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Delay in Deepwater Projects Threatens Oil Reserves Target

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  • Delay in Deepwater Projects Threatens Oil Reserves Target

The lack of final investment decisions on seven offshore deepwater oilfield projects in the country poses a threat to the country’s target of 40 billion barrels of crude oil reserves by 2020, our correspondent has learnt.

The nation’s crude oil reserves fell to 36.74 billion barrels in 2016 from 37.06 billion barrels in 2015 and 37.45 billion barrels in 2014, according to the Department of Petroleum Resources.

The Federal Government in 2010 set the target of 40 billion barrels of crude oil reserves and a production of four million barrels per day by 2020.

Last year, the Group Managing Director, Nigerian National Petroleum Corporation, Dr Maikanti Baru, said to achieve the target, the country would need an increment of at least one billion barrels in reserves year-on-year up until 2020 and a half of a million barrels in incremental production capacity per day within the same time frame.

A petroleum expert, Mr Bala Zakka, who expressed concerns about the delayed deepwater projects, told our correspondent that international oil companies would continue to invest in the nation’s oil and gas industry if the investment climate was good.

He said, “Practically, once there is a delay in what we call drilling or exploration campaign, the ability to build reserves will also be affected because when you embark on exploration campaign, the essence is to build up reserves.

“So, the moment there is a delay or suspension of exploration activities, it will be difficult to increase reserves, which are not good for the country because the volume of reserves you have also play a role in the kind of production quota that would be allocated to the country by the Organisation of Petroleum Exporting Countries.”

Industry analysts have attributed the lack of the FID to the delay in passing the Petroleum Industry Bill, the proposed review by the Federal Government of the existing Production Sharing Contracts and the steep fall in global oil prices.

Projects without the FID are Shell’s Bonga South-West and Aparo (225,000bpd) and Bonga North (100,000bpd), Eni’s Zabazaba-Etan (120,000bpd), Chevron’s Nsiko (100,000bpd) and ExxonMobil’s Bosi (140,000bpd), Satellite Field Development Phase 2 (80,000bpd) and Uge (110,000bpd).

The 125,000-bpd Usan deepwater field started production in February 2012, and since then, no major oil field has come on stream in the country.

The 40,000-bpd Bonga North-West field and 50,000-bpd.Bonga Phase 3 project, which are extensions of Shell’s Bonga deepwater field, came online in August 2014 and September 2015. ExxonMobil’s Erha North Phase 2 project started production in October 2015

Total’s $16bn Egina deepwater oilfield project, whose Floating Production, Storage and Offloading vessel is undergoing integration in Lagos, is expected to achieve first oil in the fourth quarter of this year. It will add 200,000 barrels per day to Nigeria’s oil production.

The Managing Director, Shell Nigeria Exploration and Production Company, Bayo Ojulari, said on Tuesday that Royal Dutch Shell and its partners would decide next year on whether to go ahead with the development of Nigeria’s Bonga South-West offshore oilfield.

Reuters quoted him as saying that Shell was negotiating a production sharing contract with the Nigerian government, which would determine the viability of the project.

“A time frame for the FID will be announced after the conclusion of commercial discussions with [the Nigerian] government. The discussions are ongoing and may be concluded soon,” Ojulari was quoted by S&P Global Platts as saying in a company statement.

Developing Bonga South-West was billed to cost $10bn, according to the NNPC estimates.

The bulk of Bonga South-West’s resources are located in an area referred to as Oil Mining Lease 118 but it also extends into the OMLs 132 and 140, areas operated by Chevron, where the field is called Aparo.

Other partners in the project are France’s Total, Italy’s Eni and South Africa’s Sasol Petroleum.

Faced with declining oil revenue, Nigeria announced in 2015 that it planned to review the PSCs with foreign companies, proposing an increase in royalty rates for terrains beyond 1,000 meters, from zero to three per cent, and a royalty rate of eight per cent for output of up to 50,000 bpd.

The Nigeria Extractive Industries Transparency Initiative said last week that the failure to review the PSC agreement with foreign companies cost the Nigerian government $35bn in revenue between 2015 and 2017.

Under the PSCs, the NNPC holds the concessions, and the outside drillers fund development of the mostly deepwater offshore blocks and recover their costs from the production after royalty payments.

The Energy Information Administration, the statistical arm of the United States’ Energy Department, noted that several planned deepwater projects in Nigeria had been repeatedly pushed back because of regulatory uncertainty.

It said some draft versions of the PIB had prompted questions about the commercial viability of deepwater projects under the proposed changes to fiscal terms.

The EIA said, “Deepwater projects have typically included more favourable fiscal terms than onshore/shallow water projects, but the PIB, if passed into law, is expected to increase the government’s share of production revenue coming from deepwater projects.

“As a result of the uncertainty, the IOCs have sanctioned (reached a final investment decision) on only one of eight planned deepwater oil projects. Both sanctioned and unsanctioned deepwater oil projects have the potential to bring online almost 1.1 million bpd of new production over the next five or more years, however, only 200,000b/d has reached the critical development milestone.”

The agency noted that the Federal Government took measures to attract investment in deepwater acreage in the 1990s to boost production capacity and to diversify the location of the country’s oil fields.

It said to encourage investment in deepwater areas, involving higher capital and operating costs, the government offered the PSCs in which the IOCs received a greater share of revenue as the water depth increased.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

South Africa’s iGas, PetroSA and Strategic Fuel Fund Merge to Create South African National Petroleum Company

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The South African Department of Mineral Resources and Energy (DMRE) has announced the merger of Central Energy Fund (CEF) subsidiaries iGas, PetroSA and the Strategic Fuel Fund (SFF).

The merger will be effective from 1 April 2021 and the new company will be called the South African National Petroleum Company.

The merger, driven by the pursuit of implementing a new company that has a streamlined operating model via the development of a shared services system and a common information platform, comes a few months after cabinet approval and the confirmation that PetroSA had incurred losses of R20 billion since 2014.

Additional factors which prompted the move included the determination to strengthen PetroSA which had not had a permanent CEO in five years prior to the appointment of CEO Ishmael Poolo last and, had become majorly ungainful since its failure to secure gas for the gas-to-liquids refinery project in Mossel Bay.

While the merger deadline has been set, the portfolio committee expressed reservations to the department’s likelihood of meeting the deadline, considering the existing legislative regime, pending issues raised in the SFF and PetroSA forensic reports, as well as PetroSA’s current insolvency and liquidity challenges, the official press statement on the briefing revealed.

“South Africa’s energy sector is entering a new dawn,” said NJ Ayuk, Executive Chairman of the African Energy Chamber. “With gas discoveries off the coast and the announcement of the REIPPP programme bid window 5 and 6 on the horizon, now is the most opportune time for the merger of the CEF subsidiaries. Of course, it is not an easy task and delays may be anticipated but, this move signals a real change towards a meaningful strategy that will not only be beneficial to the DMRE but to potential investors and local development as well.”

The African Energy Chamber welcomes this move and acknowledges that this is yet another step supporting the country’s determination to restarting the engines of sustainable growth and the transformation of energy policy and infrastructure.

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Crude Oil

Crude Oil Hits $71.34 After Saudi Largest Oil Facilities Were Attacked

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Brent Crude Oil Rises to $71.34 Following Missile Attack on Saudi Largest Oil Facilities

Brent crude, against which Nigerian oil is priced, jumped to $71.34 a barrel on Monday during the Asian trading session following a report that Saudi Arabia’s largest oil facilities were attacked by missiles and drones fired on Sunday by Houthi military in Yemen.

On Monday, the Saudi energy ministry said one of the world’s largest offshore oil loading facilities at Ras Tanura was attacked and a ballistic missile targeted Saudi Aramco facilities.

One of the petroleum tank areas at the Ras Tanura Port in the Eastern Region, one of the largest oil ports in the world, was attacked this morning by a drone, coming from the sea,” the ministry said in a statement released by the official Saudi Press Agency.

It also stated that shrapnel from a ballistic missile dropped near Aramco’s residential compound in Eastern Dhahran.

Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a ministry spokesman said in a statement on state media.

Oil price surged because the market interpreted the occurrence as supply sabotage given Saudi is the largest OPEC producer. A decline in supply is positive for the oil industry.

However, Brent crude oil pulled back to $69.49 per barrel at 12:34 pm Nigerian time because of the $1.9 trillion stimulus packed passed in the U.S.

Market experts are projecting that the stimulus will boost the United States economy and support U.S crude oil producers in the near-term, this they expect to boost crude oil production from share and disrupt OPEC strategy.

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Crude Oil

A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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