IOC asset sales, deferred investment, PIB harm oil drilling activities

The ongoing trend of assets divestment by international oil companies (IOCs) operating in Nigeria, decline in capital investment and the non-passage of the Petroleum Industry Bill (PIB) are major factors said to have pushed down the number of active drilling rigs in Nigeria’s oil and gas industry.

Other factors, according to industry analysts, are funding shortfalls on the part of the Nigerian National Petroleum Corporation (NNPC) for joint venture (JV) activities, delay by regulatory authorities in giving permits to oil companies to bring in rigs, security challenges in the country and growing competition for the limited drilling rigs, amid increasing oil and gas discoveries in Africa and other parts of the world.

According to data from the Department of Petroleum Resources (DPR), as of April 2014, there were 33 active rigs in the country, 23 stashed rigs (under storage perhaps for lack of contracts), and five rigs on stand-by. In August 2013, the number of active rigs in the country was put at 43.

Rig count is largely a reflection of the level of exploration, development and production activities occurring in the oil and gas sector, says Osam Iyahen, senior vice president, oil and gas, Africa Finance Corporation (AFC), in an email response to questions.

“As such, the recent declining rig count in Nigeria vis-a-vis other African countries denotes that the country may be lagging behind in developing its oil and gas resources. A more predictable regulatory and fiscal regime, including the passing of the Petroleum Industry Bill, would provide investors with the confidence required to increase drilling activities in the Nigerian oil and gas industry,” he adds.

For Dimeji Salaudeen, partner and risk consulting head, Africa oil and gas sector, KPMG, “JV funding shortfalls and declining or deferred capex investments due to uncertainty of fiscal terms and other environmental challenges mean there is very little exploration and appraisal drilling happening at this time, particularly in the onshore and shallow waters.”

Nigeria’s oil production structure is mainly split between JV with the NNPC onshore and in shallow water, and production sharing contracts (PSC) in deepwater offshore. In JVs, NNPC owns between 55 percent and 60 percent and they are jointly funded by the oil majors and government.

But over the years, NNPC’s consistent shortfalls in funding its share of onshore JVs have affected IOC investments, a situation that is partly responsible for the increasing shift offshore by the oil majors.

Between January 2010 and November 2012, Shell sold stakes in eight of its onshore interests to local players. The company is currently divesting its stakes in four additional onshore oil blocs – Oil Mining Leases (OMLs) 18, 24, 25 and 29.

United States-based Chevron, in July last year, announced its plan to divest its 40-percent stake in OMLs 52, 53, 55, 83 and 85, while Oando Energy Resources is in the process of acquiring ConocoPhillips’ Nigerian assets.

“Right now, the Nigerian oil and gas industry is witnessing a transfer of assets from the IOCs to new owners, and work that used to be done by the IOCs has to slow while the new owners study and evaluate the assets. Work programme as far as drilling is concerned would have been stopped,” says Emmanuel Usanga, controller, subsurface, Peak Petroleum Industries Nigeria Limited.

Indicating how security problems affected drilling activity in the past, he says after the end of the militancy in the Niger Delta in 2009, much drilling activity was seen in the industry, noting that the new marginal field licensing being expected in the industry would boost drilling activity in the country.

Diezani Alison-Madueke, minister of petroleum resources, had in November 2013 flagged off the next marginal field licensing round, with 31 fields on offer, but since then, not much has been heard about the progress on the impending bid round.   

Meanwhile, high levels of exploration and investment are projected to continue in other African countries, including additional exploration drilling off East Africa and associated gas export development projects, pre-salt deepwater wells in the Kwanza basin, offshore Liberia, deeper and older plays tests in Mauritania, major drilling campaigns in Ghana, Mozambique and Cote d’Ivoire and licensing rounds in Angola, Gabon and Tanzania.

Angola, which extracts nearly all its crude from offshore fields, is seeking to develop its onshore potential, with a tender process for onshore oil exploration at 10 new blocs in the Congo Basin and Kwanza Basin starting on May 30, according to its state oil firm Sonangol.

Mozambique looks to launch its fifth oil and gas bidding round this year, mainly offshore. Gabon licensed 13 oil blocs to 11 oil companies in November, while Congo and Cameroon in January announced licensing rounds for another 14 blocs.

Ejiro Erharhaghen, geophysicist, GSR geophysics operations at Total E&P Nigeria Limited, notes that the number of rigs is limited – especially the ones for deepwater offshore drilling – compared to the oil and gas resources in the world.

The worldwide rig count for December 2013 was 3,478, up 26 from the 3,452 counted in November 2013, and up 88 from the 3,390 counted in December 2012, according to data from Baker Hughes, a leading global supplier of oilfield services, products, technology and systems.

Nigeria, Africa’s top oil producer, has seen its crude oil reserves decline from 37 billion barrels to 35 billion barrels, according to DPR. The country seeks to ramp up its oil reserves to 40 billion barrels by 2020, but the PIB, which is expected to overhaul the industry, is still awaiting passage in the National Assembly.

FEMI ASU