Covid-19: Oil companies face maintenance worry on Nigerian oil assets

The effect of the coronavirus pandemic is causing maintenance worry for most oil and gas companies operating in Africa’s biggest oil-producing country, storing up problems for an industry already reeling from slumping prices.

Apart from the IOCs, there are at least 50 small to mid-sized Nigerian producers pumping between 1,000 and 100,000 barrels each day whose operation has been hit by an unprecedented global pandemic which has also snarled the supply of spare parts and has prevented maintenance workers from doing their job.

The industry typically takes advantage of periods of slow demand to do repair work but with oil prices nearly halved since the start of the year, this is no ordinary trough. Companies, many of them lumbered with high debts, are slashing all but the most essential work.

Some units were shut down for maintenance but the work never started,” Amanda Fairfax, downstream oil market analyst at Genscape, a firm that monitors field activities with cameras said at a webinar event.

For oil companies, asset maintenance is not just an obligation, but also a significant economic opportunity.

“When done well, companies can achieve the operational efficiency needed to weather volatile and uncertain oil markets by extending the life of their steel assets,” Kelvin Atafiri who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector said.

Oil and gas companies involved in exploration and production spent an average of $80 billion a year on maintenance between 2015 and 2019, according to Rystad.

“When the virus and the quarantine measures have been eased and it is safe to get back to work, it doesn’t mean the same work can be done with the same intensity because the weather windows could be missed and that can push maintenance even to the next year,” said Matthew Fitzsimmons, Vice President of the Oilfield Service team at research firm Rystad.

Also, the lockdown in Italy, which has suffered one of the worst virus outbreaks globally, has reverberated across the energy sector because the country is a leading valve manufacturer, which is an ever increasing need in the oil and gas sector most especially upstream firms.

An industry source in Milan told Reuters that until recently less than 10 percent of Italian producers remained active, struggling to supply even strategic valves to overseas clients.

Italy eased its coronavirus lockdown early in May, giving factories the green light to restart production lines.

One energy company in Nigeria said it was hoping to receive valves from its Italian supplier soon as they had been first in line when the shutdown began, the source said. But others are less optimistic.

A maintenance and development operation at an onshore field in Nigeria was delayed for months as the local oil firm could not receive equipment on time, a company source told Reuters.

Oil companies across Nigeria have also struggled to move workers to where they are needed due to lockdowns that vary by state, and regulations from the petroleum regulator limiting the number of workers at any oil site is also complicating operations.

Rivers state, home to the oil hub of Port Harcourt, is under a lockdown so strict that the governor arrested 22 oil workers who landed there, despite federal government permits allowing them to travel.

The Rivers movement restrictions have also trapped pipes and other needed materials that are needed at oil fields outside the state, industry sources told Reuters.