Obstacles mar marginal fields programme Posted: 05 Aug 2013 05:23 PM PDT VANGUARD Obstacles mar marginal fields programme on August 06, 2013 / in Sweet Crude 12:30 am / Comments BY MICHAEL EBOH Ten years after the commencement of the marginal fields programme, the objectives of the federal government concerning the programme are yet to be met. This is because marginal fields’ operators are currently struggling to meet up with the expectations in terms of production target and contribution to the country’s energy sector. The marginal fields operators are also battling with legal issues brought about by partnership foisted on them by the government during the award of the fields, lack of access to funding, crude theft, pipeline vandalism, among others. According to the operators, funding challenges, non-delivery of technical/financial partnership agreement, frequent shut down of the export line, community interference and shutdown of their operations and contractors’ inability to deliver projects on time and in good quality are factors negatively affecting their growth and sustainability. They also identified the local content policy as a major challenge to their operations, especially in view of the inherent challenges and harsh operating environment confronting their contractors. According to them, “the cost of doing business in Nigeria is very high, infrastructure is nothing to write home about, lack of technology, which result in the importation of technology and services required for oil and gas development.” The Director, Department of Petroleum Resources, DPR, Mr. George Osahon, said the contribution of marginal field operators to Nigeria’s crude production remains insignificant. According to him, marginal fields only account for 2.1 per cent of the country’s total crude production, with a daily production of about 60,000 barrels of oil per day and 100 million standard cubic feet of gas per day. He said that despite developing the fields, out of the 24 marginal fields awarded in 2003, and the five fields awarded on a discretionary basis, only nine are producing. He listed the active and productive marginal fields operators as: Platform Petroleum – Asuokpu/Umutu field Walter Smith and Morris Petroleum – Ibigwe field Frontier Oil – Uquo field Britania-U – Ajapa field Midwestern Oil and Gas and Suntrust – Umusadege field, and, Pillar Oil – Obodogwa/Obodeti field. Osahon also explained that out of the five marginal fields that were awarded on a discretionary basis, only Oriental Energy owner of two of the fields – Okwok and Ebok fields, and Niger Delta Petroleum Development Company, owner of Ogbelle field are involved in active production. He said Okwok and Ebok fields were awarded to Oriental Energy to compensate the company for losing part of its OML 115 to Equatorial Guinea due to boundary adjustment He added that Ogbelle field was awarded to the Niger Delta Development, while in 2010, Otakikpo and Ubima fields were recently awarded to Green Energy Limited and Allgrace EnergyLimited respectively based on their commitments to fund three pilot projects, using the Public Private Partnership mechanism. Oil Installation Oil Installation Background The Marginal Field policy was put up by the Federal Government due to the minimal contribution of indigenous field owners to crude production among other factors. Marginal field/well is any oil field/well that is nearing the end of its commercial life. The production rates of these fields will be low compared to other wells or deepwater wells. Enabling law The Marginal Fields programme was set up by the Petroleum (Amendment) Act No. 23 of 1996, which states that: The Federal Government hereby decrees as follows: (1) The Petroleum Act is hereby amended, in the First Schedule thereto, by inserting immediately after paragraph 16 thereof the following new paragraph 16A, that is Farm-out. “16A. (1) The holder of an oil mining lease may, with the consent of and on such terms and conditions as may be approved by the President, farm -out any marginal field which lies within the leased area. “(2) The President may cause the farm-out of a marginal field if the marginal field has been left unattended for a period of not less than 10 years from the date of the first discovery of the marginal field. “(3) The President shall not give his consent to a farm out or cause the farm-out of a marginal field unless he is satisfied – (a) that it is in the public interest so to do, and, in addition, in the case of a non producing marginal field, that the marginal field has been left unattended for an unreasonable time, not being less than 10 years; and (b) that the parties to the farm-out are in all respect acceptable to the Federal Government. “(4) For the purposes of this paragraph – ‘Farm-out’ means an agreement between the holder of an oil mining lease and a third party which permits the third party to explore, prospect, win, work and carry away any petroleum encountered in a specified area during the validity of the leases; “Marginal field” means such field as the President may, from time to time, identify as a marginal field. “This Act may be cited as the Petroleum (Amendment) Decree 1996.” Thrusts of the law The thrusts of the Decree, according to the DPR, include “Promoting indigenous participation and building indigenous capacity in the upstream sector. Provide alternative source of funding for exploitation of hydrocarbon resources. “Increase production capacity through acceleration of development of discovered reserves. Increase the oil and gas reserve base through aggressive exploration. Encourage capital inflow. “Gainfully engaging the pool of the high-level competent Nigerian in the petroleum industry and create employment opportunity for Nigerians.” Need for marginal fields The DPR said the marginal fields programme was developed to discourage continuous holding of undeveloped fields by International Oil Companies (IOCs). It added that the programme also aims at reducing the rates of abandonment of depleting fields and assure the Government’s take in acreages that would otherwise have become unproductive. Giving a background of the Nigerian petroleum situation, Mr. Osten Olorunshola, immediate past Director of the DPR, disclosed that notwithstanding the fact that Nigerians owned the larger share of the nation’s oil assets, their contribution to total production is abysmally poor. He noted that out of the total of 388 oil blocks in the country, only 173 of them have been awarded to individuals and corporations, while 215 blocks were yet to be awarded. Broken further, he said of the 173 so far awarded, Nigerians owned 90 blocks while foreigners owned 83 blocks. He lamented that all the 90 blocks awarded to indigenous players account for only six per cent of the country’s total crude oil production, while the 83 awarded to foreign oil companies account for 94 per cent of the total output. He said indigenous operators are producing about 150,000 barrels of crude oil per day, representing six per cent of Nigeria’s total crude production; while foreign oil companies account for the bulk of 2.35 million bpd or 94 per cent of total output. He blamed this on the lackadaisical attitude of the Nigerian players towards the development of their blocks, adding that majority of them have not commenced any serious production activities on the oil blocks since they were awarded to them. According to Olorunshola, it appears that people just want to own oil blocks and put it on their complimentary cards. He said, “Government decided to dig deeper as it was not so happy with the performance of the indigenous oil companies. That is the reason why government put in place the Marginal Fields policy.” Also speaking on the issue, Osahon said the marginal fields programme became necessary, in light of the minimal contribution of indigenous field owners to crude production. Petroleum Minister, Diezani Alison-Maduekwe Petroleum Minister, Diezani Alison-Maduekwe Challenges facing marginal fields operators Osahon blamed the inability of a number of marginal field owners to develop their fields on the fact that they are faced with litigations, funding constraints, non-bankable proposals, and a host of others issues. In his own view, Olorunshola said, “The major issue that negatively affected the production capacity of majority of the marginal field owners is the fact that the owners could not access funds. As at 2003, when the fields were awarded, Nigerian banks where in difficult situation, making it impossible for majority of them to give out loans. “Also, another challenge that served as a drawback to the marginal fields programme is the unending litigations by most of the parties the fields were awarded to. The bid rounds brought a lot of litigations, due to the fact that the parties were technically asked to merge before the fields will be awarded to them. Till today, majority of them are still in court and are yet to kick start the process of production on their fields.” Mr. Isa Abdulrazak, Chief Executive Officer, Walter Smith Petroman Oil Limited, listed the challenges confronting marginal field operators to include The Federal Government’s imposition of partners on the operators during the award of the marginal field license. He said the forced partnership brought about a number of litigations and difficulties in their operations, saying that it has helped in making things complicated in their operations. He also identified funding impediment, non-delivery of technical/financial partnership agreement, frequent shut down of its export line, community shutdown of its operations and contractors’ inability to deliver projects on time and in good quality as challenges hindering its growth. He further stated that the Local Content policy is a major challenge as “Some of the local companies are as well challenged by funding, making it difficult for them to do a good job.” He further stated that the company experienced about 120 days shutdown last year due to disruption in pipelines conveying its products. Also speaking,Mr. Felix Amieyefori Valentine, Managing Director of Energia Oil, maintained that the increasing incidence of pipeline vandalism, especially on the Agip’s pipeline, is making it difficult for the company to fund its operations, leaving it with the option of seeking funding from external sources. He said pipeline vandalism is bringing about a reduction in the earnings and cash flow of operators, adding that Energia is seeking a line of credit that will augment its cash flow. According to him, the company is looking for about $40 million to pay some of its contractors, especially as it is almost the sole financier of its full assets with plans to reconcile with its other partners at the appropriate time. He called on the Federal Government to declare an emergency and war on bunkering and vandalism, saying it is only such that will help ensure a lasting solution to the menace. In his own view, Mr. Dada Thomas, Managing Director, Frontier Oil Limited, said Nigeria’s posture in the international financial landscape, especially in terms of its good governance rating is affecting businesses negatively in the country. He further stated that government’s decision to fix gas prices is affecting the growth of the sector, stating that it is discouraging investment in the sector. In summary, he said, “There is high cost of doing business in the country, infrastructure is nothing to write home about, lack of technology, which results to the importation of technology and services required for oil and gas development. “Fiscal regime in the proposed Petroleum Industry Bill should encourage and not discourage investment in gas. Insecurity in the country is leading to huge cost of operation.” Successes and future plans Speaking on the major milestones attained by marginal field operators, Osahon said that the Marginal Fields’ grew Nigeria’s reserves by 302.6 million barrels as at April 2013 from 141 million barrels in 2004. He also said that the Marginal Fields Programme is gradually living up to expectation with production now up to 60 million bpd and about 100 mmscf/d gas. Speaking on its successes over the years, Valentine disclosed that Energia has grown its production capacity to 5, 700 bpd and is expected to grow further to about 9,000 bpd before year end. He projected an increase in its production capacity to about 15,000 bpd before 2015, due to new reserves it has discovered, adding that it is already drilling Wells 7, 8 and 9 and is optimistic that the drilling of Well 10 will soon commence. Also speaking, Mr. Dada Thomas, said Frontier’s success is being driven by its ability to invest in the building of sustainable programmes in the community. He said, “We were able to set up a trust fund through which we have been able to impact positively on the community where we operate. It can never be perfect because some people within the community may want to keep everything to themselves, but it is necessary that marginal field operators put the community into consideration when planning. The government gives you the license to operate, but the community gives you the freedom to work. “We recognise the importance of a peaceful and harmonious relationship with its host communities and have therefore made extensive efforts and invested substantial amount of time and resources to engage with them. Our philosophy for working with our host communities is premised on keeping our promises and engaging in regular and transparent engagement to keep them informed of, and involved with the development of the field.” The Chief Executive Officer of Midwestern Oil and Gas, Mr. Adams Okoene, attributed the company’s success to its relationship with the community. He said, “We recognised community as important partners. We acknowledged the fact that the willing active support of our community partners is indispensable to our communities. We lay emphasis on enhancing relationship with our community. “Midwestern Oil and Gas considers social projects and involvement in the development of local community as an important part of its activity, readily participating in the activities of local community and developing good relationships with it. “Midwestern Oil and Gas implements social projects and financially supports various social groups. Midwestern is proud that these programs help to increase living standards for people as well provides opportunities for personal development.” On his part, Abdulrazak disclosed that Waltersmith Petroman, is boosting its storage capacity to about 50,000 barrels of oil, and also improving the capacity of its flowstation to about 15,000 bpd, and is set to construct a refinery with a capacity of 5,000 bpd. - See more at: vanguardngr/2013/08/obstacles-mar-marginal-fields-programme/#sthash.4ZdBtPvv.dpuf
Posted on: Tue, 06 Aug 2013 16:45:13 +0000
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