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12 Deepwater Projects Jeopardized Over Policy Inaction

Offshore field development projects capable of yielding total production capacity of 1.255 million barrels per day hang in the air as operators wait for the emerging political environment to assume a definite form and cast a stable outlook for investments. The projects which have the remote bases for a spate of fiscal disputes that pitched the industry regulators and policy drivers against investors had either slowed down or completely stalled following sharp disagreements over new operating conditions recommended in the lingering Petroleum Industry Bill (PIB).

Expectedly, the projects listed as awaiting real development activity belong to the five major multinational oil firms that dominate Nigeria’s deepwater operations: Shell, ExxonMobil, Total, Chevron and Eni. Some of them are joint ventures among the multinational partners in production sharing agreement with government through the Nigerian National Petroleum Corporation (NNPC).

Unlike the joint ventures (JVs) in which government is expected to provide about 60 percent of the funds for capital and operating expenditure, production sharing contracts, also called PSCs, excludes government from making funding contributions towards exploration and development programmes but allows the operators who bears all the risks to recoup expenses through production sharing arrangements that prioritize exploration and development cost recovery.

Thus, the fate of the projects rests in the hands of the multinational oil companies that operate the concessions and discovered the reserves that are now due for development and production. But the proposed changes in the fiscal terms and operating conditions had cast gloom on the projects.

Former Shell’s Exploration Chief in Africa, Mr. Ian Craig, had warned that the fiscal disputes could cost the country over $50 billion of investments if the tax intensive fiscal proposals were allowed to sail through but government’s technocrats had contended that the fiscal proposals were internationally competitive and still offered attraction to new investors.

He said multinational oil firms now have broader options to spread their investment capital in more congenial fiscal environment as innovations in exploration technology open up more petroleum plays across Africa’s sedimentary basins. Following the dispute some 12 new offshore field development projects stalled.

Five of the projects with total production potential of 380, 000 barrels of oil per day have passed final investment decision (FID) while seven of them with total potential for 875, 000 barrels per day are yet to reach FID.

Some of the projects which have scaled FID have since progressed under sustaining production terms and operating conditions that are under threat by the PIB. They include the 70,000 barrels per day Dibi Long Term Project driven by Chevron Nigeria Limited onshore Niger Delta.

The projects which has secured FID is expected to be completed and commissioned in 2016. The next in the ongoing project list is the Sonam Field Development by the same operator.

Although Sonam is primarily a natural gas project it is expected to pump about 30, 000 barrels of oil per day by next year when it is expected to be commissioned. The second phase of Shell’s Gbaran- Ubie integrated oil and gas project follows with an expected oil production profile of 20, 000 barrels per day.

Again, Gbaran-Ubie is primarily tagged a natural gas project the reserves profile shows significant potential for oil production. Completion date is 2017. The second phase of Erha North development project in the ExxonMobil operated deepwater field is projected to deliver 60, 000 barrels per day production capacity when completed in 2018. The FID has been taken by the operator and partners but the 2018 delivery date remains tentative.

Total which has remained the most vibrant operator in the country’s deepwater for nearly a decade is expected to complete the Egina field which brings on the biggest production capacity in the list by 2019. The 200, 000 barrels per day Egina project would be Total’s third deepwater field development after Akpo and Usan deepwater fields successfully delivered by the French multinational major.

On the other hand, some seven exclusively big ticket deepwater development projects with cumulative potential for 875, 000 barrels per day are yet to reach FID and project deliveries are not expected until 2020. The projects in this category include the huge budget Bonga Southwest and Aparo integrated deepwater development project with capacity for 225, 000 barrels per day.

The project would be the third development in the Shell operated Bonga field deep offshore Niger Delta. There is also the 100, 000 barrels per day Bonga North development also by Shell. Shell is also a key partner in the development of the deepwater Zabazaba- Etan Field in which Eni has been assigned operator.

Although the partners are still working out FID on the project, there is no near term commissioning deadline for the 120, 000 barrels per day project. ExxonMobil has a hat-trick deepwater development ambition that would collectively deliver nearly 300, 000 barrels per day capacity.

Deepwater Bosi Field is tagged with capacity for 140,000 barrels per day; Second phase of the company’s Satellite Field Development project is projected to add 80, 000 barrels per day capacity while offshore Uge Field comes with 110, 000 barrels per day.

The American multinational behemoth which leads offshore operations in the Nigerian petroleum industry has not taken FID in any of the projects and commissioning date for the fields cannot be earlier than 2020.

Finally, Chevron is also yet to take FID on operated deepwater Nsiko Field which is expected to deliver about 100, 000 barrels per day capacity not earlier than 2020. With the change of government in the country and steep fall in the prices of crude oil, it is expected that the basis for fiscal disputes over the PIB has totally altered, leaving the investors in uncertainty as the new government drags through a very slow reform process in the industry.

The disputed fiscal provisions in the PIB are based on cost and price templates which have been altered by the current market realities, and experts insist that fiscal regime prescribed in the bill have been overtaken by events and therefore no longer tenable.

Former Presidential Adviser on Energy, Dr. Emmanuel Egbogah, declared at the recent international conference and exhibition by the Nigerian council of Society of Petroleum Engineers (SPE) that the PIB fiscals had been dropped before the bill’s re-presentation to the last National Assembly.

It is therefore expected that the ongoing reforms in the petroleum industry will also address the fiscal and operations issues that raise concerns among key investors in order to clear the way for new round of deepwater field development activities that would in turn spur vibrancy in the industry which has seen protracted lull.

Luckily, the reforms appear to have swept off the government’s technocrats that authored the PIB and delivered the industry wholly in the hands of new set of efficient leaders sourced from the private sector.


– Sopuruchi Onwuka

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