was offered on the basis of well-known contractual principles and that all prospective bidders are expected to have carried out proper due diligence and commercial analysis of the data available before making a decision to buy any of the assets on offer following an award.

“Therefore, it is pertinent to note that, the commission cannot be responsible for the commercial decision made by a company to invest in the asset on the basis of its own analysis of the information made available to it before bidding and paying for the asset and do not have powers to replace or substitute a field on the basis that the field proved not to be economic based on the determination of an awardee.

“However, it is a considered opinion of the commission that there is no legal or commercial basis for NUPRC to consider or concede to the request by the company and therefore recommends that the company be advised accordingly”.

The Managing Director of Folstaj, Yahaya, had told THISDAY that his company was disputing the production capacity of the Udibe Marginal Field allocated to it.

He claimed that the actual daily output capacity as shown by the company’s analysis was far less than the 15,000 barrels per day (bpd) contained in the NUPRC data.

He said Folstaj had channelled its complaints and demands to the NUPRC through a letter for over one year without getting any response, adding that they wanted NUPRC to consider either renegotiating the terms of award or reallocate another field to the company.

THISDAY gathered that the discrepancy had negatively impacted work progress on the field, having stalled the first oil milestone Folstaj had been aggressively racing towards achieving before the end of 2022.

Yahaya had said: “We had some arrangements already which was pushing us ahead. If what we saw at the field eventually was what we expected, by now, we would have been able to hit first oil, because we had some financing arrangements on ground.

“Some of my people went to the US and other places to check out rigs, jack-up barges, that we were going to use for our drilling.

“We had gone very far with our planning until the reservoir evaluation by Baker Hughes showed that the actual quantity of oil in the field was far less than the 15,000 barrels per day that was in the dataset of NUPRC. So, we had to slow down. And we have set up a team of experts to go and meet with the NUPRC to renegotiate the terms.

“You know, in deploying funds, you have to look at what you are doing and the returns on investment and all of that. So, that has slowed the activity.”

THISDAY understands that most of the firms that won the marginal oil fields auctioned during the 2020 marginal field bid round are still currently struggling with how to translate their licences to field development and first oil production.

Findings showed that the oil firms are mainly handicapped by lack of corporate governance, which is a key requirement for them to be able to raise capital needed to progress to field development.

Peter Uzoho

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