Current Oil Bid Round: The Right Step and the Right Time

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Debate over the management of the natural resources of Liberia should always be welcomed as a healthy exercise. That said, any debate around our oil resource should always be fact-based and avoid emotive rhetoric, including the ongoing discussions on the National Oil Company of Liberia (NOCAL), holding a bid round for old oil acreages (LB-6, LB-7, LB-16, and LB-17).

Firstly, the debate must understand the historical backdrop of the oil blocks. Two of the oil blocks (Blocks 16 and 17) were held by Anadarko (an International Oil Company), which subsequently decided to relinquish said blocks. This means that Anadarko stopped all activities and returned the data and the rights to the Government of Liberia— rendering these two blocks available for other oil companies that may be interested.

The other two (Blocks 6 and 7) were part of the 2007-08 bid round. But discussions with the party granted the right to negotiate over these blocks were terminated, and no contracts were ever concluded. With no Production Sharing Contracts (PSC) attached to these two blocks they were therefore also available to Government to re-open for investment. No exploration or drilling ever took place on any of the four blocks.

Commentators new to the oil sector should understand that standard petroleum industry practice allows for relinquished blocks to be made available for other oil companies, and that it is bad practice to have previously leased blocks to sit vacant without any activity on them. Indeed, it is good for NOCAL to seek investment in these blocks because doing so will lead to exploration, generate more interest among oil companies and keep our oil sector growing. This is necessary to ensure the potential socio-economic benefits to Liberia.

It is also a good industry practice to put several blocks into a bid round together instead of doing so separately, and to structure bid round so that it is opened and competitive. It means that companies compete to out-bid each other, increasing the benefits to Liberia.

Moratorium on new acreage

It must be understood that the blocks in question lie completely outside of the moratorium that GoL erected around new oil blocks in 2012. This moratorium was put in place to cover virgin acreage that has never been the subject of bid rounds and/or negotiation.

The blocks under moratorium are LB-1 through LB-5, and ultra-deep blocks LB-18 through LB-30. Nothing will happen to these blocks and there will be no bid rounds for these blocks until after the new petroleum law is passed and the new regulator is established.

Since the four blocks in the bid round (LB-6, LB-7, LB-16 and LB-17) have been the subject of earlier bidding and negotiation, which predates the 2012 moratorium, they are not under moratorium.

Transparency and Quality of the bid round

The bid round is being carried out to ensure maximum transparency and maximum resource generation for the country and its people. NOCAL has hired a top independent firm to help oversee the bid round and ensure propriety. EY, formerly known as Ernst and Young, is one of the world’s leading consulting and audit companies, and their participation guarantees the correct procedure and transparency. The firm will be responsible for opening the bids and assisting with the evaluation. 

To ensure quality bids, interested companies have to pre-qualify. That means that companies have to prove that they have experience, money and good management to be allowed to bid.  Winning companies will have to write their work program, which lays out what they will do.

NOCAL is not rushing this bid round, and will conduct it in a proper and diligent way, and would never jeopardize future benefits of oil.  The bid round has been meticulously planned and designed with the input from international experts in geology, finance, commercial oil, legal issues, policy and natural resource governance. There have been extensive NOCAL-led discussions with key development partners, including the US Energy Governance Capacity Initiative, AGI, and IMF.

There is no question whatsoever that the substance of the contracts or terms on offer will achieve anything less than the best deal for Liberia.

Timing and Ebola crisis

The bid rounds should have been conducted ever since but time was needed to put the necessary structure together. That the GoL/NOCAL took until now to embark on the exercise reflects the care and meticulousness with which the process is being carried out.

It is a matter of fact that the announcement of the process predated the upsurge of the ongoing Ebola situation. And even though that was never the intention behind the bid round, the Ebola argument should be turned on its head by pointing out the urgency now to mobilize all national resources (including that of the oil industry) to save the lives of our people, stem the economic damage in the short term and secure our long term ability to recover.

The long-term future of Liberia cannot be forgotten while dealing with a short-term crisis. But even in the short term, this bid round may prove essential for our national stability. The revenues from the investment round could help plug the significant financial hole Ebola leaves in the economy. According to World Bank estimates, Ebola has already knocked 3.4% off Liberia's GDP, and the damage to GDP could reach as much as 11.7% in 2015 leaving us with negative growth. Ebola is destroying not just lives but livelihoods. The Government of Liberia also faces a huge hole in the budget. Any money from this bid round will help address that.

Local content provisions

The bid round will also promote local Liberian business and jobs. The ‘Local Content Participation’ (LCP) provision that has been designed is a world first and will lead to meaningful Liberian participation in the upstream and downstream petroleum sectors. Again, commentators need to take time to fully appreciate the facts and how this LCP works.

The investment round invites companies to bid for contracts to explore one of the four vacant oil blocks off the shores of Liberia (LB-6, LB-7, LB-16 and LB-17). The companies bid a proposed upfront payment to Liberia, and this is the main factor on which the winning bid will be chosen

However, to encourage local partnerships, bids from groups that include either a) a significant West African/ECOWAS upstream petroleum company that has committed to partner with a Liberian company, OR b) a direct partnership with a Liberian company for a total of a 5% interest in the PSC by the Liberian company, will be evaluated as if their upfront payment was 20% higher. In this way bidders who partner regionally and/or locally are more likely to win.

This is in addition to the NOCAL participation of 10% and Citizen Participation of 5% for a total Liberian participation of 20%. This is also in addition to the other financial benefits, such as royalty, tax, and production sharing. 

Conclusion

It is vital that Liberians have a keen interest in the emerging oil sector of the country, because they provide the platform to make right where others have gone wrong in their oil programs. In developing this interest however, commentators should stick with the facts and have an appropriate understanding of the issues.

In the oil and gas industry, it is a bad sign in a country’s oil program for previously leased blocks to sit open without any activity.  It decreases the value of our existing blocks.  It gives the impression that there is no possibility of oil and that no one is interested. What the bid round does is to simply allow qualified oil companies to explore for oil and gas. The Government of Liberia does not have the money or the expertise needed to conduct such activity.  The more oil companies that are looking, the more chances there are to find oil. 

Liberians should therefore rest assured that the ongoing exercise is being undertaken in the best interest of the country and for the benefit of the generality of all Liberians.

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