Marginal Fields The Story So Far

It is now certain that there would be no oil block licensing round until the third quarter of this year. By implication it means the much awaited bid round for Nigerian marginal fields would also have to wait till then. Nigeria holds periodic licensing rounds for new blocks and has said the next will be a chance for domestic companies to gain a foothold. Officials say the next auction is likely to be for both onshore and offshore fields totalling at least 2 billion barrels, which would include both big and marginal fields. The Minister of Petroleum Resources, Diezani Alison-Madueke, had on a number of occasions, said that the Federal Government would carry out a marginal field allocation before the end of 2010. Alison-Madueke said the government had developed a well articulated set of guidelines that would ensure transparency, which would take into consideration lessons learnt from the past exercises. The expectation is that successful indigenous companies will further increase participation in the industry, thus improving their technical and financial capabilities. In 2003, when the Federal Government handed over the operations of 24 marginal fields to 31 Nigerian companies, many had welcomed the development with the hope that the confidence of local players would be bolstered in oil exploration and production activities. The marginal field programme is an offshoot of the Federal Governments policy to promote indigenous participation in the upstream sector of the petroleum industry. With it, the government wanted to achieve the farmout of marginal fields within the concessions of the International Oil Companies, IOCs to indigenous companies. Despite this laudable policy, the success of the indigenous players incursion into field development and production can be said to be very marginal. Not many have made appreciable progress with their concessions. One is tempted to ask why. Industry observers have cited finance, fluctuating technical assistance from foreign equity partners, and delay in the passage of the Petroleum Industry Bill, PIB, as the major factors preventing all the operators from coming on-stream. Technical assistance may come from foreign partners provided the technical partner only holds 40 per cent of equity in the business. Both sides are required to develop and produce the fields within a 5 year agreement plan while showing verifiable efforts towards meeting the minimum work programme obligations within 12 months of the granting of the fields. Upon the completion of at least 70 per cent of work programme on the field the renewal of the agreement is then assured. Among other things the agreement also spelt it out that failure to meet up with the work programme on the field would invoke the withdrawal / termination of the approvals from the awardees. Aside technical partners who are expected to provide technical know-how, the other area of critical challenge is finance. The financial demands of oil exploration and production are extremely high and the funding capacity of the indigenous players is very low. Finance for

development of the fields may come from three major sources which include, individuals who are men of substance, a consortium of banks based in the country, or foreign banks since this is basically a business denominated in dollars. Each block would require about $30 million to bring to production. Considering that the fields were discovered over 30 years ago, it is possible that the infrastructure may have even become dilapidated. Besides, most of the $30 million will have to go for work-over flow stations, pipelines, design and survey, environmental impact assessment (EIA), office expenses and so on. The delay in passing the PIB, which is currently being debated in the National Assembly, could also be cited as a factor hindering smooth operations. There is the need for the marginal field farm-in to be converted to outright acreage holdings. The typical farm-in agreement calls for the IOCs to receive some form of royalty from the indigenous company. But in the proposed PIB, these IOCs will have to give-up areas that are currently being operated by the marginal field operators. According to the former Petroleum Minister, Rilwan Lukman, This move would allow them to get their own acreage and become masters over their own fields under favourable royalty and tax provisions. The existing contracts with the oil majors were granted without implementing a modern acreage management which typically includes strong relinquishment practices. As a result, in Nigeria, petroleum companies are sitting on acreage. This in turn creates a situation where there is no access to acreage for new investors. Nigeria hopes to pass wider ranging legislation to reform its oil and gas industry. With the passage of the PIB, Nigeria hopes to rewrite its decades-old relationship with its foreign oil partners, altering everything from the fiscal framework for offshore oil projects, to the involvement of indigenous firms in the sector. Exploiting these marginal fields would boost the countrys daily production of oil no doubt. There is a reported huge reservoir of marginal fields in Nigeria conservatively put at over 2.3 billion barrels of Stock Tank Oil Initially In Place, STOIP, spread over 183 marginal fields. Available statistics from the Centre for Petroleum Information, CPI, shows that an average reserve stands at 11 million barrels, with 91 smallest fields having reserves averaging 5.4 million barrels, 20 medium fields averaging 24.7 million barrels and the largest five, 58 million barrels. The aforementioned figures should ideally constitute the needed impetus for this resource-rich country to assume commanding heights in the exploration and production business, and harness the potentials of the nations most strategic industry to generate more value added activities for the domestic economy. But so far, the records have being appalling, a dismal 6 out of the 24 marginal field operators have come on stream. The Federal governments plan to improve Nigerias fortune in this capital intensive and technology based hydrocarbon business is not moving in tandem with the desired pace for local content development. Anxiety exists in the offices of those companies that have not made significant progress in bringing their fields on stream, as interested parties are putting pressure

on the Department of Petroleum Resources to revoke licenses from non performing companies and announce a bid round programme. Only six companies are producing. They include Brittania-Us Ajapa field, Energias Obodeti/Obudugwa field, Midwesterns Umusadege field, Pillar Oils Umusati/Igboku field, Platforms Asuokpu/Umutu field, Walter smiths Ibigwe field, which are all on stream. The remaining 18 operators are not producing. The Ajapa marginal field operated by Brittania-U, began production in January, 2010. It is the first offshore field operation with a purpose built Floating, Production, Offloading Unit, FPOU, with capacity to handle 10,000 barrels of crude oil per day. It also has a 780,000 barrels capacity ocean going tanker and a 4,200 horse power tug boat that lifts its crude to Chevrons export facility and the tanker is available to handle crude oil movement services for interested third party companies. The company recently completed a $30 million buy-out of its foreign partners, Syntroleum Nigeria Limited, a member of the Pan-Petroleum (Holding) Cyprus Limited. Announcing this at a press conference in Lagos, Uju Ifejika, Chairman/CEO Brittania-U, explained that with the buy-out, her company has become the only indigenous marginal field operator to buy out its foreign partner, a process that deepens the Federal Government marginal field programme initiative. Midwestern Oil and Gas Company Limited and its technical partner Mart Resources, have unveiled plans to upgrade their permanent central production facility located at the Umusadege, UMU field to process up to 30,000 barrels per day, bpd. Since being placed on production, the UMU-6 well has averaged 2,175 bpd on a 20 / 64 inch choke. Aggregate production from the UMU-6 well since December, 2010 and for the first few production days of January 2011 is approximately 52,000 barrels. Umusadege is located in the former Oil Mining Lease, OML 56, in the central Niger Delta, some 100Km northeast of Warri. The field was discovered by Elf with the Umusadege-1 well in 1974. After 2 years of production from Umutu-2, and Umutu-4 in the Asuokpu / Umutu field, the operator, Platform Petroleum which has merged with Shebah Petroleum Development Company to form Seplat Petroleum embarked on full field re-evaluation study with a view to understanding the field better, identifying drillable prospects to increase the reserve and ensure optimum recovery from the asset. The company showed enormous zeal and character in ensuring that the field turns out maximum output. Its partnership with Newcross has yielded much gain as exploitation activities which commenced full throttle at inception had reached a climax. The Chief Operating Officer, COO, of the company, Osariemen Owieadolor, confirmed that the partnership has actually provided a major boost. He said that the company had put in all efforts with the support of the partner to ensure that it fulfils all the requirement of the farm out agreement. As a result of the agreement we entered into, we left no stone unturned in making sure we get our field into stream. We felt with such achievement it would place us in a vantage position to

secure other fields that we might want to bid for. Now we are more confident of acquiring more fields for production. He said Seplat Petroleum, executed a Sales and Purchase Agreement, SPA, with Shell, Total, and Eni for the acquisition of their combined 45 percent interest in Oil Mining Lease, OML 04, 38, and 41, three blocks in onshore western Niger Delta covering about 2,650 sq. Km, with 30 wells and a production capacity of approximately 50,000 bpd. The existing Asuokpu / Umutu field is at the eastern end of OML 38. No doubt, these are some of the success stories of the indigenous operators, who have shown resilience despite the challenging environment in which they have found themselves. They have also shown that they possess the capacity to handle bigger responsibilities and increase their global competitiveness. As most companies have struggled to get their fields into production, the Nigerian government has been asked to incentives such companies which have been more industrious in bringing their fields on stream, by allowing them choice of new fields without competitive bidding in the forthcoming licensing round. While this is unlikely to happen, the participation in the exercise may benefit some of the more enthusiastic companies that have come on-stream in other ways. Posted in Analysis

How we award oil blocks FG

on March 19, 2013 / in Energy 8:25 am / Comments As the controversies generated over which region controlled more of Nigerias oil assets intensify, the Department of Petroleum Resources, DPR, has said that such controversies are baseless considering that oil blocks are awarded based on bids offered for them globally. Against this backdrop, the industry regulator noted that when such bid rounds are being conducted, the region of the bidders is not one of the prequalification for winning such oil blocks.

The Director, DPR, Mr. Osten Olorunshola, who made the clarification last week in Lagos, said, The Federal Government does not allocate oil blocks and marginal fields to individuals and corporations based on region or where they come from. So, DPR does not ask if an individual is from the North or South when allocating the fields. Ownership controversies Pressed further, on which region owned more of Nigerias oil assets, Olorunshola, who spoke at the launch of the Nigeria Oil and Gas, NOG Intelligence, a weekly print and online industry newsletter, insisted that The DPR has no records of 83 per cent Northern ownership of oil blocks anywhere. According to him, Nigerians currently own 52 per cent of the countrys 173 active oil blocs, while foreign oil companies own 48 per cent. He added that of the total of 388 oil blocks in the country, only 173 of them have been awarded to individuals and corporations, while 215 blocks were yet to be awarded. Broken further, of the 173 so far awarded, Nigerians owned 90 blocks while foreigners owned 83 blocks. He, however, lamented that all the 90 blocks awarded to indigenous players account for only six per cent of the countrys total crude oil production, while the 83 awarded to foreign oil companies account for 94 per cent of the total output. Steering the hornets nest The Chairman, Senate Committee on Business and Rules, Senator Ita Enang, a forth night ago steered the hornets nest, when he alleged that 83 percent of Nigerias oil blocks were in the control of the northern region. This led to a series of claims and counter claims by various groups in the different geographical regions in the country, including activists and non-governmental organisations, NGOs. Many even called for a review of oil block awards. Even newspapers (not Vanguard) went agog with their own versions of the real oil block owners. However, DPRs recent pronouncements on the issue that Nigerians own 80 oil bocks where foreigners had 83 have nullified every other previous pronouncements on the controversial oil blocks ownership, including the list of 77 oil blocks and their owners recently published by one of the dailies. Analysts are of the view that to end the controversy, the DPR should go a step further to publish the full list of the 173 oil blocks so far awarded, indicating who owned what, whether local or foreign. Poor indigenous output contribution

Notwithstanding the fact that Nigerians owned the larger share of the nations oil assets, their contributions to total production as revealed by the DPR is abysmally poor. According to data provided by the regulator, Nigerians are producing about 150,000 barrels of crude oil per day, representing six per cent of the Nigerias total crude production; while foreign oil companies account for the bulk of 2.35 million bpd or 94 per cent of total output. He blamed this on the lackadaisical attitude of the Nigerian players towards the development of their blocks. He said that majority of them have not commenced any serious production activities on the oil blocks since they were awarded to them. He said, It appears that people just want to own oil blocks and put it on their complimentary cards. We are not happy with that. It is absurd that six per cent of oil production is coming out of 90 leases. Government decided to dig deeper as it was not so happy with the performance of the indigenous oil companies. That is the reason why government put in place the Marginal Fields policy, he noted. He disclosed that about 24 marginal fields were allocated in 2003, and only six fields are doing well, while the rest have refused to develop theirs, adding that many are faced with litigations, funding constraints, non-bankable proposals, and a host of others issues. He said, The major issue that negatively affected the production capacity of majority of the marginal field owners is the fact that the owners could not access funds. As at 2003, when the fields were awarded, Nigerian banks where in difficult situation, making it impossible for majority of them to give out loans. Also, another challenge that served as a drawback to the marginal fields programme is the unending litigations by most of the parties the fields were awarded to. The bid rounds brought a lot of litigations, due to the fact that the parties were technically asked to merge before the fields will be awarded to them. Till today, majority of them are still in court and are yet to kick start the process of production on their fields. The active and producing marginal fields are: Asuokpu/Umutu field owned by Platform Petroleum Ibigwe field by Walter Smith and Morris Petroleum Uquo field by Frontier Oil Ajapa field Britania-U Umusadege field by Midwestern Oil and Gas, and Suntrust

 Obodogwa/Obodeti field by Pillar Oil Olorunshola further stated that of the five marginal fields that were awarded on a discretionary basis, only Oriental Energy owners of two of the fields Okwok and Ebok fields; and Niger Delta Petroleum Development Company, owner of Ogbelle field are involved in active production. He, however, maintained that over the last couple of months, the Marginal Fields programme is gradually living up to expectation, as production is now up to 60 million barrel per day in addition to about 100 million standard cubic feet per day (MMscf/d) of gas. Despite the identified challenges, Olorunshola argued that the marginal fields owners are still breaking new grounds, as they integrating value, unlocking stranded molecules, creating opportunity for employment and empowerment. He further stated that the programme is deploying new technologies, recording unprecedented collaboration and are now handling local communities better than before. Block revocation, new bid rounds underway In view of the poor performance, Olorunshola disclosed that the licences for some of the marginal fields will be revoked. In the revocation of the licenses granted to individuals and corporations, emphasis will be placed on fields that are yet to be developed. As a result, he said the licenses will be revoked next year, and the fields will be taken from the current owners and given to new owners. the DPR boss disclosed that the Federal Government is considering undertaking another bid round for the countrys marginal oil fields, irrespective of whether the Petroleum Industry Bill, PIB, is passed or not. He explained added that this was with a view to streamlining the bid rounds and reducing the process to about seven months from about one year and above in the past. According to him, once the advertisement calling for bids is published in the newspapers, the DPR is targeting 90 days for people to submit their bids, and 60 days for evaluation of the bids. He argued that the period will enable it to properly assess the bids, while expressing the hope that it will record a significant oversubscription. He further disclosed that the DPR is striving to ensure that subsequent bidding rounds are conducted every three years, while making sure that the reserves volume are bankable and the bid rounds are made simpler and transparent.
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