Nigeria’s High Well Costs are at the Heart of its CAPEX and OPEX Challenges

By Ahmed Gafar, in Lagos

The astronomically high drilling costs of wells in Nigeria are key to the challenges faced by operators in reining in operating and capital expenses, an industry service provider has suggested.

If Africa’s highest crude oil producer is to reach its target of delivering Four Million Barrels of Oil Per day (4MMBOPD) in the near term, those costs need to be brought down, argues Hope Okwa, Founder/ Managing Director of Hd Okwa Drilling Services.

Hope Okwa

“A 10,000 feet well producing only 3,000 BOPD costs up to $25Million to construct in Nigeria”, Okwa allows. “To move from the current 1.5MMBOPD to 4MMBOPD requires massive well construction activities, in the order of over 800 wells per year. The associated investment is $21Billion per annum. Where will this investment come from, especially in an era where top global financiers are moving their investment to renewables?”. 

Okwa is persuasive that he is not just throwing numbers around: “$25Million per well cost is true for land, swamp and shallow offshore, as the rigs all use surface blowout preventers.

“The only way is to rethink well construction efficiency, with a view to drastically reducing well costs from current levels”, he contends. “The sources of inefficiencies in well construction, is very much within our expertise”, Okwa declares: “it is very urgent to implement these solutions”, as “in nine (9) years’ time in 2030, the advanced countries will pivot away from fossil fuel.  What will then happen to Nigeria’s reserves of 37Billion BO?”

 

Okwa’s benchmark is North America. “In Canada/USA, the rig rate for land is $32,000/day compared with $25,000/day for Nigeria. A 10,000 feet land well takes eight (8) days to drill while it takes 83 days in Nigeria. The Canada/USA cost is less than $2Million, while Nigeria is $25Million. The Canadians and Americans achieve the success by efficient well design (without gold plating as we do in Nigeria, efficient supply chain management, avoiding NPT and applying the science of drilling optimisation. We are experts in these areas. I should add that we are currently preparing to execute a $5Million horizontal well for a Nigerian marginal operator, applying our techniques”..  

Cost control in oilfield activities has been a front burner issue in Nigeria. Last February, the state hydrocarbon company NNPC had an elaborate event on cost optimization, at which Timipre Silva, Minister of State for petroleum, asked the country’s 34 oil and gas producing companies to join in working towards reducing operations cost to achieve the $10 or less per barrel production cost target.

Stakeholders have responded to Ministry of Petroleum’s call for cost control by naming causes including insecurity (You need gunboats full of naval officers on the way to rig-site) and taxation (government at all levels level multiple taxes: DPR hikes costs of obligatory services, State Governments demand various tariffs, Local Governments harass operators; communities hold up work; regulators sometimes delay). 

Okwa counters that “those issues relate to production mainly, and companies are having to trade off drilling wells due to the issues mentioned and high well cost”. 

 

Okwa has 29 years industry experience, the first 14 of which he spent in AngloDutch Shell, mostly on well engineering and drilling supervision. He had a stint at BG (the defunct British Gas) as a senior well engineer in the company’s Nigerian deepwater operations. He had a five year stretch as senior drilling and workover well engineer on critical gas operations at Saudi Aramco, after which he had another stint at BP Angola as senior drilling engineer.

“We believe that if we reduce well costs drastically.. we will be able to stimulate activities”, he says. “If we reduce well cost from $25Million to just $5Million hypothetically speaking, requiring only 20% of the previous investment demands, even local banks may be able to fund field development campaigns.

The full interview is in the link


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5 comments

  1. Lucky says:

    I think Okwa is on the right track with the OPEX and CAPEX. If firm attention and consideration is not taken it will spell Doom for the industry as operational cost in other regions mentioned by Hope are relatively cheap to drills and operates oil Wells. Every investor is looking at optimizing profit and minimazing operations cost.

    I see investors flight in the near future if nothing is done quickly to address this trend as there is already bad feeling in production cost.

    • Hope says:

      Thanks Lucky. I pray the right people understand the urgency of the situation and act swiftly. My team has accepted several proposals to deliver safe, reliable and low-cost wells in 2021.

      • Boma Femi says:

        Tackle corruption and you’ll be halfway in reducing cost,

        A situation where I brought in oil and gas lab equipment from the UK and it get seized by a custom officer because he says these choppings doesn’t come often so he has chop before he releases my goods, so I had to spend more money after paying what I was due to pay.

        Who will bear the extra cost….

      • Agbonedeso says:

        How do I start up an oil business in my city(Benin) at a very low cost. Investing on a business like this always require large amount of capital. Investing in this kind of sector has always been my determination but the capital to startup is very much on a high side considering the economy situation of Nigeria.

    • Lionel Akor says:

      Mr. Hope Okwa’s concerns on high cost of well production in Nigeria, and the reasons he aluded as culprits are valid. The subject matter has been in public recurring discussions for too long, quite often the discussions become mere academic excersizes best as relics for the archive. Mr. Okwa pointed out several causatives for high cost of production of cride oil in Nigeria but he failed to mention corruption and the long periodb it takes for a contracting process in Nigeria as very detrimental, this two factors consume about 50% of Nigeria’s oil production cost. A drilling contract in Nigeria takes a minimum of 2-3 years processing before it is awarded, and quite often it never makes it to the award stage having wasted insane amounts of money in cobtracting processes.

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