• Monday, June 24, 2024
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BusinessDay

Low oil prices, return of insurgency and Nigerian Independents

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Crude oil prices have fallen dramatically over the past two years, from over $100 per barrel to less than $30 in January this year. The collapse of the crude oil prices led to a lot of cost-cutting, restructuring, refinancing when it is possible. The low oil price regime has already cost hundreds of thousands of jobs, and caused projects worth hundreds of billions of dollars to be cancelled or delayed forcing deep changes at companies that had grown accustomed to oil trading above $100 a barrel from 2011 to 2014.

In addition to the slide in global oil prices, the resurgence of militancy in the Niger Delta has been compounding the woes of the independents. Though, the attacks thus far have been on oil majors’ facilities, they have impacted seriously on local firms seriously because the oil majors own most of the infrastructure for exporting crude oil in the Niger Delta. For instance, following an attack on the Nembe Creek Trunk Line, it affected Seplat, Shoreline, the Nigerian Petroleum Development Corporation and others.

When the militants destroyed Brass River too, all the Nigerian independents connected to the Brass line were also affected. Seven Energy in its financial results for the first quarter of this year highlighted that it lifted no oil from the OMLs in the first quarter, due to the extended shutdown at the Forcados terminal, compared to an entitlement volume of 1.4 million barrels for the same period. It is affecting them too because most of them cannot produce as they should.

For independents that are exclusively focused on oil production, making it through the year becomes an uphill task considering that in addition to the technical extraction costs, they have to deal with security, keeping their host communities happy amidst the challenges of low crude oil prices and resurgence of militancy.

“The oil and gas business is no stranger to the market’s ups and downs. The boom and bust cycle is not exactly new. I believe we may once again see a gradual increase in prices, which is beginning to happen”, said  Nkoyo Uko a General Manager with a Nigerian independent, adding that being aware of historical trends have made them to set out a most detailed plan yet for managing spending during a sustained period of low prices.

The dexterous planning that Nigerian independents have embarked upon is exemplified by a company such as Newcross Petroleum. Two years ago, Newcross Petroleum Limited announced new oil discovery in its Efe oil field located in OPL 283 block. OPL 283 is in the Northern aspect of the Niger Delta. Formerly known as OML56, the block has a total size of 1272 sq. km, with a number of marginal fields within the boundary of the acreage. The Production Sharing Contract is assigned to Newcross Petroleum and Rayflosh Petroleum.

The OPL 283 is under a Production Sharing Contract (PSC) with Nigeria National Petroleum Corporation (NNPC) (as the concessionaire), with the support of the corporation and the Department of Petroleum Resources (DPR).

“The success of Efe First is a confirmation of the support NNPC and DPR have expressed in newly emerging companies willing to significantly add to the national hydrocarbon reserves’, said Bashiru Idowu, Strategic Team Lead of New Cross Petroleum, adding that “the discovery represents an important step towards unlocking the deep potentials in OPL 283”.

In addition, Newcross acquired Shell Petroleum Development Company of Nigeria Limited’s (SPDC) 30 per cent stake in Oil Mining Lease (OML) 24 and other related facilities for $600 million. Total Exploration & Production Nigeria Limited and Nigerian Agip Oil Company Limited also assigned their 10 per cent and five per cent interest in the lease respectively to Newcross bringing their stake in the oil asset to 45 per cent.

OML 24 covers an area of some 430 square kilometres and includes the Awoba, Awoba Northwest and Ekulama fields and related facilities. The oil asset includes three oil flow-stations and three gas processing plants, in addition to various oil and gas pipelines.

“OML 24 produced on average around 40,000 barrels of oil equivalent per day (100%) during the first half of 2014,” a source from SPDC said at the time of divestment from the field adding that the divestment was part of the strategic review of SPDC’s onshore portfolio which is in line with the Federal Government of Nigeria’s aim of developing Nigerian companies in the country’s upstream oil and gas business.

Till date, Shell has divested from a couple of Oil Mining Leases (OMLs) in Nigeria which the Nigerian independents are currently pushing on. The divested assets include OML 4, 38 and 41. Others are OML 26, 42, 40, 34 and 30. The OMLs they divested from in the Eastern Niger Delta region are 26, 30, 34, 40, 42, 4, 41and 38.

Newcross is the Joint Venture Partner and Operator of OML 24, operator of OPL 283, OPL276 and Joint venture Partner with Platform Petroleum Limited, the operator of Umutu (Egbaoma)-Asuokpu Marginal Field. Newcross Energy Limited is also an interest holder in the Egbaoma Gas plant

Other independents that are making steady progress include Midwestern, Waltersmith, Pillar Oil, Brittania U and Energia/Oando. As at November 2009, they all received life of the field awards, meaning that they are entitled to operate their fields for as long as there are commercial hydrocarbons still to be exploited.

Waltersmith was awarded the Ibigwe field located in OML 16 by the Federal Government of Nigeria in 2003. OML 16 was originally operated by the joint venture of SHELL/AGIP/ELF/NNPC. The award was secured on a joint interest basis, with Waltersmith having 70 percent and Morris Petroleum Limited having 30 percent. Consequently, Waltersmith was designated the operator of Ibigwe field.  A major milestone for Waltersmith was attained in June 2008 when it commenced commercial export of crude oil from the concession area.

In 2011, it participated in the Shell divestment process as part of a Consortium that successfully bid and won Oil Mining Lease 34 in the Niger Delta region of Nigeria.

Currently Ibigwe field produces from 5 wells, 4 of these wells were drilled after the take-over of the asset by Waltersmith. To date, Waltersmith has produced in excess of 5.3 barrels from the field, while current proven reserve is estimated at 24 MMSTBO and 120Bscf of gas.

The World Economic Forum (WEF) in 2015 announced the selection of Waltersmith as a member of the Forum’s Global Growth Companies (GGC); a development, Abdulrazaq Isa, the company’s CEO, said “is clearly recognition of the giant strides the company has made in the past 10 years in the realization of its long term goals and objectives”.

It will be recalled that in 2003, the federal government, in the spirit of the Local Content and Indigenous Participation Policy, the Department of Petroleum Resources (DPR), awarded marginal fields to 24 indigenous E&P companies after a keenly contested bid process.

The Federal Government handed over the operations of these fields to local hands. Many people welcomed the development with the hope that the confidence of local experts would be bolstered in oil exploration and production activities.

Though the status of the majority of these fields have not changed from the undeveloped state, the handful of the independents that have made progress with their acreages testifies that government made the right call with the move. 

FRANK UZUEGBUNAM