Who should operate the oil blocks divested by Shell? The Nigerian Petroleum Development Company (NPDC) says it has the financial and tehnical capacity to run them. But, its Joint Venture (JV) partners in the private sector say it cannot. They argue that the oil assets are “grossly” underutilised under NPDC, adding that “this is impacting negatively on our investment in the oil acreages.” They want the blocks transferred to them. EMEKA UGWUANYI reports.
In the last two months, the battle over the operatorship of some of the Shell’s divested oil blocks in oil mining leases (OMLs) 30, 34, 40, 42 has been a major issue in the oil industry in the country.
Trouble started when the Federal Government handed over its 55 per cent equity stakes in the oil assets to the Nigerian Petroleum Development Company (NPDC), which is the exploration and production arm of state-run oil firm, the Nigerian National Petroleum Corporation (NNPC). The remaining stakes of 45 per cent in the Joint Venture (JV) oil blocks held by Shell Petroleum Development Company (SPDC), Total and Agip were sold to some indigenous companies that came together as a consortia.
Aside Seplat Petroleum Development Company that bought the very first set of divestment in oil mining leases (OMLs) 4, 38 and 41, and was granted the operatorship of the assets, the government transferred the operatorship of subsequent divested assets to the NPDC.
However, very recently, the government withdrew the operatorship of OML 42 from the NPDC to the private sector JV partner, a situation that irked the NPDC workers and compelled them to embark on strike. The strike stalled the transfer of the operatorship of the remaining three oil blocks to the private sector JV partners, which lingered until the President Goodluck Jonathan’s led administration ended last month.
The indigenous private sector JV partners of NPDC are Neconde Energy Limited (OML 42), Elcrest Exploration and Production Nigeria Limited (OML 40), Shoreline Natural Resources Limited (OML 30), ND Western Limited (OML 34) and First Hydrocarbon Nigeria FHN/Afren (OML 26).
These companies are of the view that due to bureaucratic bottlenecks associated with public owned companies, NPDC is constrained technically and financially to optimise output from the oil blocks adding that NPDC as a firm, cannot borrow money from banks to conduct its business and also cannot take decision on crucial issue of production without getting clearance from its parent company, the NNPC.
As private sector companies that have made huge investments, non-optimisation of the assets is affecting their bottom-line and the economy, the investors lamented.
The buyers of SPDC’s divested stakes in OMLs 30,34, 40 and 42 cite the achievements Seplat as operator of its acquired oil blocks. They said if the operatorship had remained with NPDC, Seplat couldn’t have recorded meaningful progress. When Seplat acquired Shell’s stakes in the three blocks in 2010, the combined production was less than 30,000 barrels per day (bpd) but as at last year, the production has been ramped up to 70,000 bpd while also increasing the natural gas output significantly.
A source in the NNPC, however, said the truth is that NPDC doesn’t have the capacity. ‘Imagine a company that was operating just one block and got eight oil blocks in one fell swoop. They have been advised several times to go into partnership with other companies to improve capacity and efficiency but they held on to status quo.
“Frankly speaking, we don’t have the financial and requisite personnel to manage these blocks and this is the reason for the transfer of the operatorship to the indigenous firms in joint venture partnership with them NPDC. NPDC was unable to absorb the multinational oil firms’ workers in the divested assets resulting in acute personnel deficit and fortunately, the indigenous JV partners absorbed them. Besides, NPDC doesn’t have the capacity to take loans from banks for their operations unlike their JV partners, which puts a serious financial constraint on the firm,” the source said.
The indigenous JV partners of NPDC that are expecting that operatorship of their blocks may be granted include Elcrest (OML 40), Shoreline (OML 30), ND Western (OML 34) and FHN/Afren (OML 26). The source said the firms have the technical capacities, personnel and financial strength to operate the assets and also have the ability to invest billions of naira into drilling of new wells and multi-field developments, which will increase oil and gas production and revenue to the nation.
Despite the strike embarked upon by NPDC workers, the private sector JV partners are not relenting in the transfer of the operatorship from NPDC. The Nation, however, spoke to some NPDC workers in confidence on the veracity of the claims by their independent JV partners.
The NPDC workers said the company is being unjustly undermined adding that it has the capacity and personnel to manage the oil blocks. They listed the achievements the company has recorded in the past including some of the Shell’s divested assets especially OMLs 30 and 34.
They said OML 34 is among the assets the NPDC acquired from SPDC in 2012 during its divestment programme. The asset is predominantly a gas producing field with Utorogu non-associated gas (NAG) 1 and Ughelli East (UGHE) gas plants as the two running plants prior to the acquisition. Utorogu NAG 1 and UGHE gas plants have an installed capacity of 360 million standard cubic feet of gas per day (mmscf/d) and 90 mmscf/d) respectively.
Prior to the takeover by NPDC, the former operator SPDC, was producing an average of 270 mmscf/d and 60mmscf/d) from NAG 1 and UGHE plants respectively. However with the recent improvement drive and overall service commitment by the management and staff of NPDC, production has steadily ramped up to 360mmscf/d and 70mmscf/d for NAG 1 and UGHE plants respectively. Currently NPDC produces 420mmscf/d from the two plants, they added.
“It should be noted that this is a record that has never been achieved since the field came into existence in the 1970s. Production is still ramping up, having attained 430mmscf/d. In addition, plans are currently underway to further increase production from the two fields with the completion of Utorogu NAG 2 plant with an installed capacity of 150mmscf/d. NPDC’s focus is to ramp up, grow and sustain production from the three plants at 450mmscf/d by the third quarter of 2015 and this would make NPDC the second largest gas producer in Nigeria.
“NPDC wishes to achieve this feat through the aggressive gas development campaign currently going-on in OML 34. This involves drilling of gas wells and completing/commissioning of the 150mmscf/d capacity NAG II plant in the short term. The NAG II plant is 96 per cent completed as at 4th June, 2015. The company’s medium term plan is to deliver about 600mmscf/d of gas to the national grid to support the Federal Government’s gas to power aspiration by the end of 2015. NPDC took over the operatorship of OML 34 from SPDC on Monday, 31st December, 2012.
“Also at takeover from SPDC, daily oil production was 10,032 bpd and has since increased to 22,000 bpd. We have increased gas production in the asset from an average of 295mmscf/d in 2012 to 360mmscf/d for NAG 1 and 70mmscf/d for UGHE Plant, altogether producing 430mmscf/d making the asset the largest single supplier of gas to the country’s domestic market. We also successfully shut down and carried out improvement job for NAG 1and UGHE Plant to revamp work and boost production, successfully drilled and completed three wells to ramp up gas production.
“NPDC took over operatorship of OML 30 from SPDC on 1st February, 2013. NPDC holds 55 per cent equity shares while its Joint Venture partner, Shoreline Natural Resources has the remaining 45 per cent participatory shares. The average daily net production as at takeover from SPDC was about 20,982 bpd. Today, production in OML 30 has increased to 60,000bpd under the operatorship of NPDC. The oil block’s flow-stations are all operational now.”
The NPDC workers also stated the company achieved successful re-entry into Uzere community to open-up Uzere-West field with a locked-in potential of 14,000 bpd, rehabilitation of eight units of 5.2mmscf/d gas lift compressors and commissioning of new compressors to ensure adequate production uptime and increase in gas lift capacity. Other achievements include successful installations for proper hydrocarbon accounting; successful negotiation on Global Memorandum of Understanding (GMOU) with 112 communities of OML 30 together with Delta State Government to ensure uninterrupted production took over Oleh Field Logistic Base (FLB) and deployed personnel to fully man all the flowstations and Ughelli production station.
We also developed and secured approval for the AFELOROW (Afiesere, Olomoro-Oleh, Oroni and Oweh) fields development plan, and ensure proper management of the Trans Forcados Pipeline, the workers said. They recalled that the former NPDC Managing Director, Mr. Iyowuna Briggs, in an interview with energy correspondents during a facility tour, said taking over the operatorship of the oil fields came with enormous challenges, but the state-owned company was keeping the promise to ensure that the fields remained productive.
Briggs said: “It is clear right from the beginning that the challenges faced by the NPDC are enormous, following the divestment of OMLs 34 and 40 on January 1, 2013, and OML 30 on February 1, 2013. For example, five days after the takeover of the operatorship of OML 30, the Oroni and Olomoro flow stations were forcefully shut down by the members of the Igbide and Olomoro communities respectively. “Oroni flow station was eventually shut down for over 50 days. This resulted in the deferment of production amounting to over 115,000 barrels. Other shutdowns of production in various fields had impeded the attainment of the company’s production target of 135,000 barrels of oil per day for the fiscal year 2013. Consequently, over the past one year, NPDC had witnessed a drastic drop in its daily oil production from about 135,000bpd to 115,000bpd leading to a substantial loss of revenues.”
In spite of this, Briggs said the NPDC was producing between 65,000 and 70,000 barrels of oil per day before it took over the assets, and this had since gone up to 140,000bpd with a target to hit 160,000bpd by the end of 2014. He stated that NPDC would spend a minimum of $1.8billion per annum on capital expenditure over a two-year period. He explained that the company would drill 18 oil wells across its oil assets in 2014, stressing that it currently maintains an interest in 28 OMLs in the country.
He said: “NPDC drilled less than 10 wells over a five-year period ended October 2012. However, we drilled about six to seven wells between then and 2013 and we are going to be drilling up to 18 wells in 2014.” Briggs said NPDC then had the capacity to produce 140,000 bpd adding that it had been delivering 410 million metric standard cubic feet of gas per day into the domestic gas.
