080512F1,Oil--drilling-operThe Federal Government’s aspiration to grow the nation’s proven crude oil reserves from the current level of 37 billion barrels to 40 billion barrels by the year 2020 has received no significant headway despite unrelenting efforts by the government.

There is no doubt that the government wants an oil and gas industry that will continue to meet oil production targets by increasing proven oil reserves as well as encouraging increased participation by indigenous exploration and production companies.

In 2003, this aspiration culminated in the award of 24 marginal field licences as part of the government’s quest to ensure rapid involvement of Nigerian companies in the nation’s crude oil exploration and production, and the award of a total of 77 oil blocks through three bid rounds in 2005, 2006 and 2007.

However, only eight out of the 24 awarded marginal field licences have been able to go into full scale production ten years after being licensed. Also, of all the 77 oil blocks awarded between 2005 and 2007, only one has gone into production while less than 30 per cent of the remaining 76 are actively worked.

This, according to the Director, Department of Petroleum Resources, Mr. George Osahon, has made it impossible for the Federal Government to grow its declining crude oil reserve base.

He said, “Of the 24 marginal fields awarded in 2003, only eight are into production, with additional four getting close to starting full production. Also, of the 77 oil blocks awarded between 2005 and 2007, it is only one that is producing and it is being operated by a foreign firm, while the ones awarded to indigenous operators have yet to commence production.”

The DPR boss identified lack of access to finance, high taxes, community issues, technical competence, fluctuating assistance from foreign equity partners and low funding capacity of indigenous players as some of the challenges posing serious concerns to marginal field operators in the country.

Tackling this problem and reversing the inactivity in oil exploration and production agitated stakeholders’ minds at a recent one-day forum for marginal fields and indigenous operators in Nigeria organised by the DPR.

The forum focused on areas such as government expectations and potential resource volumes of oil and gas, which awardees have failed to unlock, challenges of developing stranded marginal gas fields and the nature of assistance the operators may require, funding of exploration activities and the role of banks and other financial institutions, gas commercialisation and joint utilisation of facilities.

Osahon, in a presentation on performance review of marginal fields and blocks operated by indigenous companies, informed the forum of the genesis of independent operatorship from 1990 down to indigenous operator status in 2004 and the marginal field award of 2002-2004.

He said government concerns regarding the dormant oil fields included the inability to meet industry targets for reserves and production capacity, limited operational activities and implications for industry vitality and social challenges, inability to establish national competitive advantage in the global energy scene, false impression about investment climate with Petroleum Industry Bill commonly touted as the reason for limited industry activities, and limited attraction for investors.

Using the delay in the passage of the PIB as an excuse for not developing oil fields, Osahon said that was improper and a ploy to blame the government for the challenges being faced by the licensees.

He said, “In the last three to four years, nothing is happening in Nigeria’s exploratory sector, while in the marginal fields sector, only eight fields are currently producing out of the 24 fields awarded to 31 successful companies.

“Only one block is currently producing, while less than 30 per cent of the blocks are actively worked, several Production Sharing Contracts have yet to be signed, bank guarantees yet to be put in place, work obligations not respected and downstream obligations not performed.”

The Managing Director/Chief Executive Officer, Del-Sigma Petroleum Nigeria Limited, operator of the Ke Marginal Field in OML 55 discovered by Chevron in 1955, Mr. Sokeiprim Amachree, spoke on the challenges of meeting up with work programme obligations, some of which include delays in approval processes, fluctuating assistance from foreign and local investors, oil theft, unfavourable tax regime and multiple taxation, and local content development policy, among others.

He said, “A good number of the technical partners’ agreements are not performing as most of them usually start shopping for funds after signing the agreement. Funding is perhaps the biggest challenge faced by the marginal field and independent operators. Host communities should be made stakeholders in the business to avoid vandalisation of pipelines.”

He suggested that the way forward must include funding, where he proposed the establishment of an ‘Energy Bank’ to be funded by 20 per cent of Excess Crude Account; prompt statutory approvals by DPR and Ministry of Petroleum Resources; and synergy among marginal field operators.

Speaking in the same vein, the Managing Director/Chief Executive Officer, Seplat Petroleum Development Company, Mr. Austin Avuru, said the marginal field programme had been a success based on the fact that Nigeria could build on the eight successful marginal operators if the government was serious about the indigenisation programme of the oil and gas sector.

He concluded by calling for a programme of national priority, not for reasons of sentiments, but by collaboration between independents and NNPC/NPDC.

According to him, this is the time for the DPR to step in and supervise the marginal field programme. He said the indigenous oil companies contributed about 10 per cent of Nigeria’s total production of 2.5 million bpd.

Avuru believes that indigenous oil and gas operators will grow their 10 per cent production share to 20 per cent in the next five years.

“In the next five years, indigenous companies will contribute 20 per cent of the nation’s oil and 40 per cent of domestic gas supply. They are likely to be responsible for 100 per cent supply for domestic refining by 2020,” he said.

Similarly, the Chairman, Seplat Petroleum Development Company, Dr. A.B.C. Orjiako, recently said that indigenous exploration and production companies would remain the preferred buyers in onshore and shallow waters asset divestments by international oil companies operating in the country.

“Local company-led consortiums are expected to continue being the beneficiaries of divestitures of onshore/shallow offshore oil blocks by the IOCs, who favour deep-water acreage because of their natural advantage in terms of technology, experience and financial capacity,” he said.

Looking at the production landscape and output levels, Orjiako noted that aside from NPDC, which is a government-owned operator, “Seplat is the highest with 52,800 bpd from three fields while Conoil is second with 25,000 bpd from two fields and Midwestern with 13,000 bpd, according to a publication of Africa oil and gas report.”

In conclusion, Osahon, the DPR boss, said if the country must meet industry target for reserves and production capacity, more oil blocks must go into production.

The expectation, according to him, is that Nigerian independents will continue to unlock small-sized reserves, and up the nation’s oil production level.

He also warned that operators should stop using the non-passage of the PIB as an excuse to continue to sit on acreages without bringing them into production.

The DPR, Osahon said, had already set in motion measures aimed at helping marginal field operators and other independents to surmount the hurdles ahead.


Information from Punch was used in this report.