• Friday, March 29, 2024
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Oil drilling activities in Nigeria maybe picking-up as firm gets regulatory nod

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A slowdown in oil exploration and production activities due to lack of fiscal and legal clarity in the sector made it contract in the three months ending March, with falling rig counts, sending out signals of tougher economic times ahead for Nigeria.

Fiscal terms are the most important terms of a natural resource contract as they delimit and define the amounts of profit and economic rent that will accrue to each party throughout the life of the contract. For Nigeria, these terms are critically important as the country has remained dependent on the industry for the bulk of its foreign exchange earnings for over thirty years.

Data from the National Bureau of Statistics, Nigeria’s statistical agency showed that in the first three months of  2019 real Gross Domestic Product growth in the oil sector contracted by -2.40 percent (year-on-year) indicating a decrease by 16.43 percent points relative to the rate recorded in the corresponding quarter of 2018.

This appears to be changing, exploration and production activities are probably picking up despite the Federal Government’s dizzying delay in passing the Petroleum Industry Governance Bill and clarifying which fiscal regime will apply to offshore oil fields in particular.

In this light, London-listed Eland Oil & Gas has received the green light for its planned development of the Gbetiokun field in oil mining licence (OML) 40 in Nigeria, from the Department of Petroleum Resources (DPR).

The plan includes the drilling of five oil production wells during the first phase of development, with six more production wells and a single workover, to convert the Gbetiokun-2 well to a water disposal well, to be carried out during the second phase.

The first two wells, Gbetiokun 4 and 5 will be drilled back-to-back and are expected to increase the output from the field to 20,000 barrels per day. It was reported in June that Eland was preparing to bring the early production system at Gbetiokun online this month, with output from the Gbetiokun-1 and 3 wells expected to average an initial gross rate of 12,000 bpd.

The facility has a nominal capacity of 22,000 bpd which will allow for production from the additional wells being drilled this year and next.

Eland has also previously stated that the modular design of the early production system would allow it to expand the capacity beyond 22,000 bpd if required.

Stanbic IBTC, working with its group brand, Standard Bank Group of South Africa has partnered Eland Oil & Gas,  West Africa with an initial focus on Nigeria, to provide a new accordion facility and increased borrowing base of $50m (about N18bn).

“An accordion facility is essentially an incremental facility, which allows a borrower to take an additional facility over and above what was originally agreed with the financier on the same terms as the original facility for expansion purposes,” the bank explained.

In November 2018, Eland Oil & Gas announced that it had successfully refinanced its existing reserve-based lending facility with a new five-year syndicated RBL facility in an amount of $75m, with the option to increase it to up to $200m through an accordion, subject to incremental production and reserves.

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The active rig count in Nigeria has fallen by as much as 50 percent year-on-year but recent hunt for land rigs by Anglo-Dutch supermajor Shell and Nigerian independent Seplat Petroleum probably shows exploration and production activities are about to pick-up again.

Shell is getting ready for a major drilling programme on its acreage in Nigeria and has gone to the market for two jack-ups and a pair of land rigs, one of which will have to handle high-pressure, high-temperature wells. Seplat Petroleum is also searching for a land drilling rig for work on Oil Mining Licence (OML) 53.

As of June 2018, Africa’s largest crude producer had 32 oil rigs according to the Organisation of Petroleum Exporting Countries’ Monthly Oil Market Report (MOMR). But this has fallen to 14 rigs as of June 2019, according to the oil cartel’s latest July MOMR. This is more than a 50 percent decrease.

The rig count is a function of the level of exploration, development and production activities occurring in the oil and gas sector. A drop in active rig count means oil exploration and production activities in Nigeria have decreased year-on-year.

“Continued delay to tackle the Petroleum Industry Governance Bill (PIGB) sends a wrong signal to current and would-be investors.  It is either the government wants to amend the laws regulating oil and gas or they don’t. Whatever it is, they should come out clear” Ayodele Oni, energy partner at Lagos-based Bloomfield Law Practice said. “Otherwise, it will delay projects, spending, and certain activities in the industry, because of the uncertainty and lack of stability.”