Why 88% of Nigerian Deepwater Oil Fields Are Not Producing
-By Yange Ikyaa
The Nigerian oil and gas industry has experienced phenomenal growth in deep water operations in the past two decades, as the Nigerian National Petroleum Corporation (NNPC) has continued to support planned deepwater projects, while ensuring adequate participation of indigenous companies in exploration, exploitation, transportation, as well as refining and marketing of crude and refined products.
Yet, only 11.31 percent of the deepwater oil blocks in the country are either producing or at different stages of development, with the remaining 88.69 percent without any activity. A further analysis of the trend shows that just 6.09 percent of deepwater oil blocks in Nigeria are producing, while another 5.22 percent of the oil blocks are being developed.
“There are 87 deepwater blocks in Nigeria, out of which only seven (6.09%) are producing and additional six (5.22%) at different phases of development,” said data from NNPC sourced by Valuechain.
This therefore means that a great majority of the country’s deepwater oil blocks are idle, and “more than half of the blocks in deepwater Nigeria are open,” yet Nigeria’s deepwater operations have generated revenue to the country in excess of $180 billion.
To arrive at these profits, industry players’ capital investment has exceeded $65 billion in a sector that still has potentials for growth amidst untapped abundant opportunities.
Nigeria has an estimated 13 billion barrels of oil reserves in deepwater and only two billion barrels of it have been explored, and the delay is predicated on lack of, and great need to have more attractive fiscal and regulatory regime, especially through the much awaited Petroleum Industry Bill (PIB).
According to Mordecai Ladan, who is the Director, Department of Petroleum Resources (DPR), there is need to amend the policy that nobody brings third parties investors who will bring Floating Production, Storage and Offloading vessels (FPSO).
To unlock the huge potentials in the deepwater, the DPR chief said the Federal Government will create more attractive fiscal and regulatory regime, incentives based on reserves replacement, ensure accelerated lease renewals and encourage deep play exploration and reserves maturation.
Other measures include creating unique fiscal policy for unique emerging plays, responsive legislative environments and for gas commercialization, among others.
Ladan said there is need to amend the policy that nobody brings third parties investors who will bring Floating Production, Storage and Offloading vessels (FPSO).
To unlock the huge potentials in the deepwater, the DPR chief said the Federal Government will create more attractive fiscal and regulatory regime, incentives based on reserves replacement, ensure accelerated lease renewals, and encourage deep play exploration and reserves maturation.
Other measures include creating unique fiscal policy for unique emerging plays, responsive legislative environments and for gas commercialization, among others.
Data from DPR seen by Valuechain says that Nigeria’s deepwater oil production currently stands at 850,000 barrels per day, representing 40.47 per cent of the total production of 2.1 million barrels per day.
Deepwater oil blocks are those located in areas of water depth beyond 200 metres and extending up to 200 nautical miles seaward from the coast of Nigeria.
According to Mordecai Ladan, of Nigeria’s over 80 deepwater oil and gas blocks, 30 have been awarded and eight blocks out of the 30 are oil mining leases (OMLs) that have begun production, and there are 53 open blocks to be awarded.
“Successful progress has been made in growing Nigeria reserves and production from the development of deep offshore hydrocarbons since 2003.
“Technology has been the key enabler in converting resources into economical reserves. There abound ample opportunities to realize accelerated revenues and sustained investment in maturation of more than 40 billion barrels of oil equivalent resources presently untapped in Nigeria deep offshore area.
“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 were 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 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.
“At my last count, about 10 deepwater projects were 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,” said Bank Anthony Okoroafor, who is the Chairman of Petroleum Technology Association of Nigeria (PETAN).
Okoroafor also commended Dr. Maikanti Baru, the out-going Group Managing Director (GMD) of NNPC, for always supporting the development of indigenous oil and gas companies, stressing further that “the future of the oil and gas industry in Nigeria and by extension the nation’s economy is the deepwater operations of the country.
Nigeria’s proven total oil reserves in all basins are estimated by the United States Energy Information Administration (EIA) at between 16 and 22 billion barrels, but other sources claim there could be as much as 35.3 billion barrels or more. NNPC figures put the countries total oil reserves at 37 billion barrels.
Its reserves make Nigeria the tenth most petroleum-rich nation, and by far the most affluent in Africa.
Oil and gas in the country account for more than 98% of export earnings and about 83% of federal government revenue, as well as generating more than 14% of its GDP. Oil also provides 95% of foreign exchange earnings, and about 65% of government budgetary revenues.
Nigeria remains an active player relative to other regions in terms of deepwater development, with the country’s deployment of latest technology making it famous for the stride it has continued to make and maintain.
“Out of the 15 Floating Production Storage and Offloading (FPSO) in Nigeria, seven have been deployed for deepwater operations. Nigeria ranks only behind Angola within the African deepwater operations in terms of FPSO deployment,” said Dr. Baru, NNPC helmsman.
The country has now been known to utilize each deepwater project as an avenue to upscale its unique human capital skills in different areas not limited to engineering design, project management, welding and diving.
As a result of this, the share of local content contribution or services in deepwater has also continued to grow and improve from the sub 1% level to an aggregate contribution of over 25%, and from engineering man-hours of less than 20,000 to over 1.1million recently at the Egina project.
“With the Nigerian content, tonnage has grown by 600% from the first deepwater project till date,” Baru noted.
The deepwater projects that are working in the country at present have benefited 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 wide range of training and maintenance services to the industry locally.
This means that services in areas such as manpower supply, logistics, and vessel supply, chemical supplies have more or less been domesticated in the deepwater value chain.
The in-country topside integration of the Egina FPSO project recently is a clear demonstration of this important feat of local content mainstreaming in Nigeria.
This has resulted in achieving the dual goal of both industrialization and manpower development through job creation and skill acquisition.
“The gains enumerated in terms of production and reserve growth, revenue and value creation, as well as manpower and technology development need to be sustained.
I must reiterate that sustaining these gains means all hands must be on deck. We must leverage the expected growth in deepwater for national development. We expect within the next 10 years that production from Nigeria deepwater would double.” Dr. Baru expressed.
The development being anticipated implies an increase in steel demand, as steel represents 20% to 35% of the overall cost for a new-build structure, dry docking, pipe coating, welding and sundry ancillary services, adding that Nigeria needed the right caliber of technical and engineering skills and manpower.
The history of oil exploration in Nigeria dates back to 1903 when Nigerian Bitumen Corporation conducted exploratory work in the country, but at the onset of World War I the firm’s operations were stopped.
Due to the lack of technological and financial resources by small oil companies, large oil companies took over the exploration of commercial oil in the country. Thereafter, licenses were given to D’Arcy Exploration Company and Whitehall Petroleum, but neither company found oil of commercial value and they returned their licenses in 1923.
A new license covering 920,000 square kilometres (357,000 square miles) was given to Shell D’arcy Petroleum Development Company of Nigeria, a consortium of Shell and British Petroleum (then known as Anglo-Iranian).
The company began exploratory work in 1937 and it was granted license to explore oil all over the territory of Nigeria, but the acreage allotted to the company in the original license was reduced in 1951 and then between 1955 and 1957.
Drilling activities started in 1951 with the first test well drilled in Owerri area, the capital of present day Imo State and, later, oil was discovered in non-commercial quantities at Akata , near Eket in 1953.
Prior to the Akata find, the company had spent around 6 million pounds on exploratory activities in the country before Shell-BP finally found commercially viable petroleum oil in Oloibiri, Nigeria in 1956. Other important oil wells discovered during the period were Afam and Bomu in Ogoni territory.
Production of crude oil began in 1957 and, in 1960, a total of 847,000 tonnes of crude oil was exported. Towards the end of the 1950s, non-British firms were granted license to explore for oil. The firms are Mobil in 1955, Tenneco in 1960, Gulf Oil and later Chevron in 1961, Agip in 1962, as well as Elf in 1962.
