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Italians Face Opposition In Ugandan Adventure

By Toyin Akinosho, in Lagos

Italian major, ENI, has encountered its first major opposition in its current acquisition binge across the African continent.

The Sale and Purchase Agreement (SPA) it signed with Heritage Oil, for a share in two of Uganda’s most prospective acreages now mean nothing, as Tullow Oil has exercised a right to buy Heritage’s entire stakes in Blocks 1 and 3A, which contain at least half of the 700Million barrels of oil already proved up in Uganda.

Tullow issued a press release saying it had served notice on Heritage on January 17, 2010, potentially wrecking ENI’s plan to build a new presence in Uganda.

The Ugandan bid was the third of ENI’s petroleum rights agreements across Africa in four months. In August 2009, it signed a strategic partnership with Congo’s Ministry of Petroleum “with the aim to develop the host country’s oil reserves”, according to ENI’s spokesmen. In September, 2009, ENI acquired operatorship of the offshore exploration permits Cape Three Point and Cape Three Point South (Eni 47.2%), off the Ghanaian coast. In December 2009, ENI announced it had signed the Sale and Purchase Agreement for the assignment of Heritage’s 50% interest and operatorship in Blocks 1 and 3A in Uganda, for a total amount of $1.35 billion, following the agreement reached last November by the two companies. About the time of the SPA agreement for Ugandan resources, ENI commenced production in Oyo field in deepwater Nigeria. This was the outcome of an agreement, signed in 2007, with the Nigerian Independent Allied Energy, for joint pursuit of opportunities.

In effect, in four months, ENI had concluded three petroleum rights deals and one field production, in four African countries.

With this bullish run on the continent, it can be assumed that ENI will go ahead to deal with Tullow Oil, to achieve the purpose which its SPA with Heritage was meant to. Only this time, it would be competing bend on with other investors, who have, like itself, been visiting Tullow’s data room. If the speculations were true that Tullow favours dealing with TOTAL or ExxonMobil, then the Italian major faces a real challenge. The treasures in Uganda may well be worth a bruising battle: “Over the last six years, Tullow and Heritage have invested over US$700 million in the Lake Albert Rift basin in drilling 27 wells to prove up over 700 million barrels of oil and identify over 1.5 billion barrels of potential yet to be explored”, Tullow said in its pre-emption statement.

Nigeria’s PIB Fiscus is More Competitive Than Angola and Algeria

The Nigerian fiscal regime is still very competitive in the PIB period, compared with the countries in the Gulf Of Guinea and North Africa.

The PIB (Petroleum Industry Bill) is a comprehensive legislation that aims, in part, to increase Nigerian government take from exploitation of the country’s resources. International Oil Companies have balked at some of the fiscal provisions, arguing that they are less competitive than comparative fiscal regimes on the continent. But a Schlumberger report, released during the last edition of the Nigerian Association

Petroleum Exploration (NAPE) Conference in Abuja, suggests that the complaints are exaggerated. Whereas overall government take in Algeria and Angola each is about 90%, at $70 per barrel, the Nigerian government will receive at most 80% in the PIB era, according to the oil service company.

Highlights of the Schlumberger Report

Onshore and shallow water

Pre PIB                       PIB

PPT 85%                     NHT-50%, CITA -30%

Inland Basins

Pre PIB                       PIB

PPT 5%                       NHT 3-5%, CITA-30%

Under the PIB, a lot of tax is gone..


Pre PIB                       PIB

Gas Capex is               Gas capex is charged

charged against           against gas reserves

oil reserves

Folawiyo’s Aje Field for First Gas in 2017

The Aje gas field offshore Lagos, Nigeria will start production in 2017, with the gas piped directly into the West African Gas Pipeline WAGP, according to the Nigerian authorities. Four wells have helped determine mean recoverable reserves for the field as 760 Billion cubic feet while the upside potential could shoot the figure up to 1.2Trillion cubic feet. Aje was discovered in 100 metres of water in 1996. The field is located in oil mining lease (OML) 133, which is held by Yinka Folawiyo & Sons.

The fourth well, drilled in February 2008, was expected to confirm that the field indeed had 1.2Trillion cubic feet of gas as well as up to 200million barrels of oil, but it wasn’t tested. The first two wells encountered two main hydrocarbon rich reservoirs, each of Turonian and the Cenomanian age, but Aje 3 encountered the Cenomanian reservoir at a level significantly down-dip from the discovery well, as well as below the existing oil-water contact defined in Aje-2.  The well did indeed “see” the Turonian level updip of the two earlier wells and located above the gas water contact encountered in both Aje-1 and Aje-2, but the presence of gas in the reservoir could not be tested due to poor reservoir properties at the Aje-3 location. Participants in the 1,840 sq km OML 113, which contains the Aje field, include Yinka Folawiyo (holding operator 60%),Vitol, Exploration(12.83°o), Energy Equity Resources (6.50%), Providence Resources (2.67°%) and Chevron, which is the technical operator with 18%.

Chevron, ExxonMobil, Jostle For The Lead In Angola

Chevron has not performed as well in deepwater Angola as it had in the shallow offshore, through which it nearly monopolised the country’s entire crude oil output for many years, before the regional deepwater campaign kicked off in the mid 90s. Now that the country’s production is dominated by deepwater performance, the story out there is that ExxonMobil has surpassed Chevron in total net output(operated and non operated portfolios).

In terms of operated production however, the Angolan official document (2007 figures are the latest available), still puts Chevron on the lead and even the French major TOTAL beats the world’s largest private corporation to third place.

Angola Crude-Oil Production and Projects per breakdown:

Current (2007-08) Angola oil production (total by operator, numbers are approximate)

Chevron                                       620,000 BOPD

Total                                             550,000 BOPD

ExxonMobil (Esso)                    520,000 BOPD

Sonangol                                    110,000 BOPD

BP                                               100,000 BOPD

Total Production                   1,900,000 BOPD

Angola – world  records setting projects

14.0 billion barrels oil discovered in the past 11 years in the deepwater (proven + potential);

Total- operated Girassol FPSO (200,000 BOPD) was world’s Largest FPSO at the time;

Esso-operated Kizomba FPSO (250,000 BOPD) is currently world’s largest FPSO;

Chevron-operated Sanha (Block 0) is world first LPG FPSO.

Angola – world class projects

Sonangol estimates expenditures of $40-$50 bln in next 10 years, equivalent to $4-$5 billion per year;

Chevron’s Benguela-Belize Compliant- Piled Tower (CPT) in Block 14 installed in 400 meters water is the 5th largest free standing structure in the world and the tallest manmade structure in Africa;

Highly productive deep water wells, e.g. a BP Block 18 well with >28,000 BOPD estimated maximum production capacity (reference Universo Issue #11).

Angola LNG Project

$4 billion project being constructed near town of Soyo, northern Angola; Purpose is to commercialize gas currently being flared; Partners are Sonangol, Chevron, BP, Total and ENI; Will be on-stream in 2012 producing 5 million tons per year LNG for world markets. Please refer to our newsletter for the latest developments in this sector.

West African Production On The Upswing, Angola, Nigeria On The Top 10 Of Global Upstream Spend

In spite of its widely proclaimed crisis, Nigeria remains stubbornly on the list of top ten countries where Global upstream spend are predicted to he highest in the next five years. Its production may not increase exponentially, but will be on the upswing, according to recent evaluation by a number of industry analysts, including Wood Mackenzie.West Africa Chart, NOVEMBER 2009

As first oil is expected from Ghana’s deepwater Jubilee field in 2010 and production spend in Angola continues on an upward spiral, West Africa’s Gulf Of Guinea remains a site of relatively high oil production activity, compared with the rest of the world.  “Major developments in West Africa, Kazakhstan, and the US Gulf Coast underpin growth in other regions” according to a recent Wood Mackenzie report, “whilst capacity additions in Brazil are outweighed, in the Latin American total, by prospective declines in Mexico and Venezuela”. The report added that “the biggest drop in supply capacity is expected in Europe, despite expenditures of over US$25 billion per year”. Wood Mackenzie contends that “the level of upstream investment across the globe is consistently dictated by three main criteria:

  •  Perceptions of prospectivity and/or recent levels of success in exploration/ development
  • Expectations of a stable security situation and regulatory framework
  •  The attractiveness of the fiscal terms on offer”

Some OPEC member states have chosen to develop their resources in co-operation with the international industry, the report says. “Countries such as Angola and Nigeria are more dependent on external finance, skills and technology than some of their peers in the Middle East, and offer slightly more attractive terms to promote the timely development of new production capacity. In this respect, they are on a path which has been particularly successful for Qatar over the past decade”. 2009 spending has been generally conservative. The report views current spending plans as suggesting that “2010 will see a similar overall level of global upstream spend to that in 2009”. There will be some notable exceptions to this conservative trend. “Angola and Brazil are set for another phase of major investment which should b sustained for the next five years at least”.

We’d Make 100,000 BOEPD Through Acquisitions

Tunde Ogunnaike,  Managing director of Oando E&P Limited, the Nigerian independent, acknowledges that there’s a bit of impatience, among oil industry watchers, about his company’s pace of delivering the work programmes proposed to turn its assets into cash generating engines.

Why, for instance, has it not acquired a single kilometre of seismic data in the Oil Prospecting Lease OPL 278, since it won it in 2006? Its technical operatorship of Akepo, which was agreed upon in November 2008, is coming very slowly and things have been quiet even in OPL 236, in the south east of the Niger Delta basin.

Ogunnaike. a Shell scholar who comes across as extremely self assured, responds with a gush of words and almost turns the conversation into a monologue. “The story of OPL 278 is sad”, he laments. It’s right at the mouth of the Sombreiro river. That is at the heart of the Niger Delta crisis. We have been trying to shoot seismic for the last 18 months. Most seismic contractors don’t want to shoot for you. We have gone through the entire process with NAPIMS (the government company which approves work programmes for E&P firms). We were ready.

We are not the only one. If you go to OPL 282. which Agip is operating, nobody wants to do it. We are hoping that this (government’s) Amnesty with militants) will help relieve the security constraints and we can go back and do business”.

Even with all these handicaps, Ogunnaike announces with a flourish, Oando E&P had set a target of producing 100,000barrels of oil equivalent per day (BOEPD) by 2013. “We will get to the 100,000BOEPD through acquisitions. We are looking at several blocks in the Niger Delta. We note the tendency of the lOCs to move away from onshore to deepwater. We are basically saying that we are local boys and we can operate onshore. We are actually working to raise finance for those acquisitions.

“The rig for Akepo is coming in on Saturday”, he tells me disarmingly.. “We signed a contract with Noble; we’re going into production by early next year (2010).  We are doing an FDP(Field Development Plan) right now, to firm up additional wells.  We will be in production and, at the same time, getting ready to drill follow ups. We take seriously the DPR threat that by November (2009) they will take the license from you”.

Then as if acknowledging that I was holding Oando responsible for the slow pace of delivery of first oil in the field, he adds: “Don’t forget that we are not the operators. We’re just technical partners. Akepo, for me, is to demonstrate our technical capability. People often write off Nigerian independents as mere passive partners in projects. and that they don’t do the technical work”.

Mr Ogunnaike certainly wants to make me apologise for my assumptions: “We have production in deep offshore that Agip operates. We take Agip up on technical issues and they listen to us. For Akepo, the operator has delegated some of the functions to us as technical partners. And that’s going well. “The portfolio we have now cannot give us 100,000BOEPD. We need more acquisitions. We’ve recently acquired Equator. We bought the company. We are close to 9O° take over of the entire company now. That includes all its assets. They have assets in the JDZ, and rights to two blocks in the EEZ. They have stakes in OPLs 321 and 323. Equator has stake in the Bilabri block as well”.

When I have space to chip in, I explain that I didn’t think any of the assets that Oando has at the moment can deliver even half of 100,000BOEPD, even by 2015.’ Ogunnaike admits. “When we say we’re looking for acquisition, we are actually looking for producing assets or assets that are close to production. They cost a lot more but your risks are better managed.

“If you go by the current mood in the country, the government is keen to get indigenous companies more involved. Some 95% of the country’s crude oil production is by lOCs now, but the government would rather have more Nigerian companies producing.

“We see ourselves, first among equals when you want to assess oil companies. We’ve done enough to deserve attention when it comes to indigenous companies. We don’t play the game of let someone come and carry us. The last game we played, which was buying into Shell assets in Agip operated deepwater acreage, we actually raised close to $700Million, for more than 400o stake in each of the two licenses, but Agip played the game and we ended up with 15°o, paying about $200Million. Our international financiers liked the experience of that process with us and are willing to partner with us to do more”.

Now that I’ve gotten so much information about Oando, I ask Mr Ogunnaike what he is doing working for a start up like Oando E & P Ltd.  He had spent quite a number of Years working for Shell.

He responds that he didn’t start out looking out to work for another company after his 30 year career with Shell. He happened to be headhunted and he thought it wasn’t a bad idea. “I thought it was a fantastic challenge doing something for the local content. It’s been a very interesting challenge”.

It so happened that the company was just concluding the deal with Agip when he came in, but he has been superintending the rewards and he a. excited by the returns. One of the blocks is producing the Abo field. The other has a discovery called Oberan. “Even in the producing block, there’s another prospect, Abo South,that we’re looking at drilling before the end of 2009, or early 2010. It’s a separate field, but related. The probability of success is almost 100”o. Wed drill that and tie it to the FPSO and maintain the plateau for Abo production. which is currently doing about 29,000BOPD. It declined from about 32,000BOPD this year. The Abo South drilling should arrest that decline’.

Although the fields that are most readily available for an investor in the Nigerian portfolio are those that are marginal, either in relative (geographical location, nearness to producing facility) or absolute terms(size), Ogunnaike is not bullish on marginal fields.

“Personally, as a petroleum engineer, the effort you put in to develop the marginal field is the same that you put into developing the bigger field. It’s the same discipline. It’s the same quality check, and you still go through all the hassle of community obstructions. If you are going to be a 10.000BOPD company, that’s fine. But if you are looking for more, you should be going for a bigger game”.

Ogunnaike has been privileged working in the plummest job in the Nigerian economy for all his life. He won the Shell scholarship to study in the UK straight from the prestigious Government College Ibadan in 1974 and got some of the best jobs all through his career with Nigeria’s largest oil and gas producer.

I ask him what he considers the most exciting phase of his career with Shell. He has some interesting examples “There was considerable challenge with procurement; we  were having people who weren’t ordering the right things.  I had a two year stint in procurement; five years after I joined”.  He returned to petroleum engineering, did production technology for a while.  Then an opening came up in Economics and Planning in the Western Division.

He lights up.

“That job provided, for me, an overview of the business.  It showed me how the money is made in this business.  After a while, he left for cross posting in the UK, where his job was to justify a lot of the exploration wells that were being drilled in the Central North Sea.  That was for four years.  He returned blocks not to Economics, not to Petroleum Engineering, but to production. “I was in charge of production planning and programming, which I find very interesting”.

As community disturbances heightened the anxiety about safety of lives and limbs in the Niger Delta basin in the earlier five years of this decade, Ogunnaike got tired of staying in Warn, the second largest city in the region. He wanted to go to Lagos. The only job available was in SNEPCO, (the Shell Nigeria subsidiary involved in deepwater and frontier activity). “I came to SNEPCO to head economics and planning”, he recalls. He was the Petroleum Engineering Manager for Bonga at the time that this Nigerian flagship deepwater field was getting close to coming on stream .”I had a team set up in Houston, where most of the work was being done. That was where we trained the operators”. He sees that as perhaps the signal point of his career: coming to see Bonga doing 200,000BOPD “For most of my working life with Shell, we were seeing wells doing 2,000 to 4,000BOPD. In Bonga, we are seeing wells doing 30,000BOPD.” His very last job for Shell was as General Manager Commercial Operations for Africa.

I ask him whether he didn’t see his Oando E&P as top heavy, with five or so geologists and petroleum engineers who’d spent over 15 years in the industry and hardly any young technical personnel who is learning the ropes. When as he says, the Oando team challenges Agip on technical issues, where are the young Nigerian petroleum professionals to learn from the challenge? Ogunnaike’s response is to open a floodgate of information about Oando’s capacity building exercise. “You need to build that capacity gradually, not to flood the place with engineers and geologists when you don’t have the assets. They’d get bored. I have made a commitment that I want three petroleum engineers every year, feeding the funnel. Right now, I have got three petroleum engineers of not more than three years experience and I have got one with 12 years experience”. Oando itself, in broad terms, has a Graduate Training Programme, which started in 2009, where we take 20 graduates, fresh from the University, and get them through a grueling one year training programme, consisting, in part, of working in every Oando subsidiary, from far downstream (petroleum product retail) to the upstream (exploration and production). I ask him what his plans are after the magical 100, 000 BOEPD “If I take the company to 100, 000 BOEPD I’d consider leaving”.

North Africa’s Crude Output To Fall

The mad rush for Libya won’t translate to production increase in the next five years

North Africa Chart, NOVEMBER 2009

North Africa Chart, NOVEMBER 2009

Crude oil production will decrease in North Africa in the next five years, according to analysis of global capital spend by Wood Mackenzie. An evaluation of projected global capital spend between 2009 and 2014 suggests a mild drop in net production growth in North Africa, although the decrease is nowhere near the sharp reduction in net output in Europe and, well, Latin America The report didn’t single out any specific North African country for assessment of relative increase or decrease in production, so it’s not clear whether a single country is responsible for growth or decrease. This contrasts with its assessment of Latin America, where it predicts a growth in Brazilian output. but explains that this growth is not sufficient to bring about a net increase in the regional crude oil output the time under review. The grim outlook of North African oil production is at odds with the growing presence of Western companies in the country since sanctions were lifted five years age. It also contrasts with the reported increase in discoveries in Egypt. What it means is that new oilfields are not being developed in Algeria. Libya. Egypt. Tunisia and Morocco. In specific detail, investment in exploration in Libya hasn’t delivered the sort of world class discoveries being encountered in the Gulf Of Guinea. notably Ghana and Angola. Egyptian discoveries  may be many, but they are small. Algeria is growing its gas assets, but there are no new, major oilfield discoveries, let alone developments.

Nestoil Boosts Goland’s Oriri Project

Goland has secured a jack up rig to drill the operated Oriri field in the shallow offshore Oil Mining Lease (OML) 88 in the south of Nigeria’s Niger Delta basin. The company’s effort to get the field on stream is buoyed by its new partnership with Nestoil, basically an oilfield engineering service firm, which has now become a financing partner in the development of Oriri. The field is one of the 24 marginal fields that the Nigerian government awarded to local independents in 2004, to boost indigenous capacity and increase the Nigerian percentage in the total volume of oil produced by the country. Goland’s progress on the field slowed down considerably after the initial technical partner, Vitoil, abandoned the project as a result of community disturbance. The company may be drilling Oriri 2, a new well, anytime soon.

Agbami Hit 250,000 B/D Peak in August 2009

The Chevron operated Agbami field offshore Nigeria reached peak production of 250,000 barrels per day in August 2009, or four months ahead of schedule. Commencing production in July 2008, the field contains an estimated 900 million barrels of oil equivalent of recoverable hydrocarbons, one of the largest discoveries to date in Nigeria. Agbami stretches across 45,000 acres and is located some 70 miles (113 kilometers) offshore the Niger Delta basin, straddling blocks OML 127 and 128. The field’s water depth is 4,500 feet (1,372 meters). The crude oil found in Agbami is light and sweet, with a 45-degree API gravity and no contaminants. Besides operator Chevron, other partners in Agbami are Petrobras, Nigerian National Petroleum Corp., Famfa Oil Ltd. and StatoilHydro ASA.

Eskom Puts The Nuclear Option On Hold

Africa’s large utility says that splitting the atom to generate electricity is far too expensive

Eskom, the South African power utility, has cancelled a $12 billion plan to build a nuclear plant as the credit freeze cuts financing.

Groups led by Areva, the world’s top supplier of nuclear reactors, and Toshiba’s Westinghouse Electric vied for the order. A global recession and an expected drop in energy demand is halting spending on projects from Canada to the Middle East and Africa.

“It’s too big, we can’t do it,” said Eskom spokesperson Fani Zulu. “The bidders were informed after we took the decision at  a board meeting.”

Eskom is looking to borrow about $15 billion and is in talks with the World Bank for a loan of $5 billion. Its credit rating was cut by Moody’s Investors Services in 2008 after regulators allowed a 27 percent rise in electricity prices rather than 61 percent.

“We’re disappointed because we put a lot of work into the process, but we’re hopeful the South African government will remain committed to developing nuclear power,” said Jacques-Emmanuel Saulnier, a spokesperson for Areva in Paris, “If South Africa comes back to us, we’ll be there.”

The South African government immediately said it would still go ahead with installing Nuclear plants only that it would be at a slower pace and a scaled down version of what Eskom planned to do.

Eskom has not kept pace with local electricity demand and has restricted supply to firms including Anglo American and Xstrata.

The South African economy would probably grow at a slower pace than forecast by Eskom in the next five years, reducing power needs, said economist Jac Laubscher of Sanlam. “It’s not a train smash that they’ve cancelled the nuclear plan.”

The global recession and rising interest rates have reduced government projections,

with the economy now expected to expand three percent (3%) in 2009 and 4% in 2010.

The plan was also cancelled to ensure that Eskom’s ability to provide competitively priced energy was not jeopardised, the government said.

South Africa had planned to generate 20 000 megawatts from nuclear reactors by 2025, more than 10 times the current output. Power demand has risen by 50% since

1994, while government indecision postponed Eskom’s expansion.

The reasons for the pause were specific to South Africa, and did not reflect the general state in the nuclear industry, as shown by efforts by utilities in the UK and the US to build nuclear power plants, Areva’s Saulnier said.

Areva proposed two 1,650MW reactors, while Westinghouse offered to build three 1,140MW reactors.

South African owned construction groups Aveng and Murray & Roberts formed part of the groups bidding for the contract.

Electricite de France, the world’s top operator of atomic reactors, has South Africa among its priorities for nuclear expansion.

Still the country as a while remained “committed to nuclear power” to lessen the nation’s carbon footprint, Portia Molefe, director-general of the department of public enterprises said.

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