- Unfavourable Environment May Keep $50 Billion Oil Find Trapped in Reserves
The Federal Government has been going cap-in-hand begging for loans around the world, without making much success because of the global financial crunch. Besides, Nigeria’s economic recession make such venture even less viable, even as the country needs to spend its way out of this doldrums.
To crown it all, latest attempt by President Muhammadu Buhari to borrow about $30million for infrastructure development to jump start the economy was vehemently opposed by the legislators on account of lack of details.
While the President struggles to provide for details on the proposed loan, perhaps there is the need to look inwards and the possibility of raising the required fund through creating an environment suitable for sustainable investments both local and foreign.
On October 27, the Nigerian unit of world’s largest publicly owned oil and gas company, ExxonMobil, announced a significant discovery with a potential recoverable resource of between 500 million and one billion barrels of oil on the Owowo field offshore Nigeria.
At an average price of $50 per barrel, the new field is worth $50 billion in potential revenues for the Nigerian oil and gas industry over the next few years, with a potential to rise higher if the international prices of crude rise. The potential revenue is almost twice of what the government is hoping to borrow from the international financers.
This was why the news was received with so much excitement, but also with some reservations because this will be the first major find in the country for years. Policy indecision and commitment to contract agreements have stalled investments in the nation’s petroleum industry, and in some cases, even pushed some companies out of the country.
Mobil find.
The Owowo-3 well, which was spud on September 23, encountered about 460 feet (140 meters) of oil-bearing sandstone reservoir.
Owowo-3 extends the resource discovered by the Owowo-2 well, which encountered about 515 feet (157 meters) of oil-bearing sandstone reservoir. The well was safely drilled to 10,410 feet (3,173 meters) in 1,890 feet (576 meters) of water.
“We are encouraged by the results and will work with our partners and the government on future development plans,” said President, ExxonMobil Exploration Company, Stephen M. Greenlee.
The Owowo field spans portions of the contract areas of Oil Prospecting License (OPL) 223, and Oil Mining License (OML) 139. The well was drilled by ExxonMobil affiliate Esso Exploration and Production Nigeria (Deepwater Ventures) Limited and proved additional resource in deeper reservoirs.
Mobil Producing Nigeria (MPN), the operator for OPL 223 and OML 139, holds 27 per cent interest. The Joint venture partners include Chevron Nigeria Deepwater G Limited (27 per cent), Total E&P Nigeria Limited (18), Nexen Petroleum Deepwater Nigeria Limited (18), and the Nigeria Petroleum Development Company Limited, NPDC (10).
Nigeria’s crude oil and condensate production has declined significantly from the beginning of the year till now due to continued attacks on oil pipelines and production facilities by militants in the Niger Delta.
This discovery will no doubt have a positive impact on the country’s crippled production and export operations. But before this can happen, a number of stakeholders have called on government to make the operating environment more favourable get ExxonMobil and other joint venture partners to invest more in exploration and production.
The development is also an encouragement to ExxonMobil, which together with other oil exploration companies, Shell and Chevron; lost over $7.1 billion, about 70 per cent of earnings in the first half of 2016 to militancy, low oil prices, and weak refinery margins.
A number of actions have been identified as a boost to bringing the reserves to production, including: Community stability and security of MPN operation sites important for continued production and revenue generation;Eliminating funding issues and other critical challenges that exacerbate operations decline, near term; Support of all stakeholders to assure near term business sustainability, and; Maintaining right environment/atmosphere through collaboration for long term business outlook and community interventions to remain positive.
Although the Nigerian National Petroleum Corporation (NNPC), whose subsidiary, NPDC holds 10 per cent stake in the Mobil JV, thinks there is still a long time to go to production, but the current economic woes call for quick actions.
The NNPC Group Spokesman, Mohammed Garba Deen, told The Guardian, “Talking about production is a little bit premature for now, we’re happy that it was found, we’ll tap into it.”
Pointing out that without incentives and sanctity of contract, the reserves may remain buried in the ground, he argued, “without incentives the discovery won’t have been made, and whatever contract we signed will be honoured and implemented to the letter.”
To underscore the importance of exploration and production in the current economic condition, the Buhari’s administration had reportedly allocated about N34 billion for the finding and commencement of oil exploration activities in the North. A development, many see as a desperate move to empower the region, which had passionately criticised the 13 per cent derivation allocation to oil producing states in the Delta Region of the South.
The NNPC Group Managing Director, Maikanti Baru, on July 25 said the President had instructed the Corporation to go into the frontier basin of Chad by Kolmani River in Bauchi State, where oil is reported to have been discovered and commence exploration activities in the area without wasting time.
But an industry expert, Nosa Omorodion, has a different view about the enablers that will buoy production at the Owowo field.
Noting that “It’s the biggest find in a long while and will add to our reserve base,” he added that “Production is guaranteed because partners plan how production will proceed and the fund will fall into place.”
On stakeholders’ concerns, Omorodion, who is the President, Nigerian Association of Petroleum Explorationists, NAPE, urged “Government to acknowledge there are issues with joint venture (JV) funding, and enable the companies to seek for alternative funding, because current JV funding arrangement cannot be sustained to boost exploration and production.”
He blamed the lull in the petroleum industry on the lack of passage of the Petroleum Industry Bill (PIB), saying: “the Bill has been delayed for too long and done the nation a disservice. We have enabling legislation in the Petroleum Act and the fiscal regime incentives needed to drive exploration campaign. The PIB lost track, it became a big monster and operators paused on investment.”
There are indications that the PIB, whether in its omnibus state or balkanised as being planned, may not be passed in this current legislative session. This is because, the legislators had already begun the deliberation of a five-part Bill, which had gone through second reading last week, while the executive is still harmonising its own copies, which it plans to send to the National Assembly soon.
As the Legislature and Executive decide what to do with the PIB, Omorodion insisted, “we need to let the industry run efficiently without interferences; regulators should play their roles because despite having all the natural resources, Nigeria is not the first point of call for investors. So we need security of investment.”
For this reason, he said the Niger Delta goes beyond the government alone but concerns all stakeholders, noting that “pipelines attacks cause pollution, loss of life and property, a long period of inactivity, and loss of jobs. Communities need to understand that despite that they have a legitimate reason to be angry; they are still ones that suffer the most from these attacks.”
Mobil investments in Nigeria
ExxonMobil subsidiaries in Nigeria currently account for over 30 per cent of Nigeria’s crude production, making it the biggest producer and top revenue contributor. It has contributed over N1 trillion in annual revenue to the Government since 2010, and more than N160 billion to the Niger Delta Development Commission (NDDC) since 2001.
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