Govt may cut signature bonus to attract upstream oil investments

The dwindling investment in the upstream sector of the oil and gas industry may force the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to consider some drastic measures in the next bid round for oil blocks. One of such measures may be a reduction in signature bonus paid by awardees for the oil blocks. Signature Bonus is a single, non-recoverable lump sum payment by the license to the government upon the granting of a petroleum exploration license or petroleum production license.

Industry sources explained that globally, payable signature bonus by awardees of an oil block or marginal field rank highest in Nigeria. This, the source said, is a major reason most of the awardees find it difficult to raise the capital to invest in the fields once they have paid the signature bonus. Besides, it is believed that the high signature bonus paid in Nigeria has become a major disincentive for prospective investors. A report by the Nigeria Extractive Industries Transparency Initiative (NEITI), noted that: “A total of 106 companies emerged from the process as the Marginal Field Bid Round awardees. It should, however, be noted that only five companies had made payment of signature bonus based on 2021 audit information provided by NUPRC.”

Although payment of signature bonus remains a veritable source of revenue for the country, the thinking in the industry is that of what use is a high signature bonus only for the licencee not to be able to invest in the sector after such payment.

“Why make them pay so much money as signature bonus and they can’t invest in the sector? Is it not better to have a lower signature bonus charged and the continue to receive good revenue from their operations for several years after because this will in the long run benefit the economy more instead of a one-off payment,” the source argued.

Still buttressing the need for a reduced signature bonus, another source argued that when good investments come into the sector, it will not only translate to greater crude oil production output, leading to the country earning more foreign exchange from the sector, but also help in bolstering employment opportunities for Nigerians. 

The arguments for a cut in signature bonus may not be unfounded. In 2022, the NUPRC disclosed that it realised a sum of N174 billion from the signature bonuses paid by the awardees for the 2020 marginal oil fields, while it revoked marginal oil fields awarded to 33 companies for failing to meet the 45 days deadline required to pay the signature bonus for the fields. 57 fields were on offer with 665 companies indicating interest to acquire them.

Asked to comment on the idea of reduction in signature bonus, Chief Executive Officer of NUPRC, Engr. Gbenga Komolafe declined to comment. He however said the Commission is putting in place policies that would break all barriers to investment in the sector which ultimately would lead to more robustness in the sector.

Komolafe however agreed that the Nigerian upstream sector is “facing severe pressures because of the low crude oil production and lack of investment in recent years.” Besides, he noted that the changing global energy map especially with the emergence of several new oil-producing countries, and the energy transition which is on the rise, require the need for proactiveness on the part of the industry

“This situation has induced a high level of competitiveness for investment capital, therefore, strategic actions must be taken to make the Nigerian environment investor-friendly. We must vacate entry barriers for investment. This is common logic when there is high competition. We need to work together to lower barriers and do everything possible to motivate investment,” Komolafe told The Nation in a chat at the weekend.

The NUPRC boss, who met with critical stakeholders in the industry last week, explained that his meeting with operators and awardees of marginal fields was in line with the measures being put in place by the Commission to break all barriers against investment in the sector.

“We have to listen to their challenges and explore ways of helping them because they are important stakeholders in this sector, especially as they are indigenous companies. The Commission is permitted to hand-hold them and encourage their growth in a manner that they could make their contribution to the hydrocarbon development in the country. No financier will want to fund an organisation that is not seen as organised, that doesn’t have proper governance, but as a regulator and as part of our ways to enable their businesses, we are really reaching out to make sure they resolve that, so that by the time we relate with maybe multilateral organisations and other funding entities, we help them to overcome the challenges they have,” he said.

He also said the Code of Conduct policy being considered was a regulatory tool and part of regulations that would help the companies to put proper governance around their businesses to make it easy for them to access funding.