Almost four months after the Department of Petroleum Resources (DPR) opened bid for marginal oil fields, bidders continue to wait for Godot as the process grinds at snail speed, LUCAS AJANAKU reports.

 

One of the high points of the oil and gas industry in 2020 was the offer of marginal fields to indigenous oil and gas industry players to enhance local participation in the capital intensive upstream industry that also requires cutting-edge technology application.

Participants were excited. They have a reason to be because the last time industry players had an opportunity to jostle for marginal fields was over about two decades ago, when 24 fields were on offer and bid for by 171 firms.

According to industry sources, the 2020 bid round which ran for almost four months took place from July-September, including few days in the next month used for the conclusion of the bid analysis by the DPR.

The process created a three-layered platform, in which no one had one asset allocated to him, alone. In other words, three tiers of frontrunners are likely to emerge in the result of the marginal field bid round. The first tier contains a list of two companies awarded the same field. The second tier comprises a list of three companies awarded the same field, while as many as 10, awarded the same field are on the tier three list.

 

Marginal fields

According to BudgIT, civic organisation that applies technology for citizen engagement with institutional improvement to facilitate societal change, marginal fields are oil fields that have been discovered by major international oil companies (IOCs) in Nigeria in the course of exploring larger acreages and which fields have not been developed for more than 10 years.

“When identified, the IOCs may decide to farm out this field to another company to exploit it as a sole risk venture. This means the contractor would bear all the costs and risks of exploitation and also to earn the entire rewards from exploitation. The President, by the provisions of the Petroleum (Amendment) Act of 1996 also has the power to declare a field as a marginal field where a discovery has been made in such a field but it has been left unattended for 10 years.

The major reasons for awarding marginal fields are to create new and diverse investment and boost reserves. Marginal fields are located onshore and in the shallow waters. There are about 178 marginal oil fields. In 2003, the government awarded 24 out of these.

Statistics show that nine out of these 24 are productive while the others are under- utilised. Consequently reports show that the marginal fields only contribute a minimal 2.1per cent to the total crude oil production and 67per cent of marginal fields allocated in the 2003 licensing round have not produced a single barrel of oil 10 years after.

Spread across onshore; swamp and shallow water and coming with combined resources of around 800 million barrels (mmbbl) oil and 4.5 trillion cubic feet (tcf) gas, mainly owned by Shell, ExxonMobil, Chevron and Total, this year’s bid round had (on offer) 57 fields; with only 161 firms out of the 600 companies that participated, making it to the three-tier shortlist.

Attached to each field is usually cash technically known as signature bonus (SB) that would be shared by several companies attached to the oil field. Should the other competing companies be unable to pay their share of the SB, a company might find itself, becoming the sole holder of a marginal field licence.

Director/CEO at DPR, Sarki Anwalu said marginal fields provide the opportunity to gainfully engage the pool of high level technically competent Nigerians in the oil and gas sector.

 

Waiting game

According to government sources, the process to secure approval of the award list has dragged on  because of the Nigerian factor. There has been alleged pressure from several bidders who bid, paid all the fees and made it through all the milestones.

With the economy in recession and oil prices fluctuating, the government is in search of how to fund the budget and provide the needed infrastructure, Anwalu made it clear that it will be very strict with signature bonus payment, as they have been with royalty, lease rentals, and other tariffs recently.

The government may be shooting itself in the foot by delaying the announcement of the winners of the fields which is allegedly being delayed at the Presidency.

But DPR source said the bid process has not been concluded, adding that when it is, the announcement would be made.

The marginal fields programme was introduced to encourage indigenous participation in the oil industry and also to increase government’s take on undeveloped acreages. The programme was developed to discourage continuous holding of undeveloped fields by International Oil Companies (IOCs). The creation of marginal fields was therefore designed, to reduce the rates of abandonment of depleting fields and assure the government’s take in acreages that would otherwise have become unproductive.

Experts say the 25 largest oilfields have the potential to unlock $9.4billion of investment over the first five years and generate over $38billion in revenue over the life of the fields.

Since the signing of farm out agreements in 2003 between the IOCs, the Nigerian National Petroleum Corporation (NNPC) and the indigenous firms, the marginal field initiative has come to stay in the oil industry.

BudgIT said some factors contribute to the under-utilisation of the marginal fields and its consequent minimal contribution to the country’s oil revenue

“Discretionary decision-making, political interference and lack of transparency are the bane of the process of awarding marginal oil fields. The Department for Petroleum Resources (DPR), the institution in charge of managing the exploration licenses, does not publicly provide the criteria for prequalification of awardees. This makes the entire process opaque. Reports show that in the past many of the winning companies were closely associated to government officials This factor alone significantly affects the field performance, as most of the awardees do not have the technical skills to exploit the skills. This is also the reason why most of the marginal fields are dormant.

“More so, there is no consistency or reliability in the bid process The sudden suspension of the 2013/2014 bid rounds is an evidence of this. This again deters investment. Again, because the marginal fields are onshore, the production growth is greatly affected by infrastructure constraints resulting from attacks on the pipelines and oil theft in the Niger Delta,” the group said.

Despite Nigeria’s enormous gas reserves, the consumption per capita of domestic cooking gas or Liquefied Petroleum Gas (LPG) remains low relative to the population. It’s ironical that the country produces for export and imports for domestic consumption, reports LUCAS AJANAKU.

Mama Obinna, a widow and mother of three, lives in Oko Ewe, a sleepy community in Ogun State with her kids.

A single parent, she survives doing petty business, she relies on a combination of kerosene stove, fire wood and saw dust for cooking. But she relies more on firewood and saw dust because the price of kerosene has hit the stratosphere.

Each time she’s cooking, she elicits a pitiable sight because she would have to either use her mouth to fan the embers an in the process, inhaling gases, including carbon dioxide (Co2), oxides of nitrogen (NOx) and volatile organic compounds (VOCs) and the lethal carbon monoxide (CO).

Her level of awareness, financial status and absence of LPG facility close to her neighbourhood are some of the factors pushing her back from the use of the clean cooking energy. Asked why she has not embraced the use of gas, she asked rhetorically: “Me to use cooking gas? Where am I going to get the money to buy it? So, you want me to die with my kids for house when gas (cylinder) explodes?”

Mama Obinna is but one out of many others across the country, especially in the rural areas that do not use LPG. They rather cook with fire wood thereby fuelling tree felling, leading to desertification and climate change.

It is estimated that the country will be saving about $10billion yearly if 50 per cent of the populace embrace the use of LPG implying that there is correlation between its usage and poverty reduction.

The World Bank Group’s Oil, Gas, and Mining Unit, Sustainable Energy Department, in its study on: The role of Liquefied Petroleum Gas in reducing energy poverty, said increasing household use of liquefied petroleum gas (LPG) is one of several pathways to meet the goal of universal access to clean cooking and heating solutions by 2030, as stated in the United Nations’ Sustainable Energy for All Initiative.

The UN’ Sustainable Energy for All Initiative, launched in 2011, sets as one of its three objectives universal access to modern energy services—electricity and clean cooking and heating systems—by 2030.

The group said about three billion people rely on solid biomass or coal for cooking and heating, and smoke from such fuel use is estimated to cause four deaths every minute. Universal access will require a multi-pronged approach: advanced cook stoves for biomass and other solid fuels, natural gas for urban households in countries that have or are developing an extensive gas pipeline network, biogas, and LPG. The International Energy Agency (IEA) estimates that more than 40 per cent of households newly gaining access to modern household energy by 2030 in the universal-access scenario will do so by switching to LPG.

The Federal Government’s priority objective is to attain five million metric tons (Mt) of LPG consumption by 2022, which puts the national consumption target at 83.33,000 MT monthly from 2018 to 2022 estimates.

The Petroleum Products Pricing Regulatory Agency (PPPRA) said Nigerians consumed 89,910Mt, of LPG in January 2020, 7.9 per cent above the national consumption target of 83,330Mt.

Its Executive Secretary, Abdulkadir Saidu, said over the past two years, domestic LPG consumption has steadily been on the upward swing.

Punitive cost

The World Bank group noted that global LPG prices have more than doubled in real terms in the last decade, increasing at an annual average rate of nine per cent since 2001. This rate of increase is much higher than that for household income in most developing countries. Prices are now sharply higher.

“Even in an efficient market with light tax on LPG, cooking and heating water with LPG would require upwards of $15 every month at today’s LPG prices. As such, LPG is unlikely to be the fuel of the poor,” it said.

The Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM) blamed the international cost of LPG and the interplay of foreign exchange (forex) for hike in cost and sought full domestication of the product’s market to guard against its volatility like oil prices.

Its Executive Secretary, Mr Bassey Essien, in a statement, said  the Nigeria Liquefied Natural Gas (NLNG) produces four million Mt of gas yearly, but allocates 350,000Mt for domestic consumption.

He said: “We, as marketers, are saying that NLNG and others producing LPG should domesticate it by dedicating sufficient quantity that will cover our domestic consumption.

“We have watched the continuous spike in the price of cooking gas, moving from N4 million to N5 million for a 20MT truck to the current price of N5.3 million within a month interval.

“The current high price of cooking gas is not traceable to marketers (plant owners) or terminal owners but rather to the vagaries of the international price of the commodity and interplay of foreign exchange rates.

“Nigeria consumes about one million Mt of LPG yearly and 65 per cent of the products are imported by marketers.

“The Central Bank of Nigeria (CBN) has no dedicated window of foreign exchange for LPG importers, thus the sourcing of foreign exchange at a high price which ultimately dictates the price the product gets to the marketers.

“This brings to the fore our persistent request for the full domestication of LPG supply in the country to guard against price manipulations by international market and foreign exchange.”

Fresh hopes

The Federal Government has, however, raised hopes of a turnaround in the subsector with the inauguration of Integrated Gas Handling Facility and LPG Processing and Dispensing Plants built and operated by the Nigerian Petroleum Development Company (NPDC), an upstream subsidiary of Nigerian National Petroleum Corporation (NNPC), in Oredo, Edo State.

The plant will cut 260,000 Mt of LPG imports from the United States, create jobs and save about N28billion yearly used in importing cooking gas.

President Muhammadu Buhari, who inaugurated the facility, said: “The Oredo Integrated Gas Handling Facility and its associated NGLs depot will be delivering 240,000 metric tons of commercial grade LPG and propane. It will also deliver about 205 million standard cubic feet per day of lean gas to the domestic market.

“In addition to its import substitution benefits that brings us a step closer to self-sufficiency in LPG production and also supporting the growth of small and medium enterprises in the host communities, this project will create hundreds of direct and indirect employment opportunities for our teeming youths (both skilled and unskilled).

“Apart from being the largest onshore LPG plant in Nigeria with the potential of supplying about 20 per cent of Nigeria’s LPG demand, the Oredo Integrated Gas Handling Facility was carefully situated at a corridor proximate to over 80 per cent of Nigeria’s LPG demand source.”

Buhari said the project was a follow-up to the commitment of the administration towards making the year as Nigeria’s Year of the Gas.

“At the turn of 2020, this administration made solemn declarations to the Nigerian public over its plans to expand the gas sector footprints by scaling-up the development and utilisation of Nigeria’s abundant natural gas resources to help spur industrialisation, provide clean and efficient energy for transportation and household use while increasing our exports into the international market. It is on the backdrop of this commitment that 2020 was dedicated and embodied as Nigeria’s Year of Gas.

“Since then, we have followed through with actions that have translated those plans into tangible projects with monumental value additions to the Nigerian economy. We accomplished key gas infrastructure projects like the OB3 and ELPS 2 and flagged-off the Construction Phase of the 614 km AKK Pipeline Project.

“It was indeed not a coincidence that the completion and commissioning of the aforementioned gas infrastructure projects in this Year 2020 followed the wrap-up of 2019 with the Final Investment Decision (FID) for NLNG Train 7… We are exiting 2020 with yet another milestone of inauguration the Oredo Integrated Gas Handling Facility LPG Processing and Dispensing Plants which will also support the on-going drive towards providing alternative auto fuel under the National Gas Expansion Programme initiative,” Buhari said.

The Minister of State for Petroleum Resources, Timipre Sylva, said the project underscored the commitment of NNPC in eliminating gas flares while increasing value realisation from gas.

He added that the entire LPG and propane production is “targeted at the Nigerian market, further affirming the conscious efforts of NNPC and the government in growing its participation in the LPG value chain to boost domestic supply, lower prices and deepen LPG penetration to safeguard our environment.”

The Group Managing Director of NNPC, Mele Kyari, said the president’s directives to the Ministry of Petroleum Resources and the NNPC were that “we must deepen domestic gas utilisation and monetisation and provide a platform where Nigerians can benefit from the enormous gas supplies that we have so that job and prosperity can be created and by implication, bring peace to the country.”

He said: “The facility was designed, constructed and delivered with the highest application of Nigerian content and the contractor is a wholly Nigerian company which demonstrated the capacity of Nigerian companies to handle ‘complex’ projects.”

Way forward

There is need for partnership between the public and private sector to sensitise members of the public about LPG. There is considerable scope for improving the quality of information provided by firms to make it more user-friendly. Industry associations and governments in a handful of countries have developed pictorial guides to safety risks, but these efforts are rare. Communicating information widely to the public using different media in nontechnical language is another crucial element in LPG promotion, the World Bank said.

“Because high costs present the greatest barrier to the adoption of LPG, making the market as efficient as possible and passing efficiency gains to consumers to lower prices is crucial to expand household use of LPG. Governments can contribute in various ways. They can encourage hospitality arrangements and third-party access to import terminals and storage tanks, thereby reducing duplication of infrastructure and lowering the barrier to entry. Improving roads can reduce transport costs and enable more areas to be reached, while improving ports and customs clearance could reduce congestion. Better port infrastructure may also facilitate LPG imports in larger parcels, again lowering costs. Fair competition—essential for increasing efficiency—requires establishing a modern regulatory framework, which may include formal adoption of international standards so that they are automatically updated, and effective monitoring and enforcement to curb commercial malpractice and ensure safety. Where institutional capacity is still being developed for monitoring and enforcement, one option is to establish a system of certified installers and private inspectors under government supervision.

“LPG marketers, micro-finance schemes, and others can lower the barrier to LPG adoption by making it easier to finance cylinder deposit fees and stove purchases. There is a niche market for small cylinders, but global experience to date suggests that their role is likely to remain limited.

“Ensuring safety calls for a clear definition of cylinder ownership; assignment of legal responsibility for cylinder maintenance, repair, and replacement; effective enforcement of the ban on cross-filling where such a ban exists; proper training of operators throughout the supply chain; extensive education campaigns for end-users; and penalising companies that refill unsafe cylinders. The regulatory framework in Turkey offers useful lessons. It requires training of all personnel involved in supplying LPG and educating consumers about proper handling of LPG, and sets strict rules about the conditions under which cylinders can be refilled.

“Price subsidies can help those who are otherwise unable to purchase LPG, but are inefficient. Universal price subsidies are regressive, captured largely by middle- and high-income households and vehicle owners,” the study said.

Despite the challenges of COVID-19, the oil and gas industry remains the nation’s major revenue earner, writes Muyiwa Lucas

The coronavirus pandemic disrupted social and economic life, rendering big countries and businesses weak. The oil and gas sector, in which the Nigerian National Petroleum Corporation (NNPC) is a key player, was not left out. In 2020, the unimaginable happened as the  West Texas Intermediate crude futures fell to below zero dollars.

However,  the challenges of COVID-19 brought out the ingenuity and astute management skills of the NNPC Group Managing Director, Mallam Mele Kyari, and his team. NNPC conceived and implemented innovative business continuity strategies which enabled the state oil company to achieve unprecedented feats.

The achievement of three million barrels per day crude oil production in April stood out. This was despite the nation being on lockdown to mitigate the effects of COVID-19 during which most staff of the corporation worked remotely.

Nonetheless, due to the unavoidable impacts of the pandemic including the Organisation of Petroleum Exporting Countries (OPEC+) production curtailment agreement, as at last month, average daily crude and condensate production from NNPC’s Joint Venture and Production Sharing Contracts stood at 1.542 million barrels per day (mbpd) against the corporation’s initial 2020 target of 1.863 mbpd and an average daily gas production of 6.020 billion cubic feet per  day (bcfpd) as against the 2020 plan of 6.243 bcfd.

NNPC’s upstream flagship company, the Nigerian Petroleum Development Company (NPDC) as at November also recorded a total oil and gas production output of  269, 000 bpd and 1.5 billion standard cubic feet of gas per day (scfpd) of which the company’s equity production stood at 163, 000 bpd and 1.38  billion cubic feet of gas per day (1.38bcfd). It is imperative to note that the company would have achieved more but for the government’s resolve to comply and support the efforts of OPEC and its allies to protect the global oil & gas industry in the face of the unprecedented drop in demand for the “black gold”.

President Muhammadu Buhari on June 30 flagged off the construction phase of the Ajaokuta-Kaduna-Kano (AKK) gas pipeline project in NNPC’s determination to add value to the economy. The project, described as a game-changer by the President, is a section of the Trans-Nigeria Gas Pipeline (TNGP), with a capacity to transport about 2.2billion cubic feet of gas per day.

The AKK is expected to be fed from the domestic infrastructure with a capacity of over 1.5 bcfpd, which is being expanded by the Escravos Lagos Pipeline System 11 (ELPS 11) and Oben-Obiafu-Obricom (OB3) gas pipeline project. This has also reached 96.34 per cent completion and will double the capacity to over 3.5 bcfpd.

The AKK project will also facilitate the development of a three-base Independent Power Plants (IPPs) in Abuja with the capacity of 1,350 megawatts (Mw), Kaduna, 900Mw and Kano, 1,350 Mw. They will stir the development of gas-based industries along those  corridors and beyond.

The nation  saved $300 million from the initial cost of the $2.89billion project following its negotiation to $2.59billion by the NNPC leadership.

The leadership also rallied shareholders of the Nigeria Liquefied Natural Gas (NLNG) to secure the Engineering, Procurement and Construction of Train 7, to the admiration of industry watchers.

For the refineries, efforts towards their rehabilitation which will ensure 90 per cent capacity utilisation is ongoing with phase one of Port Harcourt Refining Company (PHRC) rehabilitation  by Technimot SPA, Original Refinery Representative, completed. Also, management has engaged NETCO/KBR as project monitoring committee for PHRC, Warri Refining Petroleum Cwonpany (WRPC) and Kaduna Refining Petroleum Company (KRPC) rehabilitation. The phase 1 of WRPC rehabilitation which includes the technical audit has begun.

The achievement of NNPC was felt at the pump across the country as zero fuel queues were recorded following the seamless and sustained  supply of  petrol throughout the year with availability of complementary products in sufficient quantity. The corporation, throughout the year, maintained a 60-day petrol sufficiency in reserve.

In the year,  NNPC achieved 38 per cent pipeline availability, sustained system 2B pipeline operations with -3.9 per cent average variance and moved 2.696m3 (cubic meter) of products across the entire pipeline. Downstream operations were automated with the deployment of customer express solution and online marketer portal, which enables marketers to procure petroleum products online from the Petroleum Products Marketing Company (PPMC) in any part of the country without human interface.

The automation of vessel management and chartering portal is also in progress awaiting operationalisation of Shipping Strategy. This has enabled PPMC to achieve 82% Implementation of ISO Certification.

NNPC Retail Limited, one of the downstream subsidiaries of the corporation launched its lubricants on  February 28 with a record of 0.18million sales as at October and achieved a market share of 25 per cent,  exclusive of figures for independent marketers, as at third quarter of 2020. The company also recorded another milestone with the launching of Autogas as part of the National Gas Expansion Project on  December 1, 2020.

NNPC Retail Limited is also digitalising  its operations in an initiative that would ensure the  automation of the company’s business value chain, from the sourcing of products to storage, to how products are moved and how they get to its filling stations, how customers book for products, how they obtain and pay for the products online.

The automation of the processes would make business transactions between the company and its various external stakeholders seamless, faster, efficient and transparent. The programme would be a win-win  for the company and its customers.

To take the Transparency, Accountability and Performance Excellence (TAPE) management persuasion a notch higher, the NNPC published its 2018 and 2019 audited financial statements, a feat which further validates its enlistment as a partner company of the Extractive Industries Transparency Initiative (EITI).

The Finance and Account Directorate has also emplaced and sustained timely remittance to the Federation Accounts Allocation Committee (FAAC), ensured crude cost is now settled within 90 days, ahead of FAAC meetings and eliminated unjustifiable deductions thereby improving remittances to FAAC.

The Corporate Services Directorate has enhanced NNPC Remote Work Capability using Microsoft Teams,  Enterprise Content Management (ECM) and automated the Management Promotion and Performance Management processes. These automated processes as well as the remote collaboration tools introduced in line with the TAPE agenda considerably reduced staff travel and other expenses associated with it and resulted in huge cost savings for the Corporation.

The directorate also successfully concluded the recruitment and onboarding processes for  graduate trainees, who have all assumed duties.

In keeping fate with stakeholder management, the NNPC has engendered an improved relationship with the National Assembly especially in its statutory oversight duties over the corporation.

NNPC used its clout in the industry   to rally stakeholders in the upstream, midstream and downstream sectors to raise N21billion in support of the Federal and state governments to fight COVID-19.

The intervention group was able to deliver medical infrastructure in form of permanent Emergency and Infectious Diseases Hospitals across the six-geopolitical zones in the country. Also, isolation centres, ambulances, ventilators and other medical consumables were delivered to the 36 states and the Federal Capital Territory.