Nigeria: Vandals Drain Profits Out Of Marginal Fields

Pan Ocean's Amukpe To Escravos Pipeline

Four Nigerian marginal fields, with total output of 22,000Barrels of Oil Per Day(BOPD), resumed production last weekend, after more than two months of complete shut in, with nary a drop of oil out of the hole.
Indeed, they have been out of production in four out of the last seven months.

The fields were shut in between October and December 2012, reopened and shut-in again from mid-February to the last week of April 2013.

Midwestern Oil and Gas/Suntrust’ s Umusadege Field, Pillar Oil’s Umuseti field, Platform/Newcross’ Egbeoma Field and Energia/Oando’s Ebendo, are all located in the so-called “marginal field cluster” in Nigeria’s volatile Delta State. They deliver 71.6% of the 30,600BOPD, which amounts to the entire crude oil contribution of marginal fields to Nigeria’s daily output.

Crudes from these fields are exported through the 10 inch Kwale-Akri oil delivery pipeline that is operated by Nigerian Agip Oil Company(NAOC)  Limited. The pipeline connects these fields to the Brass export terminal. There have been sporadic, if low intensity attacks on crude oil pipelines all over onshore Niger Delta since the militancy of the mid 200s became a fact of life in the basin. A month and half after the shut in of the Kwale pipeline, Agip shut down its activities in the Bayelsa state, claiming it was losing about 7,000 barrels of its crude production daily to oil thieves in the state. This, clearly did not involve any Nigerian company, but the several months of non- production in Delta State have significantly dented enthusiasm of local operators.

“I was under pressure”, says Osa Owiedolor, Chief Operating Officer Of Platform Petroleum, operators of the Egbeoma  field, which produces 2,200Barrels Of Oil Per Day. “It’s not something you can recover”.

Marginal fields are exactly what they are called: “Marginal”. Most of them are producing almost flat out and when they are shut in, they can’t produce in excess of what they were doing before the event, to claw back the revenue lost. This is unlike big companies who produce according to quota determined by the Department Of Petroleum Resources(DPR). When such companies come back on stream after an attack or repairs, they can ramp up production in a number of ways, including opening the tap from other fields unaffected by the shut in and make up for lost output.

“It’s painful not to get crude to market”, laments Seye Fadahunsi, technical director of Pillar Oil, which produces the Umuseti field at 2,700BOPD. “It’s a killer for a marginal field producer”, he elaborates, “Pipeline Vandalism is clearly not in favour of small players”.

The statement is one of supreme irony. When indigenous Nigerian companies campaign for take- over of acreage from Big Oil, their slogan is always something like: “We are local boys, we know how to deal with the communities”.

Even if they know the local terrain, there are handicaps; the infrastructure of evacuation is, for now, is largely owned by the multinationals. The three remaining marginal field producers outside the “Cluster 4”, also export their crude through Shell and Chevron facilities.

Niger Delta Petroleum Resources(NDPR)’s Ogbele Field in Rivers State exports its crude through Shell’s facility at Rumuekpe.  Chevron buys directly from Brittania U, which transports its Ajapa Field crude, located  offshore Delta State, by shuttle barge to Chevron’s tank farm at Escravos. Waltersmith’s Ibigwe field in Imo State is evacuated via Shell’s Assa Manifold. These fields collectively produce 8,700BOPD and they are not entirely immune from the challenges.

“We have not been shut in”, says Layiwola Fatona, Managing Director of Niger Delta Petroleum Resources, “but we know, we are part of the picture”.

The 4,000BOPD Ibigwe field, located on the eastern flank of the Niger Delta Basin, has been shut in for 10 days this year. Last year, it was shut in for a total of 120 days(or roughly four months), also due to incessant attacks on the export pipeline to which it delivers its daily crude production.

The luck of location has helped Ogbelle Field and Ajapa Field to escape the wrath of vandals; Ogbele field is nearer the coast than the cluster fields and Ibigwe. Ajapa field is right in the Atlantic. “The farther you are from the coast, the easier it is for your field to be shut in once the export pipeline is vandalized or needs repairs” , says an official of the Department of Petroleum Resources, the country’s regulatory agency.

Whereas Shell has been the most outspoken about the value destruction and environmental degradation that pipeline vandalism wreaks, the phenomenon is impacting a lot more local companies, who export crude through its facilities.

In April 2013, the Nigerian Petroleum Development Company(NPDC) averaged 7,500BOPD in the Ogini field in the Oil Mining Lease( OML) 26, also in the troublesome Delta State. The figure reflects a 25% drop from the 10,000BOPD the field had averaged between February and March, 2013. NPDC was not the only casualty of the value destruction. There is the First Hydrocarbon Nigeria(FHN), which holds 45% equity on the field.

Crisis Creates “New Infrastructure”

Pan Ocean is not a marginal field producer. It is a relatively sizeable Nigerian company which has produced oil for 37 years. It currently evacuates her crude through the NPDC/SEPLAT pipeline from Amukpe to Forcados. “The frequent shutdown of the pipeline calls for an alternative means of crude evacuation”, the company says. A sixty seven kilometre long pipeline of twenty inch diameter (67km, 20”) is being constructed with the use of Horizontal Direction Drilling (HDD) technology. When completed, the facility will provide a more secure means of crude evacuation to the Chevron tank farm at Escravos . “The pipeline has the capacity to evacuate approximately 160, 000barrels of oil per day (BOPD). This creates a crude oil evacuation opportunity for other producers within the area of the pipeline and this will increase the export capacity in the region”.

Hardboiled cynics miff that Pan Ocean doesn’t even have 40,000BOPD, a quarter of the capacity, to put into the pipeline and, wondering what “other producers” are really there in the vicinity, they dismiss it as a waste of money to construct an oversized pipeline. But, why don’t we look at the bright side: “On completion, the pipeline will provide a reliable, efficient and low risk pipeline system through the adoption of the HDD”, Pan Ocean says. “It will ensure and more secure and un-interrupted hydrocarbon evacuation as the pipeline will be buried between 6-45m deep. The HDD technology of the pipeline provides additional protection of pipeline from other activities including dredging and ecological erosion”.

Midwestern Oil and Gas, which has the largest production (13,000BOPD) of all the marginal field operators, is also constructing an alternative pipeline to Agip’s 10 inch Kwale-Akri oil delivery pipeline. It is not entirely due to vandalism; it’s more about the difficult relationship that Midwestern has with Agip. “We have about 5- 6,000BOPD locked in, that we can’t evacuate, because of the restriction”, says Adams Okoene, Midwestern’s otherwise calm, personable CEO. After completion the crude will be transported westwards in a new 53km, 12 inch pipeline to Shell’s Eriemu manifold into the trunkline to Shell’s Forcados facility. It will be the primary pipeline for Midwestern and Energia and alternative pipeline for Pillar Oil and Platform Petroleum, the other members of the “Cluster 4”.

But even with a relatively small project , things can quickly unravel for the small player in the Niger Delta basin. The pipeline was originally planned to come on line by June 2013, but community challenges have held it up. Each of the 33 communities along the 53 kilometres is demanding settlement. The obstruction has pushed the cost up from $35MM to $65MM, and the commissioning date is no longer certain.


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1 comment

  1. Emmanuel Usanga says:

    Clearly this is a major challenge for the Nigerian local companies. Unfortunately, many of the Marginal Field managers did not reckon with the future in which they would have to deal with community issues. They had erstwhile ignored the community demands while they were in the employ of Big Oil. Nonetheless, hope is not lost. The current poverty in the Niger Delta is not just the lack of funding but the lack of ideas and initiatives on how to bring solution to local problems. Just in the same manner in which Big Oil had continued to export Crude Oil without adding value, the MF Operators are seeking to continue the same tradition, whereas what the host Communities need is employment and multiplier effects that create value in the rural areas.

    For a country that exports crude oil and imports pms, what the local economies need is the local refining of the crude oil to add value solutiopn to local motoring. In all honesty, Government can assist the local MF operators by reduced taxes and royalties if and when such MF Operators incorporate mini-refineries to their operations. It is very easy to raised hands in the air and say that mini-refineries are not viable for small units of production. And yet the pipeline vandals and dislocation of exports are largely caused by rogue local oil thieves who set up kettle refineries in the bush. a situation in which it could cost the MF operator $10 – $15 per bbl to produce crude oil imples that with a little effort and initiative, istead of spending $65 million to lay a pipeline that would eventually be vandalized time and again at extra repair cost, why not add a mini refinery to your MF and sell the refined products in the local market. Must all operators continue to export crude oil when value could be added to the local economy with just a new mind-set? By clustering their production and teaming up, a mini-refinery could breakeven faster and better than recovering the investments in pipelines. And besided supplying fuel to the local market, the electricity generation from the flue gas can also add value to the local economy. Instead of throwing away hard cash to settle community demands, mini industrial estates that power local garri factories and other agro-value manufactures such as fisheriy and palm oil production, are more likely to be appreciated by the host communities. These things are a matter of cooperation, collaboration and determination to do things differently from the past. It is a matter of mind-set and seeing the poosibilities.

    Of course, our lending banks must also cooperate with the MF Operators to get these initiatives to work. One could rather see a genuine case for subsidy here where value has been added in a MF operation as a better alternative to Government’s subsidy to petroleum products importers who forge import certificates and deliver nothing.

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