Niger Delta oil reserves half-way through their lifespan

As at December 2017, a total of 187 blocks had been opened in the Niger Delta comprising 46 Oil Prospecting Leases (OPL) and 107 Oil Mining Leases (OML), the highest in Nigeria’s seven oil producing basins, indicating the vast contribution of the region to Nigeria’s economy, according to data from the Department of Petroleum Resources (DPR), the oil sector regulator.
But after 60 years of continuous crude oil exploration in the Niger Delta without a strategy to remediate the environment and with little to show for development in the region, oil reserves in the basin are estimated to be half-way through their lifespan, according to a new study on the Nigerian oil and gas sector by Afrinvest, an investment banking firm.

“Although there are several hydrocarbon basins in Nigeria, the Niger Delta has remained the focus of exploration for over 60 years. Based on remaining proven commercial reserves, the Niger Delta is estimated to be half-way through its lifespan,” the report said.
Several studies on oil exploration activities in the Niger Delta basin have found that pressure is mounting in the basin.

“The Niger Delta is one of the most prolific oil provinces in the world. Exploration activities are still on-going with reports of the presence of overpressure zones which has been a source of worry to oil and gas investors,” said one study by Obi, George and Ofem of the Geology and Physics departments of the University of Calabar.

Records from six wells involved in the study reveal the presence of 21 overpressured zones. One well has the largest overpressure depth range of 200m from sonic log assessed. Hydrocarbon generation, an important activity for those exploring crude oil, contributes to this pressure.

“This implies that Nigeria needs to increase deepwater exploration to replace reserves,” said analysts at Afrinvest.

Since the last five years, the bulk of Nigeria’s oil production has been coming from deepwater fields as concerns about militancy and community agitation force International Oil Companies into deepwater fields. Oil production from Production Sharing Contracts (PSC) contributed about 32.27 percent of national production in August last year. PSCs produced far less than these in the past.

The relative lull in militancy helped Nigeria average around 1.7 million barrels per day production in 2018, according to OPEC records. But the 125 pipeline sabotages witnessed in August last year, according to NNPC records, indicate that rather than recede, militancy may be the quickest factor that will force production away from inland basins in the Niger Delta.

To ensure Nigeria’s energy security, the NNPC on February 2 said it would start drilling at Barumbu Village, Alkaleri Local Government Area of Bauchi State, precisely at Kolmani River II Well, after President Muhammadu Buhari cut the ribbon on the project. The field had been previously abandoned by Shell almost 20 years ago.

The NNPC has said it is pursuing aggressive exploration of the inland basins including Anambra, Bida, Benue, Chad, Dahomey, Gongola and Sokoto. However, analysts have counselled against drilling in the north fraught with security challenges as well as scant proof of oil and gas in commercial quantity.

Henry Biose, petroleum economics, management and policy researcher at University of Port Harcourt, earlier told BusinessDay that the cost-benefit analysis shows drilling in the north is not viable.

“While there is about 37 billion barrels of proven oil reserves and about 187 trillion standard cubic feet of gas in the south, what we want to explore in the north is an unproven reserve of about 2.3 billion barrels of oil reserves and about 14.65 trillion standard cubic feet of natural gas available for four or more countries in the Chad Basin,” said Biose.
Afrinvest analysts’ advice to focus on deepwater is predicated on the presence of reforms in the oil and gas sector, including passage of the critical Petroleum Industry Bill. Buhari last year refused to assent to the governance aspect of the bill, worsening investor uncertainty in the sector.
“Consequently, foreign capital inflow into the oil and gas industry has continued to decline as evidenced by the Nigerian Bureau of Statistics’ report, which showed an average decline of 70.0 percent Q-o-Q between Q1:2018 to Q3:2018,” the investment company said in the report.

Nigeria’s production sharing contracts, which prescribe the terms under which drilling of deepwater fields is carried out, will expire in the next 5-10 years, but the country is not reforming its laws to prevent the billions of naira it is losing in royalty revenue due to poor fiscal terms it developed for its offshore fields over 20 years ago when it had scant knowledge about drilling in deepwater fields.

“Hence, Nigeria’s upstream outlook post-2020 is poor, unless this fiscal uncertainty is addressed,” the Afrinvest report said.

ISAAC ANYAOGU