Clara Nwachukwu and Sebastine Obasi,
About 18 of the oil fields under 30 oil mining leases, OMLs awarded to indigenous companies as marginal fields are now at the risk of being revoked, as the deadline for the development of the fields expired March end.
Only nine of these fields have so far been developed and producing in the over 12 years of their awards, and account for just 2.1 per cent of the country’s total daily crude production.
Under the Petroleum (Amendment) Act No. 23 of 1996, the President has the power to declare a field as a marginal field. This power applies where a discovery has been made but the field has been unattended after 10 years of discovery.
Licences to be revoked
Companies and their fields facing such a risk, based on the list posted on the Department of Petroleum Resources, DPR’s official website, https://dpr.gov.ng/index/maps/marginal-charts/list-of-marginal-fields/ include:
- Prime Energy Ltd/Suffolk Petroleum Ltd – Asaramatoru – OML 11
- Bayelsa Oil & Gas – Atala – OML 46
- Excel Exploration & Production – Eremor – OML 46
- Independent Eneergy – Ofa – OML 30
- Millennium Oil & Gas Company – Oza – OML 11
- Network E & P – Qua Iboe – OML 11
- Universal Energy Resources Ltd. – Stubb Creek – OML 14
- Associated Oil & Gas Services Ltd/Dansaki Petroleum Ltd – Tom Shot Bank – OML 14
- Sahara Energy Ltd/African Oil & Gas Ltd – Tsekelewu – OML 40
- Guarantee Petroleum/Owena Oil & Gas – Ororo – OML 95
- Sogenal Ltd – Akepo – OML 90
- Bicta Energy System – Ogedeh – OML 90
- Eurafric Energy – Dawes Island – OML 54
- Del Sigma Ltd – Ke – OML 54
- Goland Petroleum – Oriri – OML 88
- Movido E & P – Ekeh – OML 88
- Chorus Energy – Amoji – OML 56
- Niger Delta Petroleum Ltd – Omerelu – OML 54
Last year, the Director, DPR, Mr. George Osahon, had warned marginal field operators, MFOs in Nigeria that marginal fields awarded in 2003 which have become none-performing after 10 years will be revoked in March 2015.
It is not clear why government granted the additional grace of two years, seeing as oil and gas licences elapse after 10 years if undeveloped, and are thrown back into the basket for future licensing rounds.
Impact of elections
Days after the expiration of the deadline, industry regulator, DPR, is yet to say anything concerning the licences revocation, a development analysts attributed to the Presidential election, which held on March 28.
In fact, the agency told Sweetcrude that, “It will not be expedient in the light of the political situation to talk about licence revocation,” especially now, that a new party has been elected into power, which has promised sweeping changes in the petroleum industry.
At the outset, 24 marginal fields licences were awarded to 31 companies in the 2003 rounds, 17 of these were awarded to sole operators and seven to joint-venture operators.
But Osahon disclosed that of the 30 licences, five of them were awarded under controversial discretionary basis, of which only Oriental Energy, owner of two fields – Okwok and Ebok fields; and Niger Delta Petroleum Development Company, owner of Ogbelle field are involved in active production.
He also explained that 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 said further that Niger Delta Development got the Ogbelle field in 2010, while Otakikpo and Ubima fields were recently awarded to Green Energy Limited and Allgrace Energy Limited respectively based on their commitments to fund three pilot projects, using the Public Private Partnership mechanism.
The DPR listed the active and productive marginal fields as follows:
- Platform Petroleum
– Egbaoma – OML 38
- Walter Smith and Morris Petroleum – Ibigwe
– OML 16
- Frontier Oil Ltd
– Uquo – OML 13
- Britania-U Nig. Ltd.
– Ajapa – OML 90
- Midwestern Oil & Gas/Suntrust Oil Ltd
– Umusadege – OML 56
- Pillar Oil Ltd – Umusati – OML 56.
- Energia Ltd/Unipetrol Petroleum Lts (bought over by Oando)
– Ebendo – OML 56
- Oriental Energy
– Ebok – OML 67
- Niger Delta Petroleum Ltd – Ogbelle
– OML 54
According to the regulator, these nine productive fields had grown their reserves from 141 million barrels in 2004, to 302.6 million barrels in 2013.
Advent of marginal fields
A marginal field in Nigeria is referred to a field that was discovered by international oil companies, IOCs, but had not developed the field for more than 10 years.
IOCs have not developed these fields for a combination of factors including: having more important priorities on bigger fields (often offshore); the well-known problems (including community strife/action) of developing onshore assets in the Niger Delta.
A former Group Managing Director, Nigerian National Petroleum Corporation, NNPC, and Chairman/Chief Executive Officer, Prime Energy Resources Limited, Mr. Chambers Oyibo, operators of Asamatoru Field, OML 11. “No company can survive on one marginal field due to the eventual decline in production from these assets.
Those that want to keep progressing and stay in business must eye future bid rounds and divestments as a necessary means for growth.”
Oyibo’s statement reflects the impression of indigenous marginal field operators who have been seeking to have a stake in the nation’s oil and gas industry, long dominated by the IOCs.
Sweetcrude learnt that the award of the marginal fields, which was novel at that time, may have overwhelmed indigenous companies, who did not quite understand the inherent challenges in the capital intensive oil and gas industry.
It was gathered that the winners of these fields found it difficult to access funds, both locally and offshore.
The award of the marginal fields came at a time Nigerian banks had low capitalisation and could not meet the huge funding required in the oil and gas sector. Moreover, the banks did not understand the dynamics of the sector, which accounted for their reluctance to grant the operators credit facilities.
Also, a lot of the marginal field winners had internal problems that bordered on ownership. In some cases, some of the directors of the companies used their contacts in government to get the licence, but lack the financial muscle to put the fields on track. Efforts to corner most of the shares put them on collision course with the financially buoyant directors. In the process, some of the fields are put on hold as the crisis linger.
Again, foreign service companies known for contracting and procurement of goods and services were initially sceptical about working with indigenous companies who they felt had no track record in the industry. These were said to have compounded the challenges of marginal field winners.
Community issues were also one of the challenges. Long after the winners got their licences from government, they were unable to access the fields due to community interference. This is because most of the host communities felt that the mineral in their domain should not be explored without their consent. Their interference delayed the activities of the licencees, who were compelled to sign agreements with these communities before takeoff.
Notwithstanding the challenges faced, charactersied by low contribution to Nigeria’s production, some MFOs insist that the programme has been a relative success.
The Managing Director, Frontier Oil, operator of the Uquo Field OML 13, Mr. Dada Thomas, argued that the programme is a success so far as it has increased the Nigerian content in the sector, with attendant increase in competent Nigerian professionals and the provision of employment to Nigerians.
According to him, “My understanding for the initiative of organising that programme, under the presidency of Olusegun Obasanjo, is to increase Nigerian content in the upstream exploration and production sector. Also, to provide the platform for competent Nigerian professionals from the industry to participate in the upstream E&P sector, rather than be employees of IOCs. Thirdly, to create and increase employment for Nigerians within the upstream E&P sector and lastly, to increase the contribution of Nigerian E&P producers to the overall production and reserves base of Nigeria.
“When we look back 14 years later, 12years after the February, I have to say that it is relatively successful. Why? First of all, out of the 24 fields that were awarded, nine, I believe are in production. That is a pass mark of 33 to about 37%. Although it is not 60%, it is not abysmal.”
“Secondly, in terms of creating employment, it has created employment. Our company is employing 100 percent Nigerian staff to do the work beyond the tape. The other eight marginal field companies are mostly employing 100 percent Nigerians in their organisations.”
He listed production capacities to include:
Midwestern oil -18,000 barrels per day, bpd
Energia – 5,146 bpd;
Brittania-U, 4000 bpd;
Waltersmith 4000 bpd, and,
Frontier Oil – 74 million standard cubic feet of gas a day.
Also speaking, the Managing Director, Energia Limited, operator of Ebendo Field, OML 56, Mr. Felix Amieyeofori, disclosed that most operators lose about 60 percent of the projects’ funds to non-production activities, thereby driving costs higher.
According to Amieyeofori, Energia once stayed for one full year on site without doing any work due to one issue or another, and urged operators to adopt the concept of “drilling on paper” to enable them treat all exigencies before actual drilling.
He also advised operators to adopt a stakeholder approach whereby all partners sit together to sort out issues. “Try to sort out all partners before deploying to site. You must report to your bank because some of them are fast acquiring capacity to deal with oil industry financing. It is not easy to manage $25 million for an oil well and you have many wells on your hands,” he added.
In November 2013, DPR’s Osahon had promised of another marginal field round to be concluded in January 2014. About 31 onshore and offshore fields were supposed to have been put up for sale, without giving further details regarding them.
More than one year down the line, nothing more has been said of the bid round, which, based on the timing, many had initially thought were to be dished out to political allies, who would fund the presidential campaigns.
However, with the election of Gen. Muhamadu Buhari as the new president, hopes for another round may have been dashed as no bid exercise can be successfully implemented before his takeover by May 29th.