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Why Nigeria Should Have Open Bidding for the Refineries

A Response to Mr. Kachikwu’s “No Open Bidding for Nigerian Refineries
Dear Mr. Kachikwu,

I read the statement from Daily Trust of 26th May 2017 from Vienna Austria where you were attending the 172nd OPEC meeting currently in Session. Quoting your contradictory utterances, further confirms and reinforces my humble conviction that you should use your good offices to open up these refineries for International Competitive Bidding (ICB). This will be in tandem with the philosophy of President Muhammadu Buhari and best global practices.

May I also remind you that your utterances do not reflect and comply with the simple ethical rules of Public Governance in a democratic setting.
Crude oil refinery concession or ‘farm out’ or privatization is not as highly technical as you are claiming in your statements.
We’ve been through the process before and I wish to refer you to BPE/NCP 2007 refinery privatization closure. First Boston Credit Sussie (now Credit Sussie), which isone of the top investment banks on the globe, was the privatization adviser to the Federal Government of Nigeria on the four refineries. PNB Paribas also gave advisory support to the Bureau of Private Enterprises (BPE)for the final closure of the privatization of Port Harcourt and Kaduna refineries, 10 years ago.
We still have these Nigerian professionals and expertise both in BPE and around the country to handle this your new ambitious ‘highly technical’ refinery concession through an open and fair bidding competition.

You contradicted yourself by the statement that the bidding process is open to all willing investors, but how will all the willing investors with technical and financial capabilities know across the globe if you do not advertise what you want to sell or concession with all the criteria and ground rules for them to comply with. Do you think the whole world will be aware by watching you on TV talking about the refinery concessions in Nigeria as a ‘talk advertisement’ from Houston Texas to Lagos to Vienna, yet you are going to be the umpire for the bid evaluations and awards. How?

Your claim that the Federal Government had decided to concession all refineries by August 2017 is a welcome decision but you need to ensure that the process is through an open bid competition via the appropriate statutory Federal Government bodies NCP/ BPE/ICRC to enable Nigerians have a ‘bidders beauty parade’. This is the essence of the open bid process because itshould give us the most qualified investor that could possibly come up.

As proprietary as the case with GE/Nigeria Railway narrow gauges’ advantage was, the Federal Ministry of Transport went ahead to place an advert for other ‘would be’ investors to compete with GE. At least this will to a certain extent give credibility to GE proprietary know-how in railway engineering when they eventually get declared as the final winner. It appears from your utterances in the last one month that you are bent in giving out these refineries to the crude oil swap candidates without open bid, which you would have achieved on behalf of the Presidency to enhance the transparency obligation, with a minimum of three weeks advert in some local and international media. The invitation to bid would have closed by now. The choices are open bid or no open bid, this unnecessary debate could have been avoided because you cannot win.

Yes, “People keep mentioning Agip and OandoPlc but nobody has made the final decision on those” – This your statement being quoted in full further portrays your bias for Oando and Agip as you have become like a ‘sales agent’ to them, are Agip and Oando the only repairer and operators in the world. Part of your statement says “Agip and Oando are probably the front runners because they have put a lot of work on that but you are not in the technical committee”, what is the meaning of this in transparency? You are not a member of the technical committee as Mr. Minister of State for Petroleum and Chairman of the Board of NNPC but you are privileged to know that Agip and Oando have put a lot of work into this transaction. How does this help our transparency image?

My humble advice Mr. Kachikwu is for you to allow BPE/NCP or ICRC to handle this transaction in the most transparent manner. Oando for example bid along with others for Port Harcourt refinery in 2006/2007 and lost. Today any of these companies may win if they do their homework but it must be through an open transparent competitive bidding. Finally in your public declaration from Vienna you said you are the Chair of the steering committee waiting for the technical committee to finish their work before your steering committee will then take it to the NNPC Board – If this process is not yet concluded, why then have you started to talk about Oando or Agip taking Port Harcourt refineries and how then do your public utterances give confidence to other would be investors in any of the refineries??

In summary, this whole transaction appears to be a mockery of ourselves and our processes in Nigeria because we the ordinary citizens have no power to interrogate your actions and inactions. For you to use the statement ‘Hullabaloo about the transparency has no basis’, is to say the least, condescending.

For the second time I advise you to resign now because you are dramatizing but not working for the common good of the Petroleum Industry and the Nigerian Citizens.

Dan D. Kunle

SD-1X Flow Rates Exceed Expectations

Operator aims to bring discovery to commercial operation as soon as possible

SDX Energy says the initial well test results of the SD-1X well has exceeded its own expectations as operator.
The well is SDX Energy’s first probe in the South Disouq licence in Egypt where the Company has a 55% Operated working interest.

“SD-1X has successfully flowed dry natural gas at a stabilised rate of 25.8 MMscf/d on a 48/64″ choke”, the company says in a release. “This flow rate exceeded initial expectations and was limited by the surface facilities put in place to test the well”.

The well was drilled to a total depth of 7,777ft, and encountered 82 ft. of net pay with an average porosity of 25% in the Abu-Madi section.

SDX-1 has now been shut in for an initial build-up after which a series of additional flowing periods will be conducted and fluid samples taken. The results from the well testing programme will be integrated into the on-going reserve evaluation work.

The results of that exercise will then be incorporated into an early development plan proposal for discussion with our partners and the authority. This information will be included in a future release to the market over the summer.

Working with its partners, SDX will now aim to bring the discovery into commercial production as soon as possible.

PIGB Creates Three Commercial Entities to Replace NNPC

Nigeria’s Petroleum Industry Governance Bill (PIGB) 2017 proposes the incorporation of three commercial entities including the Nigeria Petroleum Assets Management Company, National Petroleum Company and the Nigeria Petroleum Liability Management Company.

The bill, passed by the Senate, the Upper Chamber of Nigeria’s Bicameral House of Legislature, on May 25, 2017, seeks, among other things, to restructure the Nigeria National Petroleum Corporationby splitting the assets and liabilities of the corporation into two new commercial entities, namely the Nigeria Petroleum Assets Management Company and the National Petroleum Company which will result, mutatis mutandis, in the repeal of the Nigerian National Petroleum Corporation Act CAP N123, Laws of the Federation of Nigeria, 2004, Nigerian National Petroleum Corporation (Projects) Act CAP N124 Laws of the Federation of Nigeria, 2004 and Nigerian National Petroleum Corporation Amendment Act N123.

The Nigeria Petroleum Liabilities Management Company is proposed as a limited liability company that has the legal capacity to hold assets including shares in the Nigeria Petroleum Assets Management Company and the National Petroleum Company on behalf of the Government of the Federal Republic of Nigeria.

Funding of the Nigeria Petroleum Assets Management Company shall be by appropriation through the National Assembly for the initial capitalisation and subsequent financing of the company. The Federal Republic of Nigeria Appropriation Act 2016 provides for the funding of NNPC through appropriation.

Part of the recurrent and capital expenditure components of the Appropriation Act 2016 which shall be received by the Nigeria Petroleum Assets Management Company from the NNPC budget aforesaid shall be adequate to provide for the financing of the establishment of the Nigeria Petroleum Assets Management Company. Therefore, no further financial requirements are needed for the establishment of the Nigeria Petroleum Assets Management Company.

New PIGB “Strengthens” DPR, Repeals PPRA

The Petroleum Industry Governance Bill 2017, passed by the Nigerian Senate on May 25, 2017,proposesthe establishment of the Nigeria Petroleum Regulatory Commission, which is a more independent and enlarged version of the existing Department of Petroleum Resources.

“The intendment of the Bill is to rationalise and merge two existing agencies including the Department of Petroleum Resources and the Petroleum Products Pricing Regulatory Agency and will result, mutatis mutandis, in the repeal of the Petroleum Products Pricing Regulatory Agency (Establishment) Act, CAP P43, Laws of the Federation of Nigeria, 2004”.

The new Commission will be funded by appropriation through the National Assembly. The Federal Republic of Nigeria Appropriation Act 2016 provides for the funding through appropriation of the Department of Petroleum Resources of the Ministry of Petroleum Resources and the Petroleum Products Pricing Regulatory Agency.

“The recurrent and capital expenditure components of the Appropriation Act 2016 (Nigeria’s 2016 Budget) aforesaid are more than adequate to provide for the finance of the establishment of the Nigeria Petroleum Regulatory Commission”, the bill says. “Therefore, no further financial requirements are needed for the establishment of the Commission”.

Egypt Connects Eight Million Households to National Gas Grid

The Egyptian Government has connected a total of 7.9Million Households into the National Gas Network.

2.1Million, or 26.5% of that number, were connected between 2013 and 2016. The country hopes to have connected an additional 715,000Households by the end of 2017.

Egypt started connecting households to natural gas in 1980, but for the first 20 years, only one million households were connected.

Despite the surge in the growth of household connections, some provinces (governorates) are still not part of the grid.
The Marsa Matrouh governorate, located in the north-western part of the country, with some parts bordering Libya, was connected for the first time between 2013 and 2016.

Agip To Contribute Two Fields To Marginal Bid Round 2017

By Wanokabo Okaikai, in Lagos

For the first time ever, undeveloped discoveries in Nigerian Agip operated acreages may be awarded as marginal fields.
Two accumulations operated by the company are likely to be part of about 40 fields expected to be on offer, when the Nigerian government launches the much awaited marginal fields bid round later in the year.

Sources in Nigerian Agip, the Nigerian subsidiary of the Italian giant ENI, confirm that preliminary data from two of the company’s operated undeveloped discoveries are in the “bid basket” of the Department of Petroleum Resources, the agency responsible for conducting the bid round.

Agip has been unable to “participate” in marginal field awards since the exercise formally began in 2002 because, of all the majors, it has the least prospective acreages in Nigeria, especially Onshore, where the bulk of undeveloped discoveries referred to as marginal fields are located.

Only three of the five oil majors operating in Nigeria contributed fields in their acreages to the basket, during the in the landmark 2002/2003 marginal field bid round.

ExxonMobil did not contribute any field in those awards but has, in the past 15 years since then, “given” up two marginal fields: Okwok and Ebok to the Nigerian government, in furtherance of the cause, which is to help boost indigenous capacity.
Outside the 2002/2003 awards, Shell has contributed two more marginal fields. Ubima and Otakikpo were awarded by the Nigerian state in 2012, outside the process of a bid round, a situation that was severely criticised.

The Marginal field round is expected to be declared open latest September 2017. Click here for a map showing the likely bid round candidates.

West African Ventures Not Affected By STG’s Liquidation

Sea Trucks Group (STG) Limited has gone into provisional liquidation, but its subsidiaries are not subject to insolvency proceedings, according to FTI Consulting, the firm handling the Liquidation.

“The management team remain in control of operations and it is business as usual for the Group”, FTI declared in a statement. “The provisional liquidation of the Company has no impact on the operations of the Group”. This is quite an odd sort of liquidation.

STG is an international group of companies offering offshore installation, accommodation and marine support services to the oil and gas industry worldwide. One of its key subsidiaries is the Nigerian based West African Ventures, which has always claimed to be an indigenous company. WAV’s corporate headquarters are in Lagos. It has a Marine Support Base and shipyard in Warri and Dry-dock and Fabrication facilities in Onne Oil and Gas Free Zone, in the east of the country.

The Eastern Caribbean Supreme Court in the High Court of Justice British Virgin Islands appointed, on May 5, 2017, Chad Griffin of FTI Consulting LLP and Ian Morton of FTI Consulting (BVI) Limited as Joint Provisional Liquidators. A statement by FTI notes that “the appointment is only to the Company, being the group holding company”. The underlying operating/asset owning companies (the “Subsidiaries”) are not subject to insolvency proceedings.

Griffin, Joint Provisional Liquidator of the Company, commented: “The Provisional Liquidation will provide stability and Court protection, to create a platform to maximise value. We will be working closely with the Group’s directors and management team to understand the affairs of the Company.”

Chevron’s Deepwater Production Overwhelms Its Shelf/Onshore Output

Chevron’s net daily production in the Niger Delta’s shallow water and onshore acreages averaged 56,000 barrels of crude oil, from 27 fields in 2016. This is less than half of the 148,000BOPD the company averaged (net) in two fields the deepwater in the same year.

Chevron Nigeria’s main provider is Agbami field, from which the American major had a net output of 120,000BOPD. The company averaged 28,000BOPD (net) from the Usan field, also in deepwater. But Agbami’s gross average for the year was 238,000BOPD, clearly the continent’s largest gusher of oil.

The dominance of deepwater production mirrors the country’s crude production profile in the last 10 years. In 2005, Chevron was operating about the same volume it does now, with nary a drop of oil from deepwater.
What Chevron is producing in abundance, on the shelf, is natural gas. In 2016, the company averaged, on a net basis, 142Million cubic feet of natural gas, most of it for the domestic gas market. It produced, for export, 4,000 barrels of LPG every day.

Chevron says it is continuing its efforts to monetize total potentially recoverable natural gas resources of approximately 17 trillion cubic feet in the Escravos area through a combination of domestic and export sales and use as fuel in company operations. That is close to 10% of Nigeria’s estimated natural gas reserves of 192Tcf. The company is the operator of the Escravos Gas Plant (EGP) with a total processing capacity of 680Million cubic feet per day of natural gas and an LPG and condensate export capacity of 58,000 barrels per day.

ExxonMobil Is Not Helping To Balance the Market

By Fred Akanni, Editor in Chief

American oil companies are pumping more crude into the global economy, just as OPEC is desperately seeking to balance the market with cuts in production by its members.

The poster company for the surge in output, notably from shale formations, is ExxonMobil, the world’s largest publicly traded oil company.

Although data from OPEC’s research unit indicates that shale oil output will ultimately begin a rapid decline in the 2030s by natural depletion, the production boost from this source, in the short term, is only likely to arrest the price increase that everyone thinks the market needs right now.

Western Analysts like DrillInfo argue that cut in production by OPEC countries will have to “be extended because the first cuts didn’t balance the market”. They say that if that doesn’t happen, “ prices won’t remain at this level” , meaning above $50.

But prices have not held steady above $50; indeed in the last week the price of the premium blends have dipped below $50.
DrillingInfo notes that, with American producers continuing to expand U.S. production as they become more efficient and produce at a lower cost, “they aren’t helping to balance the market.”
Such statement point fingers at a company like ExxonMobil, the largest of the aggressive Shale oil producers. The company, in its 2016 Annual report, is not bashful about how well it has done to increase crude oil output. “Approximately 350 new wells were brought to sales, mainly across the Permian and Bakken areas “(which are prominent shale basins), “during 2016. Our operating efficiency continues to improve. In the horizontal program in the Permian Basin, we have reduced cash field expenses to approximately $5 per barrel(1), a 46% reduction since 2014”.

“In 2016, unconventional development in the Permian Basin remained a key focus. One strategic transaction added approximately 3,000 acres in the Delaware Basin, supplementing our already strong unconventional Permian position across the Wolfcamp, Spraberry, and Bone Springs formations. At year-end 2016, we operated nine unconventional rigs in the Permian. Our net production grew 45 percent during 2016. In the prolific Wolfcamp formation in the Midland Basin, we have increased ultimate recoveries while substantially reducing drilling and completion costs. ExxonMobil holds 222,000 net acres in the Haynesville/Bossier Shale of East Texas and Louisiana, where we continue to capture benefits from drilling and completion improvements”.

ExxonMobil also boasts that The Bakken (Shale)”remained one of our most active unconventional programs in 2016, with production volumes again reaching all-time highs”. The company “currently holds 570,000 net acres of high-quality resource in this play”. With three drilling rigs in operation in 2016, net production in the Bakken increased 18%. In 2016, “we continued drilling at a measured pace in the liquids-rich Woodford Shale in the Ardmore and Marietta basins of southern Oklahoma.

We operated one rig on our 281,000 net acres. We continue to advance infrastructure projects to optimize production from this area”. ExxonMobil holds 492,000 net acres in the Marcellus Shale across Pennsylvania and West Virginia. It also hold 33,000 net acres in the promising Utica Shale in Ohio. it has continued “ to develop and maintain our leasehold of 190,000 net acres in the Barnett Shale play in North Texas. In the Freestone tight gas trend, where ExxonMobil holds 265,000 net acres, we remain focused on operating efficiently and making disciplined investments to offset decline”.

AP Counters TOTAL’s March On Senegal

By Sa’ad Bashir, in Dakar

A small, non-producing E&P independent, is attempting a David on the French major

TOTAL’s announcement that it had entered into an agreement with the Senegalese government, on the Rufisque Offshore Profond (ROP) block, was countered by African Petroleum, less than 24 hours after the major’s claim on the block.

The Australia listed minnow said it had a subsisting agreement on ROP with the Senegalese government; the same authority that TOTAL claims it had a deal with. “Under the terms of the ROP PSC, the block remains active unless and until a termination procedure is enacted by the Republic of Senegal”, AP wrote in a statement. “To date, the Republic of Senegal has not validly enacted such termination procedure, and accordingly the Company reserves its rights under the ROP PSC”.

TOTAL had announced, on May 2, 2017, that under its agreement with the Republic of Senegal, it “will be the operator of the 10,357 square kilometer block with a 90% interest alongside Société Nationale des Pétroles du Sénégal (Petrosen), holding the remaining 10%.”

The Senegalese government had not offered a rejoinder to AP as of the time of this writing. TOTAL takes the Senegalese acquisition seriously; the agreements were signed by Patrick Pouyanné, TOTAL’s Chief Executive Officer and the Senegalese President Macky Sall . Both men were present at the Press Conference announcing the agreements, which also had Prime Minister Mahammed Boun Abdallah Dionne.”We have signed two new agreements to explore, look for oil and gas in offshore Senegal,” said Pouyanné.

TOTAL actually made some commitment at the conference.  Mr. Pouyanné said the company intended to inject $ 100Million, although he did not give a time frame for the investment. Senegal has been at the centre of the recent rush for the Northwest African margin.

African Petroleum may have lost the asset for apparently sitting on it for so long without activity. It has been the 90% holder of ROP for over six years. The best that it has done was to purchase 1,800 sq km of three dimensional seismic data from Petrosen, which it was reprocessing. AP apparently hoped that, with a slew of discoveries in the neighbourhood, a well heeled E&P operator would come along and farm into the asset. Instead, the government chose to award it to one of Europe’s largest oil companies.

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