INSIGHT: Nigeria’s onshore – offshore oil production conundrum

Investors and industry players will be keeping an eagle eye on what seems to be a conundrum on the future of Nigeria’s oil industry as the country is looking miles out to sea, shifting away from onshore to offshore fields.
By early 2019, the most ambitious production vessel ever delivered in Nigeria’s history is expected to start pumping crude from water depths of over 1,500 meters which is anticipated to increase Nigeria’s oil production by 200,000 barrels of oil per day.
The $16billion-worth Egina development is the largest deep offshore investment part of a strategic shift that began at the start of the decade when International Oil Companies (IOC) including Chevron and Royal Dutch Shell started looking at higher-cost offshore fields to minimize risks from sabotage, kidnapping and crude theft associated with onshore fields.
Industry analysts will be keeping their fingers crossed on the differences between Onshore and Offshore fields as insecurities remains a major risk peculiar to Nigeria’s operating environment which has continued to drive the costs of oil and gas projects in the country above the global benchmark.
Ademola Henry team leader at the Facility for Oil Sector Transformation (FOSTER) said its impossible to state which one is better for Nigeria because the debate about onshore fields or off shore fields depends on the contract system, cost of production per well as oil companies cost of production differs.
“For Offshore fields there is less threat to security and with the technology being developed daily there will be growth but it also depends on some other factors because after drilling to a certain depth it will be impossible to get anything from such fields and there are a couple of wells like that now which is a loss to government in terms of revenue,” Henry team leader at FOSTER said.
Emmanuel Afimia an energy expert at Afimia consulting said it depends on the parameters adopted before comparison can be made between offshore and onshore. “In terms of assets and production offshore fields are better while in terms of revenue and royalty onshore fields are better.”

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“Moving production to offshore fields will minimize incidents of pipeline vandalism which will reduce loss of crude oil in the process of transportation, thereby maximizing its revenue,” Afimia told BusinessDay.
Minister of State for Petroleum, Ibe Kachinkwu, had in February stated that Nigeria was expecting investments of over $45 billion in Deepwater development, saying that the $16 billion Egina deepwater development has provided significant impetus in offshore development activity.
“We are shooting for later this year” on a final investment decision at the Zabazaba development, as some contractual details are being fine-tuned,” Kachikwu said on Monday during an interview with Bloomberg. The nation doesn’t plan to issue any new offshore licenses before elections due in February, he said.
Analysis on lists of projects sanctioned for commissioning between 2010 and 2020 showed that FID on major deepwater development projects have stalled as hopes of return of deepwater field development activities fell off the table following disputes over the implementation of the existing 1993 production contracts that spurred the first phase of exploration investment in the terrain.
For instance, Shell operated Bonga Southwest and Aparo deepwater development project which was originally planned to start producing 225,000 barrels of oil and 15 million standard cubic feet of gas per day by 2020 is yet to scale through FID as an initial evaluation of the well results indicated that the recoverable reserves discovered with Bonga Southwest were large enough to form the basis for a new deepwater development in OML118.
The company which leads protests against fiscal inconsistency in the country also pulled down planned Bonga North development earlier proposed to deliver 100,000 barrels and 60 million standard cubic feet of gas per day.
Italian Eni and Anglo-Dutch Shell are working with Nigeria National Petroleum Corporation (NNPC) to reach FID on Zabazaba and Etan deepwater fields located in oil prospecting lease (OPL) 245 offshore Nigeria in the Niger Delta of the Gulf of Guinea, in water depths ranging from 1,200m-2,400m.
According to offshore technology, the Zabazaba and Etan fields are estimated to hold a combined total of 560 million barrels of oil-equivalent (Mboe).
ExxonMobil is also not active with existing plans for three deepwater development projects envisaged to increase production by 230,000 barrels per day. The company’s Satellite Field Development Programme was planned to come on stream as from 2020 with 80,000 barrels per day but no progress has been made on the FID.
Also, the American oil major is yet to decide project timelines and budget estimates for development of operated Bosi deepwater field expected to deliver 135,000 barrels per day and 260 million standard cubic feet of gas per day from deep offshore.
The company which is also the country’s offshore industry champion has been unable to ignite negotiations on development of operated Uge deepwater field which was earlier planned to start production of 110,000 barrels and 20 million standard cubic feet of gas per day by 2020.
Chevron is also silent on development plans for operated Nsiko deepwater field which has projected estimate for production of 110,000 barrels of oil from the deep offshore by 2020.
Despite the delays in FID, there is still a glimmer of hope as Total continues to progress with its deepwater development plan.
The company is enjoying massive attention from the whole country on its ongoing $16 billion Egina deepwater field development project mainly because the project which promises some 200, 000 barrels of oil per day remains the only project of that magnitude in the Nigerian petroleum industry for nearly a decade.

 

DIPO OLADEHINDE