All articles in the In the news Section:


Canaries in the Goldmine: Thoughts on the oncoming Upstream Divestments by Nigeria’s major partners

By ‘Gbite Adeniji

The ongoing exercise by Shell and ExxonMobil for the wholesale divestment of their interests in petroleum joint ventures with Nigeria’s national oil company, NNPC Limited, is unprecedented in scale and has significant implications for Nigeria as a viable economic and political unit.

Shell has had a particularly interesting history in Nigeria. It secured exclusive rights to explore for petroleum in Nigeria in 1936 through its Shell D’arcy. It currently operates 18 Oil Mining Leases in the NNPC / Shell joint venture portfolio mostly through its Nigerian subsidiary, Shell Petroleum Development Company Limited (SPDC) from land, swamp and shallow water terranes.

Shell has produced several billions of dollars in hydrocarbon value since it made the first discovery of oil at Oloibiri in 1957 and is arguably the largest single private sector contributor to Nigeria’s economy. It makes significant direct contributions to Nigeria’s treasury through royalty payments, lease rental payments, petroleum taxes, lease renewal fees, and education tax. It also pays several hundreds of millions of dollars in statutory levies for the development of the Niger Delta region and for the development of local content in the petroleum industry. As the operator of the largest of the 5 petroleum joint ventures involving NNPC Limited and international oil companies (Shell, ExxonMobil, Chevron, TotalEnergies, Agip), it employs several indigenes from the communities hosting its operations and spends several billions of dollars from the joint venture budget on contracts executed by many local contractors and through several corporate social responsibility initiatives targeted at the host communities. Hence, there is a direct economic impact on the local, state and national economy from its activities in Nigeria.  Given the strategic importance of  petroleum revenues on the Nigerian state, and the socio-economic impact of Shell’s activities in every state and community in which it operates, it is no exaggeration to describe Shell as Nigeria’s most important business partner.

Coming close is ExxonMobil which commenced petroleum operations in Nigeria in 1955 through Mobil Oil Corporation. It holds its joint venture assets with NNPC through its legacy company, Mobil Producing Nigeria Unlimited (MPNU) and operates mainly in a geologically prolific area in the south eastern part of the country that is known within the industry as “the golden triangle”.

Both Shell and Exxon have initiated a process of the sale of their local subsidiaries through which they hold participating interests in the respective joint ventures (corporate sale) with NNPC Limited. These international oil companies will leave in their wake several experienced and well trained Nigerians who can operate assets anywhere in the world. They will however leave a legacy of angst in the Niger Delta and several unresolved disputes with host communities on land disputes, environmental degradation from gas flaring, crude oil spills and all whatnot.

The combined hydrocarbon reserves within the Shell and Exxon Mobil asset base are significant enough to require all Nigerians to pay attention to the prospect of a divestment of this magnitude by two of the country’s most important investors whose operations directly impact the country’s economic and, possibly, political, fortunes. The timing is of course inauspicious, with the ink hardly dry on the freshly minted Petroleum Industry Act (PIA).

The Ubit Field in ExxonMobil operated Oil Mining Lease (OML) 67: Is this merely a case of asset rationalisation or are these partners more doubtful of the redeemability of Nigeria’s political risk and have reconciled themselves with a flight to safer harbour?

It is indeed an irony and a point of curiosity that these majors worked with the different administrations in Nigeria over the last 20 years on the reform of the legal and regulatory framework of the petroleum sector, leading to the improved fiscal terms and innovations entrenched in the recently enacted PIA. More concerning is that there is nary a conversation at any meaningful level about these historically significant transactions moreso, as the other IOCs in the NNPC / SPDC and NNPC / MPNU joint ventures will almost certainly follow suit as soon as these initial transactions are concluded. Rather, there is a disconcerting air of comfort in the hallowed portals of Abuja about these impending exits whilst Nigeria’s oil barons and potentates are wringing their hands at the prospect of being successors-in-title, warts and all, to these majors. Indeed, the news wires recently reported a possibility of a “preemption” by the national oil company, NNPC Limited, of the Exxon Mobil sale, presumably on the basis of the provision in the joint operating agreement which entitles a party to acquire the interest of another party in the event of a proposed sale of its participating interest in the joint venture (asset sale). Whilst lawyers will no doubt debate the validity of a preemption to a corporate sale as opposed to an asset sale, the rating agencies will have a view on any acquisition of upstream assets on this scale by NNPC as Nigeria would be exposed to a concentration risk from its national oil company which would be a daunting prospect in today’s new era where international financial institutions are resolved to limit funding for the development of upstream assets. In effect, Nigeria might end up strangulating itself. The maxim, caveat emptor, springs to mind.

The cover for the divestments by the majors is the need to rationalise assets in their global asset portfolio, especially in light of the energy transition. This means that for Shell, Nigeria’s land-based assets that significantly contributed to its balance sheet for decades are no longer as important to the corporation in comparison to its other opportunities elsewhere. For Exxon, its joint venture assets are also not as exciting as the other opportunities within its global portfolio, such as Guyana where it is poised to spend billions of dollars on developing giant oil discoveries. It is however worthy to note that both companies will retain their interests in assets held under production sharing contracts which are largely located in Nigeria’s deepwater terrane, which must necessarily mean that these are more profitable assets than joint venture assets and safer to operate. In that case, we should expect similar divestments by Total and Chevron at some point in the near future.

What is really going on, one might ask? Is this merely a case of asset rationalisation or are these partners more doubtful of the redeemability of Nigeria’s political risk and have reconciled themselves with a flight to safer harbour? Or, is this more about the non-sustainability of Nigeria’s uncomfortable fissures, or could this be about the likelihood that the 2023 elections might not yield any game changer to Nigeria’s current capture by its insatiable potentates?  One cannot however ignore the possibility that the intractable “above ground risks” that have been a subject of angst by operators over the years might have contributed to these exits. These range from industrial scale theft of crude oil, unabated kidnaps of oilfield personnel, an unnecessarily painful administrative process for project approvals, long-running disputes with the national oil company, and issues with the quality of sector governance. If we were to be objective, all we have to do is to try to understand why other petroleum provinces are able to still attract investment from these same players.

Whatever the case, the impending exit from significant portfolios by Nigeria’s most important investors reminds one of the allegory of the canary in the goldmine or of rats and rodents scurrying out of the ground before an earthquake. To be clear, it is unusual for two, and probably, 5 IOCs to exit proven assets in a mature province and, to drive home the point, there are very few countries anywhere in the world that host these 5 majors at any one time.

When concluded, the divestments will mark a significant reduction in Nigeria’s economic ties to the United Kingdom (Shell) and to the United States of America (XOM). In trade terms, it signifies a loosening of an important economic relationship with both the United Kingdom and the United States of America. It is a winding down from the various epochs in the trade and export of such commodities as groundnut, cocoa, hides and skins, cotton, rubber, palm oil, humans, crude oil and natural gas. To the extent that it was, in any event, an imbalanced relationship over the centuries, it is not necessarily a bad thing if Nigerians effectively assume the commanding heights of the oil industry and can drive it responsibly. On this latter issue, the evidence alas, has been a mixed bag of charlatans, buccaneers and a smattering of pure breeds.

As the fortunes of the country’s 200 million people literally rests on these transactions, those at the supervisory helm of the industry have a responsibility to ensure that the successors to these interests are able to operate these massive assets based on a demonstrable track record of activities and success in the industry. The point is that a large part of Nigeria’s economic lifeblood rests so much on these assets. As such, it will be a significant failing by the Government if they end up in the hands of investors who are literally learning the business. One may learn on one asset but given the interest of the government and people of Nigeria in continued oil production from such a large swathe of assets, this is not a game for learners. Neither must the exits be approved by the government in the absence of a technically astute and bankable operational plan for production of all discovered oil and gas reserves, a clear plan for continued exploration, clarity on the remediation of environmental issues in the communities and, importantly, a clear and committed line of access to funds to work the assets. On the latter, the point is that it is not sufficient, as has unfortunately happened in some previous transactions, to just have the funds for the acquisition; there must also be funds demonstrated to the government and preferably backed by financial guarantees, that assure the people Nigeria of a commitment to immediately work the assets.

The relationship between the peoples of Nigeria and the great powers is littered with several epochs and milestones beginning with trade with Europeans, followed by slavery, colonisation, political independence, and neo-colonialism. The impending divestments signal another milestone in the country’s political economic history and a defining point. It marks Nigeria’s exit from Britain’s political sphere of influence. Ditto America’s.

Forcados Yokri Integrated Project in Shell operated OML 43: As the fortunes of the country’s 200Million people literally rests on these transactions, those at the supervisory helm of the industry have a responsibility to ensure that the successors to these interests are able to operate these massive assets based on a demonstrable track record of activities and success in the industry.

When Nigeria was being cobbled together from Britain’s northern and southern Nigerian protectorates in the early part of the last century from several warring tribes or nation states, the question in Europe was whether it was too big to survive. Over a hundred years post the amalgamation, the tribal fissures have become as glaring as they have never been. In the meantime, the USA has become a net exporter of crude oil and natural gas and no longer requires any hydrocarbon from Nigeria. In any event, the western economies and their flagship vehicles in the oil commodity game are on a hurried flight to a net zero world. In essence, Nigeria is about to be left to its own devises as these two great powers will have no dog in Nigeria’s future fights or misgovernance. Nigeria therefore had better learn to manage its politics and its new oilmen lest it finds that the canaries were singing about a ticking timebomb. With no strategic interest to defend in Nigeria, there will be no referees in our fights going forward. The policy position of the Government for its consent to these impending transactions may well determine the country’s future one way or the other. We have to hope for the sake of our collective future that the correct policy decisions will be taken on these divestments.

‘Gbite Adeniji, Lagos, February, 2022. Gbite Adeniji is the Managing Partner of ENR ADVISORY (www.enradvisory.com), a law firm focused on the energy and natural resources sectors of Nigeria. He was also the policy advisor to the Federal Government on petroleum matters between 2015 and 2018.

 


McDermott Advises Sirius Petroleum on a $200MM Financing Facility for OML 65 Development

McDermott Will & Emery is advising Sirius Petroleum PLC, in relation to its acquisition of a shareholding in the joint venture company, COPDC Petroleum Development Company Limited, which has executed agreements with NNPC (Nigeria National Petroleum Corporation) regarding the development of the Oil Mining Lease (OML) 65 licence, onshore Nigeria, and the obtaining of a senior loan facility from Trafigura Pte Ltd of up to $200Million.

The loan will be used for Phase 1 of the development of 51Million barrels (MMbbls) of proven and probable reserves on the OML 65 licence.

OML 65 is a producing onshore block with 2P reserves of 51MMbbls, according to a Gaffney Cline & Associates CPR:

  • The existing producing field, Abura, has been in production since the 1970s, has been ascribed 16.2 MMbbls remaining 2P reserves [1] and is currently producing c.8,500barrels of oil per day (BOPD).
  • OML 65 also contains two further discovered and appraised fields, Woodpile and Osaka, which have not been developed to date and will form part of the forward work programme. The two discovered fields contain an estimated 34.9MMbbls additional 2P reserves.
  • The existing production facilities and infrastructure servicing the Abura field are capable of handling up to 40,000BOPD.

The press release says: Sirius Petroleum is an Africa-focused oil and gas development, production and exploration company, building a range of diversified producing and development assets. Its strategy to acquire oil & gas assets which require funding to support the further development of existing production, develop appraised assets and future exploration assets, both offshore and onshore. Sirius works with a range of indigenous and international operational and funding partners.


With A Huge Gap to Potential, “NDEP is Industry’s Best Kept Secret”, CEO Says

Niger Delta Exploration & Production Plc, Nigeria’s longest running marginal oilfield producer, has a larger upside in its portfolio than most of its peers, its Chief Executive Officer has argued.

Gbite Falade, who has run the company for close to a year, says that “the gap to potential in terms of ullage and the improvement that you can institute immediately in terms of agreements that are in play and the new ones that you can bring on stream”, gives him a sense of the “awesome potential prospects” of this organization.

The way Falade sees it, something is always lurking around as an opportunity for increased value creation in the NDEP business profile.

At the start of 2021, the Ogbele marginal field, the company’s main upstream asset, was producing 9,000Barrels of Oil Per Day (BOPD). Today, it is doing 12,000BOPD, “not because we have drilled an additional well but as an outcome of production optimization and well intervention in a “’rig less’ way”.  Again the company’s natural gas production, which was around 40Million standard cubic feet of gas a day (MMscf/d) in January 2021, is now delivering 53MMscf/d, “and we are on a journey to double that by next year”, the CEO explains. “The lead time for gas development is such that you cannot wait until the problems are fully solved before you make the investment otherwise you would be left stranded”.

And despite the fact that Ogbele has been just a marginal field for all its 16 years as a producer of oil and gas, “the envelope of what we have today, can sustain that 12,000BOPD both on the infrastructure level and in the sub-surface”, Falade says.

Falade took over the reins of NDEP in February 2021 from Layiwola Fatona, an industry icon who led the company for 25 years, from negotiation of the acquisition of two marginal fields: Ogbele and Omerelu from Chevron, through first oil from Ogbele in 2005 to inauguration of a gas processing plant and modular refinery (2011) and establishment of NDWestern, a special purpose vehicle for acquiring Shell’s divested assets, in which NDEP holds a 42% interest (2011).

In 2020, the Africa Oil+Gas Report named NDEP Number 1 among the Nigerian Independent producers of oil and gas in its fourth edition of The Talented Tenth, a deeply researched industry ranking of the top 10 progressive, indigenous Nigerian E&P Independents. It was the first time in the four years of the ranking that any company would upstage Seplat Energy as Number 1. And the more intriguing story is that NDEP was not even a manager of an oil mining lease.

The interview with Falade, at his relatively small, modestly furnished office in Victoria Island, an upmarket business suburb located close to the South Atlantic Ocean in Lagos, is the first of a series of C-Suite conversations by the Africa Oil+Gas Report with industry leaders in 2022.

“We are going through some sub-surface data review and the preliminary opinion that we have on the table shows us prospects that are decent and significant and material enough not only to sustain the 12,000BOPD threshold that we are on right now but to take us higher by a factor of at least 50%. And this is one of the most interesting things about the asset that we are operating and indeed, not just that asset but the general story of the Niger-Delta basin”, he explains.

“At the time we took over the asset, the initial view was that there was about 5Million barrels of oil in place but at some point, it was upgraded to 10 Million barrels in place. In 15 years of production, we have successfully extracted 20 Million barrels and we are still producing at the level that we are right now. So, the continuous examination and re-interpretation of the data that we have today shows us that there is still a whole lot possible.

“With proven technology in place for proven extraction and with proven technology in place for discovery, what we are finding out is that most of the reservoirs that we have in Nigeria contain a whole lot more than we have given them credit for”.

NDEP is a diversified hydrocarbon producer with upstream crude output, midstream (gas processing) and downstream (refining, product sales). Everywhere across the chain, things are on a ramp up.

We have pre-invested and taken an investment decision to expand the 100MMsfc/d gas processing capacity by an additional 300MMscf/d to 400MMscf/d. We have taken custody of the plant equipment to carry that out and at the rate at which we are going, we foresee that in the next one or two years, we would have installed and commissioned that additional 300MMscf/d. What is driving that decision is more around the feedstock supply guarantee than the market offtake because there is more than enough latent demand in the market both in terms of export and domestic to consume the additional capacity that we are looking for”.

Of the company’s 11,000 barrels per day refining capacity, 6,000 barrels is commissioned; and the company has the license to operate 6,000 barrels, which comprises two trains. The first train is for the 1,000 barrels and the second train is for the first 5,000 barrels. The first train produces only AGO, the second train produces five different products mainly AGO, DPK, Naphtha, MDO and HFO.

“The third train has not been commissioned officially though operational. There are certain conditions to be satisfied before the regulator (the Nigerian Midstream and Downstream Regulatory Authority NMDRA), would then certify it. But we are very convinced that in the next three months, we would satisfy those conditions that will formally and officially certify that we have an 11,000 barrels per day refining capacity. In addition to that, we also have some bolt-on component parts of the refinery including a PMS unit that is also at the final stages of installation and would soon be commissioned. The naphtha that is coming out from Trains 2 and 3 right now would then be the feedstock for the production of LPG and PMS which are two vital refined products that we need as a country”.

Even with this scaling up everywhere, Falade, a one-time Senior Business Economist at Shell and a former Managing Director of Oilserv, (arguably Nigeria’s largest hydrocarbon project management service provider), is of the view that NDEP is punching below its weight.

“When you look at the fact that this company is not a listed company yet, this company is traded on the NASD and when you look at what it would mean for the fortune of both the company and its shareholders, first, for the company, its ability to raise capital for the endless opportunities that we see, it helps you to appreciate the gap-to-potential that is on the table. It is for these reasons that NDEP remains the best kept secret in the Industry.

The aspiration of the shareholders that the board has mandated, is to take this company to the stock exchange at some point to be determined. By the time we are ready, we will unfold it for the general public to be aware of but that is the ultimate aspiration and we see that as a necessary point to fully unleash this company to the next level of its pursuit. We have largely operated as a well-run company in terms of financial discipline and we have largely grown this company through internally generated funds. So, the extent to which we have scaled is driven a whole lot more by the leverage that our balance sheet carries and also by the cash that we generate in the business. But when you look at the opportunities available to us as a company, when you look at our pedigree, our track record, our reputation and at the universe of opportunities begging to be exploited, the scale of capital that you would need to execute those requires that you have a platform that would give you access if you are to pursue them. The issue of being listed is not an option, it is something that we will do but we are going to do it in the most responsible way. We are going to make sure that we remain financially stable, we remain solid and prudent and value is not destroyed in the process.

This is the first in a three-part series of published interviews with Mr. Falade.

 


Chevron’s Agbami Experiences a Headlong Plunge in Output

Chevron operated deepwater Agbami field offshore Nigeria is in a headlong crash in output.

The field produced 122,000Barrels per day of condensate in 2021, a 15% drop from the 143,307BPD averaged in 2020, according to state sanctioned official figures.

It led the seven Nigerian deepwater producing fields in a collective 50,000BPD decline year on year as indicated in this chart.

 


GCC Wins the Camp Management Job for Africa’s Largest Onshore Oilfield Project

GCC Services has been picked by McDermott to provide camp services for the Tilenga Project Upstream Facilities in the Lake Albert Basin of Uganda.

The work, “to take place over six years, begins in February 2022 and is to include camp management, catering and camp support services for an international and local workforce that is expected to peak at 3,500 workers”, GCC explains in a statement.

The Tilenga project, under the overall operation of TOTALEnergies , is the centerpiece of oil projects projected to bring investments of over $10 billion to Uganda and Tanzania. It will eventually have the capacity to process 190,000 to 700,000 barrels of oil a day.

Rashad Sinokrot, CEO GCC Services, says the company is planning “significant local engagement” that will include training and upskilling of the local workforce, as well as support and development of local vendors and suppliers, including farmers in the region.

“We understand the importance of this project to Ugandans and their future. We’ve been operating in Uganda since 2010, so we have a strong reputation there and an understanding of the market,” said. “Our local presence, international footprint and record of performance on critical energy projects were defining elements of our winning proposal.”

During construction, the Tilenga project and related EACOP pipeline build are expected to generate 58,000 direct and indirect jobs, 2.1Million hours of training to build local skills, and $1.7Billion worth of work for local companies, TOTALEnergies says.

 


NECONDE Finalises Finance and Technical Service Agreement with NPDC on OML 42

The Nigerian independent NECONDE has finalized an agreement with the state-owned Nigeria Petroleum Development Company NPDC in which a Special Purpose Vehicle will fund as well as carry out technical services on the Oil Mining Lease (OML) 42.

The FTSA will see an SPV named Amaranta…

Read more…


Ghana Looks for Contractors to Build, Co-Own a 300MMscf/d Gas Processing Plant

Ghana Gas Company has completed a Front-End Engineering and Design for a 300Million standard cubic feet of gas per day (300MMscf/d) Gas Processing Plant, which will be developed in phases, the first phase being 150MMscf/d (Phase II-A) and the second Phase II-B. The entire 300MMscf/d constitutes the second plant (second train in industry terminology) to the existing 150MMscf/d Atuabo plant and will be located just north of the first train.

The state gas company is in discussion with some companies, but wants to expand the dialogue to more local and international enterprises with expertise in the field to build the facility and co-own it and co-run it on equity participation basis with Ghana Gas (BCCT basis).  It will cost up to $400Million to install. Gas will come from Tullow Oil operated Jubilee field and TEN cluster of fields, as is the case with the first train. This planned expansion assumes that Tullow has enough gas reserves to underpin the project.

Ghana Gas is hoping that interested parties can show up early enough to sign the necessary documents and get the facility up and running by 2024.

 


OPEC Picks Al Ghais to Replace Barkindo, as OPEC+ Decides: More Oil or Less?

The oil exporters cartel OPEC has appointed a new secretary-general.

Kuwait’s Haitham Al Ghais, will replace Nigeria’s Mohammed Sanusi Barkindo, who leaves at the end of July 2021.

Barkindo, the Nigerian energy bureaucrat has led the cartel through some of the most momentous 52 months in the cartel’s 61 year history, and his second, three-year term ends this year. Barkindo took charge as Secretary General in August 2016, implementing “the freeze” that enabled the uplift from the extremely low oil prices in 2016 to ‘balancing the market’ by 2017 to engaging with the Pandemic from first quarter 2020.

Meanwhile OPEC+, the expanded group of countries that includes OPEC members and 13 other countries, meets Tuesday, January 4, 2022 to decide, whether to go ahead with plans to add another 400,000 barrels per day to the market from February 2022. The group had agreed, just before the Yuletide, to continue ramping up oil production despite concerns that omicron could scupper demand. Pundits see it sticking to its planned monthly production increases at this week’s meeting.

OPEC is made up of 15 member countries i namely Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, IR Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.To make OPEC+, 13 other countries are part of the agreement to decide whether or not to increase or increase crude oil production. They include: Russia, Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, South Sudan, Brazil and Bolivia.…


Africa Wants to Finance African Oil & Gas Projects

Africa’s Oil and Gas Ministers are mulling the idea that a greater percentage of financing of oil and gas projects  on the continent should be financed by Africa based financiers.

At the 41st ministerial session of the African Petroleum Producers’ Organization (APPO) , the ministers identified the imminent challenges that the oil and gas industry will face in Africa as international financiers withdraw funding for the industry, and oil and gas research institutions in the developed countries that have always led the technological development are closing their petroleum faculties.

“The Council resolved to look within the continent at both public and private sources to raise the necessary capital to continue to finance the oil and gas industry”, according to a statement on the resolutions released by the APPO secretariat. “They agreed that Africa needs to” re-strategize as the game is fast changing.

“Furthermore, the Council called on the technologically advanced and financially capable countries to lend their support to African countries as they grapple with the challenges of Energy Transition”.

 


LOCAL CONTENT, GLOBAL INSIGHT, 2021

The latest monthly edition of the Africa Oil+ Gas Report has been released.

Some of the highlights:

COVER FEATURE

  • Angola Lists ‘Locals Only’ Services
  • A Target $2.5Billion Spend in Mozambique
  • Ghana: Get a Local Partner
  • Nigeria: The 10 Year Plan

KICKSTARTER

  • Shell Divestment: The Final Five

 FARM IN FARM OUT

  • MAP of Marginal Bid Round Winners

The link to the edition is here

https://africaoilgasreport.com/wp-content/uploads/2021/12/AOGR-VOLUME-22-NO-9-2021-global-Local-contents.pdf

Other stories in the copy include:

BRIEFINGS

  • Afreximbank: The Lender Chews It All
  • ENI, TOTAL, Will Be the Last Majors

FULL DISCLOSURE

  • PIA: The Promise Vs. The Delivery

 IN THE NEWS

  • Bullish on Libya

SPREADSHEETS

  • Angolan Operators’ Production
  • Nigerian Indigenous Producers: October 2021 Output
  • Angolan Rig Activity November 2021
  • Nigerian Rig Activity, November, 2021

MAPS

  • Equatorial Guinea E& P Map, Ghana E&P Map; Mozambique’s Activity Map; Angolan Activity Map; Nigerian Independents; Marginal Fields Activity Map

Plus, the regular features; Nigerian Independents Output, Concession Status, Angolan Production by Companies, Petroleum Rights, etc.
Contacts: +2348028354297, +2348124374087, +2348038882629, +2348036525979

 

© 2021 Festac News Press Ltd..