Boosting Nigeria’s crude oil production through marginal fields development
When the Federal Government introduced the local content law in April, 2010, the strategy was to ensure that indigenous companies play a greater part in developing oil and gas assets.
This was even followed by an enlightenment campaign by the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, to show Nigerians, mostly stakeholders in the oil and gas sector how they can and benefit from the Nigerian Content Development Law.
The minister made it clear that the purpose of promoting marginal field operation is to boost the country’s crude oil reserve to at least 40 billion barrels, and production to four million barrels per day.
However, five years after the law took effect and 12 years after 30 marginal field licences were awarded to about 24 indigenous companies, only about nine of them have been developed to production stage, accounting for less than three per cent of the country’s total daily crude production.
With 18 operators now faced with the risk of losing their license as the deadline for the development of the fields expired at the end of March 2015, even after a two years extension in 2013 by the Federal Government to allow more time for development of these fields, urgent steps needs to be taken to avoid the same mistakes when the licenses are re-awarded.
Although quite a number of reasons have been identified for the low success recorded in the development of marginal fields including finances, technical competence among others, one can only wonder where exactly these 18 marginal field owners got it wrong
Needless to state that the cost of developing a marginal field is relatively high, some of the determining factors would be whether it’s an oil or gas prone marginal field asset or if it is onshore or offshore.
According to the Managing Director of Frontier Oil, Dada Thomas who is also the volunteer chairman of the marginal field operators’ group, these factors largely determine the kind of costs required to develop a marginal field and can range from $30 million to as much as $200million and above.
It has become evident that indigenous companies find it extremely difficult to raise such funds. While some have gone into partnerships with both local and international partners and in some cases have had to exchange a high percentage of their stake in the marginal field in a bid to raise the funds, others have not been so lucky to get the required capital to develop the field even more than twelve years after obtaining the license.
Where the marginal field owners have been able to source for the required funds, putting together required technical team needed to successfully attain first oil has been one of the greatest challenges.
In some cases, drilling has gone on for many years without any success, a situation commonly blamed on the topography of the location, thereby leading to frustration and an eventual back out by the financial partners, aided by the high cost associated with getting International Oil Companies involved in building production facilities on the marginal fields.
Obviously, the marginal field operators are facing challenges and have not sufficiently understood the industry in order to actualise the benefits of local participation and the over forty indigenous servicing companies in the country need to begin to rethink their operational strategy in order for the full benefits of the local content law to have the desired effect on the economy.
There are some sparks of success despite the general failure, Midwestern Oil and Gas, Frontier Oil, Seplat and recently, Network E&P &Oando energy who just announced that they have hit first oil at the Qua Iboe marginal oil field they jointly operate, producing 2,150 barrels a day.
For this field, the operator had struggled for almost 10 years until it partnered with Eunisell Solutions, an expert in accelerated marginal fields development who built the facility within a record time of four months with the resultant production of oil.
Not only has the company demonstrated its technical competence in marginal fields over the years, it has also provided financial support through its partners for marginal field owners who are unable to raise the much needed funds and engage in community relations to collaborate with the community, thereby eliminating majority of the issues associated with operating a marginal field.
Understanding the need for operational and technical competence is what has helped the likes of Network E&P, Midwestern Oil and Gas, Platform Petroleum and the few other indigenous oil and gas companies that have tested the competence of Eunisell solutions one way or the other in the development of their marginal fields, while the majority are still stranded either for the lack of information or access to a solution provider.
Perhaps, with more of such dedication to making marginal fields work by very indigenous companies for whose interest the local content law was introduced, the success and direct positive impact on the nation’s economy may just be felt within a short while.
For now, those that are yet to develop their fields have a lot to worry about, like taking seriously the warning issued by the Director, DPR, George Osahon, that marginal fields’ licenses awarded in 2003 which have become none-performing after 10 years will be revoked this year and the expected change in government come May 29th which is expected to be followed with reforms to be carried out by the incoming government which will include revocation of the licenses of non-performing marginal fields and are issuance of license to new operators.