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Concerns Over Untapped Oil Assets In Nigeria’s Deep Offshore

Nigeria’s deepwater assets hold the country’s lifewire in the oil and gas sector having accounted for 40.47 per cent of the total production of 2.1 million barrels per day (bpd).

The country’s first deepwater well was completed in 1998, while production started in 2005. It later increased Nigeria’s oil production by 10 per cent.

Aside Bonga, other deepwater exploration, drilling, and production operation operations have come full swing. They include the Chevron Agbami field, ExxonMobil Erha field, Nigerian Agip Exploration Aboh field, Total Exploration and Production Akpo and Usan fields, to the most recent, Egina field by Total Exploration and Production.

Besides, the Bosi fields as well as the massive billion barrel Owowo field, were both discovered by ExxonMobil, but still awaiting development. Chevron is working on Nsiko, part of the block that is over 2, 400 meters deep, much deeper than Bonga.

Already, Shell Petroleum Development Company, SPDC has expressed commitment to invest in deepwater oil and gas exploration in Nigeria and other parts of the world.

The company indicated in its latest report that the plan is based on the discovery that deepwater holds great prospect for the making of new finds.

“Shell has a long history of successfully developing deep-water energy projects worldwide. We use our knowledge, experience and proven deep-water technologies to unlock new resources safely and efficiently. We work to limit the impact of our operations on the environment and share the benefits with neighbouring communities.

“Beneath the world’s oceans – in waters ranging from a few hundred to several thousand metres deep – lie vast supplies of oil and natural gas which have the potential to boost economic growth and play a vital role in the future energy mix. Freezing temperatures, immense water pressure and pitch darkness all make producing oil and gas from deep water a major technical challenge’ ’it added

But assets with 13 billion barrels of oil equivalent resources remained presently untapped in Nigeria deep offshore area.

Only seven out of the 87 deepwater oil blocks in Nigeria are producing, while six are at different phases of development, according to the Group Managing Director of the Nigerian National Petroleum Corporation, Dr Maikanti Baru.

Besides, over half of the deepwater blocks were open and urged players in the oil and gas sector to start to create adequate linkages to the local economy.

Baru said: “At my last count, about 10 deepwater projects are lined up for sanctioning. Also, given the lead time for project maturation, the time to build is now for us to achieve the results we desire, seizing the chance to develop our oil and gas industry and by extension the economy.”

Baru, spoke at the last OTC confab in United States of America, adding that deepwater operations in the country had generated revenue exceeding $180bn.

He said the revenue was generated following industry players’ capital investment in excess of $65bn with the potential for growth amid untapped abundant opportunities in the sector.

He stated that Nigeria held approximately 13 billion barrels of oil, out of which about two billion had been produced with a huge volume yet untapped.

He added that the local content contribution or services share in deepwater had continued to grow and improve from less than one per cent to an aggregate contribution of over 25 per cent from engineering man-hours of less than 20,000 to over 1.1 million in Egina project.

“With the Nigerian content, tonnage has grown by 600 per cent from the first deepwater project till date,” Baru noted.

The NNPC helmsman stated that deepwater projects had benefitted the wider Nigerian economy by boosting demand for a range of goods and services, including offshore vessels and platforms, materials, floating hotels, helicopters and manpower, creating jobs and providing a wide range of training and maintenance services to the industry locally.

He added that services in areas such as manpower supply, logistics, and vessel supply, chemical supplies had more or less been domesticated in the deepwater value chain.

He further invited foreign investors to invest in Nigeria’s over 10 billion barrels of oil equivalent untapped deepwater resources

Director, Department of Petroleum Resources (DPR), Mr. Mordecai Ladan, who was represented at the occasion by Deputy Director, Upstream, Mr. Enorese Amadasu, said Nigeria has 83 deepwater oil and gas blocks out of which 30 have been awarded and eight blocks out of the 30, are oil mining leases (OMLs) that have begun production, with 53 open blocks yet to be awarded.

He said Nigeria has about 13 billion reserves for deepwater with only two billion barrels explored, adding that since inception, crude production from deepwater has reached 3.2 billion barrels of oil from a target of four million barrels per day.

Amadasu said production from deepwater is currently around 850,000 bpd from eight producing fields representing 40 per cent of total oil production, and this may witness further decline as a result of challenges which included fiscal and regulatory uncertainties and technological constraints.

He said to tap the remaining 11 billion barrels, there is the need to have more attractive fiscals and changed regulatory regime, adding that, there is also the need to amend the policy that nobody brings third parties and investors who will bring floating production, storage and offloading vessels (FPSO) so that all the other small reserves can be developed and tied in.

To unlock the huge potential in the deepwater, the DPR chief said the Federal Government will have to create more attractive fiscal and regulatory regime, incentives based on reserves replacement, ensure accelerated lease renewals and encourage deep play exploration and reserves maturation.

He listed other measures to include; creating unique fiscal policy for unique emerging players, responsive legislative environments for gas commercialisation, among others.

“DPR as a regulator, working with other stakeholders including the Nigerian National Petroleum Corporation (NNPC), decided to go into deep water, when the inland and the offshore was already saturated. The only way to do that was to come up with Production Sharing Contract (PSC) agreement, and that was how 83 blocks were mapped in Nigeria’s deep water and 30 of the blocks were awarded. Eight of the blocks were awarded in 1993, eight in 2000 and other 14 in 2015.”

Mr. Bayo Ojulari, Managing Director of SNEPCo, said regulatory lapses, non-flexibility in funding options for offshore operations and a lack of collaboration among indigenous operators and IOCs has stalled progress in deepwater development.

“The battle is between the regulation of the deepwater and investment. We have everything going for Nigeria that we should not be talking about eight FPSOs, we should be talking of about 30 FPSOs,” he said.

One of the things that silently frustrated progress in deepwater has been delays in tidying up the commercial framework that will support investment. The fragmentation of Nigerian contractors which has led to their inability to work together becomes a major impediment.

Austin Avuru, Chief Executive Officer of Seplat Petroleum Development Company Plc said the excitement and expectations that came with the deepwater discoveries did not last.

“Years after deepwater production came on, that rash of new discoveries have not materialised. All we have seen is development and production to the point where as we speak today, some of the earlier producing fields have already plateaued.

So there has been little additional exploration work, there is little additional discovery in deepwater, what we’re actually seeing is the onset if we are not careful, of a decline to deepwater production,”he said.

Speaking on how to overcome Nigeria’s deepwater challenges, Jubril Adewale Tinubu, Chairman and Group Chief Executive at Oando Plc,said developing deep-water fields is a cost intensive process and Tinubu points to transportation, services, qualifications, permitting, infrastructure and capital expenditure (CAPEX) costs that are much higher than for onshore developments.

“Similarly, operating in Nigeria, the risk although low, comes with high safety costs, thereby bringing a much higher operating expenditure (OPEX) than for onshore developments. Regulatory uncertainty was also identified by Tinubu as one of the key challenges to exploration of oil and gas in Nigeria and on the continent, ’he added.

He, however, believes that for deep water oil and gas activities to increase in Africa there needs to be active efforts to encourage developments of large as well as smaller prospects and more inclusive participation of major oil companies, independents and indigenous organisations.

He explained that continuous technological innovation is a key requirement to continue deep-water exploration and production in Africa.

“We are seeing deep-water players investing heavily in technology to lower exploration risk and optimise cost efficiency,” he said.

He also acknowledged that the decreased capacity of the local debt market, a slump in oil prices, and market reaction towards the high-risk profile of the Nigerian oil and gas industry appear to have reduced the appetite of both local and international financial institutions to fund oil and gas transactions. Some of these funding gaps have, however, been plugged by certain development financial institutions such as the Africa Finance Corporation by co-lending with Nigerian banks. Also commodity traders such as Vitol have funded oil and gas transactions by co-lending alongside commercial banks”, he said.

Mr. Victor Nwokolo, former chairman, House Committee on Petroleum Upstream, said the National Assembly had raised a private bill in May 2017, but after sending same to the Executive for assent, it was returned for amendment.

The bill, he said, was initiated to review fiscal terms for deepwater production that exceeds depths of 1000 feet based on section 5 of the agreement from.

The bill had proposed that royalties on production exceeding depths of 1000 feet should now be 3 per cent as against 0 per cent in the old terms that was meant to incentivise the operations of the IOCs.

Nwokolo noted that Nigeria had lost a lot of oil revenue due to the non-review of the PSC terms over the years, but said in the last three weeks the National Assembly has stepped up the amendment of the bill and will send it for assent before May 29.