An Assessment of Performance of Marginal Oil and Gas
Fields - A case of Nigerian Operators
There are thirty marginal fields whose ownership structure is either soleoperatorship or joint-partnership according to data from Department of
Petroleum Resources (DPR). Out of these thirty, only twelve have made the
list of producing fields according to Nigerian National Petroleum Corporation
(NNPC) monthly oil and gas statistics bulletin of August 2015.
In February 2003, the Federal Government of Nigeria issued twenty-four
marginal field licenses to thirty-one Nigerian companies. These marginal fields
are the oil and gas fields that were discovered by multinational oil companies
but
subsequently
abandoned
due
to
unattractive
economics.
The
multinationals considered such fields to be economically unattractive because
of low reserve volumes. The intention of the Federal Government was to use
marginal field as a means encouraging indigenous companies to participate in
the upstream sector of the oil and gas industry. Unfortunately, thirteen years
after the issuance of these licenses some of the operators are yet to produce
a barrel of oil from their allocated marginal field. Access to finance, technical
competence and operational experience are highlighted by industry experts
as reasons why some operators have not been able to produce. However,
some marginal field operators are able to produce from their allocated field
despite all the challenges.
In this report, a brief review of progress made by the operators of producing
marginal field is presented and some learnings are highlighted.
Energia Limited was incorporated in 2001 by a group of eight indigenous
service and technology providers. In 2003, Energia and Oando Petroleum
Development Company (OPDC) were awarded Ebendo marginal field-OML
56 originally owned by Total. Energia is the operator of the field with 55%
equity interest while OPDC holds the remaining 45%. The company achieved
first oil in December 2009 following a successful re-entry of Ebendo-1 well.
The production from this well was achieved using early production facility
(EPF) which was later upgraded to a standard 10,000 barrel per day (bpd)
crude oil processing facility. The initial crude oil produced from the field was
transported by tankers to the common injection hub at Umusadege for export.
The revenue generated was used for constructing 8.5 km export pipeline. In
2011, Energia in partnership with Xenergi completed the installation of a 30
mmscfd gas processing plant under build, own and operate (BOO) model so
as to handle produced gas from the field. According to the data published by
NNPC, total oil and gas production of 157,598 bbls and 929,046 mscf
respectively was achieved from Ebendo field in August 2015.
Midwestern Oil & Gas Company Limited is jointly owned by a group of
Nigerian entrepreneurs and the Delta state government. Midwestern is the
operator of Umusagede marginal field-OML 56, an onshore in northern part of
Delta State. The field was awarded to Midwestern and SunTrust Oil Ltd DPR
on 70% and 30% equity interest respectively during the 2003 marginal fields
bid round. Mart Resources was appointed as the technical and financial
partner. The company achieved first oil from the field in April 2008 at
production rate of 3000 bpd following the re-entry of the well that was drilled
1974 by Elf. Since then, production has been rapidly increased to about
25,000 bpd following the drilling of 15 oil wells. According to the data
published by NNPC, total oil and gas production of 557,197 bbls and 256,005
mscf respectively was achieved from Umusagede field in August 2015.
Midwestern seems to be one of the most successful marginal field operator.
The company and its partners founded Eroton, a company that acquired 45%
stake in OML 18, one of the divested assets of Shell. In fact, Midwestern have
also acquired the shares of Mart Resources in March 2016 for $89.2 million.
Oriental Energy Resources Limited was founded in 1990 by Alhaji (Dr.)
Muhammadu Indimi. The company was awarded the sole operating right of
Okwok (OML 67) and Ebok (OML 67) marginal field in 2006 and 2007
respectively. Okwok and Ebok are offshore fields which were discovered by
ExxonMobil/NNPC in 1967 and 1968 respectively. The DPR awarded these
marginal fields as a compensation to Oriental for losing part of OML 115 to
Equatorial Guinea due to international boundary adjustment. In 2008, Oriental
entered into financial and technical service agreement (FTSA) with Afren
Energy Resources of UK to appraise and develop Ebok field. The field is
estimated to contain 116 mbbls of oil (proven and probable reserves). The
coming of Afren saw aggressive field development that culminated to
achieving first oil in 2011 and completion of full field development programme
with 14 wells in 2012. Ebok field is the highest producing marginal field in
Nigeria with gross oil of 888,251 bbls and 381,832 mscf of gas according to
NNPC database of August 2015. In December 2015, Oriental reclaimed full
financial and technical responsibility of Ebok field following the insolvency of
Afren. The Okwok field was expected to achieve first oil in 2015 but as the
time of writing this report, there was no any information in that regards.
Niger Delta Exploration & Production Plc (NDEP) is an integrated oil and gas
company founded by Late Chief Godwin Aret Adams in 1992. NDEP was
formally awarded 100% operating right of Ogbele (OML 54) in the 2003
marginal fields licensing round. Though the journey started in August 2000
when the company signed a farm-out agreement with Chevron/NNPC JV. The
field was discovered by Chevron/NNPC in the ‘80s. NDEP raised initial capital
through equity contribution from shareholders and loan from Intercontinental
bank. The company embarked on field development programme in 2004 and
achieved first oil in August 2005 by using the expertise of indigenous service
companies and contractors. The company have multiplied the success of
Ogbele marginal field and rapidly expanded its business by acquiring interest
in OML 53, OML 34 and OPL 227 and even entered South Sudan market as it
has signed a JV with Sudan National Petroleum Corporation. In the 2015
company’s report, the chairman of the company, Mr Goodie Ibru, stated that,
the company produced a total of 1.40 million bbls in 2015. NDEP is now the
only company in Nigeria with a mini refinery in full operation. In 2015, the
company showed commitment to clean environment by endorsing the Zero
Routine Flaring initiative of the World bank.
Platform Petroleum Limited was founded in 2001 by 15 professional across
the oil and gas industry. The company was awarded the sole operating right in
Egbaoma marginal field (OML 34) in the 2003 marginal fields licensing round.
Egbaoma field which was one of Shell/NNPC JV abandoned assets is located
onshore in Delta state. In 2005, Newcross Petroleum, an indigenous company
acquired 40% equity interest in Egbaoma field from Platform and became the
financial and technical partner. Platform achieved first oil from Egbaoma in
November 2007. The company is credited to be the first among its peers to
sign an agreement with a local financial partner. The company has built and
commissioned 10,000 bbl per day Flowstation, 32 km/ 16 km of 6”/8” crude Oil
export pipeline, 30 mmscfd gas plant and 20,000 bbls storage capacity. Data
available on NNPC website at the time of writing shows that gross oil and gas
production in August 2015 was 54,751 bbls and 623,434 mscf respectively.
Waltersmith is the operator of Ibigwe marginal field (OML 16). The field was
awarded during the marginal field licensing round on a joint equity interest
basis with Waltersmith holding 70% and Morris Petroleum limited, 30%. In
2004 Waltersmith signed a farm-in agreement with the leaseholder
Shell/NNPC JV for a proper take-off. Ibikwe is an onshore field located in Imo
state with a proven reserved of 24 million bbls and 120 billion standard cubic
feet of gas. First oil at the rate of 500 bpd was achieved in March 2008 with
the use of early production facility (EPF) which was later upgraded to a
Flowstation. In 2013, Abdulrazaq Isa, the CEO of Waltersmith said that the
company has completed the phase 1 of Ibikwe development at a cost of $180
million. In April 2011, Waltersmith joined three other indigenous operating
companies to form a special purpose vehicle (SPV) and acquired 45% equity
interest in OML 34 at $600 million from Shell and its joint venture partners. In
2014, the company raised $50 million to build a 5,000 bpd refinery at the
Ibikwe field, an effort the company believed would cushion the effect of
disruption of crude oil export due to frequent vandalism of its crude oil export
pipeline. Data available on NNPC website at the time of writing shows that
gross oil and gas production in August 2015 was 164,741 bbls and 100,633
mscf respectively.
Brittania-U like many other marginal field operators was awarded the sole
operating right of Ajapa marginal field in the 2003 marginal field licensing
round. Ajapa field which is part of OML 90 is located offshore in 30 ft of water.
In 2004, Brittania-U, formally signed farm-out agreement with the leaseholder
Chevron/NNPC JV. In 2006, Syntroleum Inc acquired 40% equity interest in
Ajapa field and was appointed as the technical partner. Brittania-U secured
$70 million loan from Union bank and funded its portion of equity while its
partners contributed $50 million; with this capital, the first phase of field
development commenced in 2007. The company achieved first oil in January
2010. In November 2011, the company bought back the 40% equity held by
Syntroleum Inc using a $48 million loan from First bank of Nigeria. As at the
time of writing this report, the production volume from Ajapa field was not
available.
Prime Exploration and Production Limited is the operator of Asaramatoru
marginal field which is part of OML 11. The marginal field was originally
allocated to Prime Energy Resources and Suffolk Petroleum Services Limited
on 51/49% equity stake with the former as the operator. Prime Energy
Resource subsequently transferred its operatorship to Prime Exploration and
Production Limited. Asaramatoru marginal field is an onshore field in River
State with Shell/NNPC and JV partners as leaseholder. The field is estimated
to contain a recoverable reserve of 28 mbbl of oil and 2.7 bscf of associated
gas. In 2013, the company embarked on the first phase of field development
programme which was the re-entry and completion of two oil wells that were
previously abandoned by Shell. The company achieved first oil in 2014
following the success of first phase of the field development programme. As of
August 2015, the company’s total oil and gas production was 25,013 bbl and
23, 838 mcsf respectively.
Pillar oil Ltd is the operator of Umuseti marginal field in OML 56. The marginal
field was awarded to the company on 100% participation interest during the
2003 marginal field licensing round. In September 2004, the company
concluded the takeover of the field following the signing of the farm-out
agreement with the former owners- Elf/NNPC. The company was able to
achieve first oil in 2009 following re-entry of one of the oil wells abandoned
several years ago by Elf Nigeria. The oil from this well was produced into the
company early production facility (EPF) and transported through its 6.5 km
pipeline to a central metering facility for export. The company subsequently
raised $28 million and drilled additional well. Full production from the field
commenced in May 2012 using the EPF. In June 2013, Pillar Oil sold 40%
participating interest in Umuseti field to Newton Energy Limited (A subsidiary
of Seplat) at a cost of $50 million. According to the April 2016 interim financial
result reported by Seplat, the $50 million was paid to Pillar Oil in June 2014.
Available data indicates that total production of oil and gas from Umuseti
marginal field in August 2015 was 97,928 bbls and 28,060 mscf respectively.
Frontier Oil was incorporated in 2001 and won Uquo Marginal field OML 13
during the 2003 marginal field licensing round. Uquo, an onshore field in
Akwa-Ibom state was discovered by Shell in 1958. Shell formerly handed over
the field to Frontier in November 2004 following the signing of the farm-out
agreement. In 2006, Frontier entered into joint venture with Gulf of Guinea
Energy (GOGE) on the basis of 60/40% participation interest. However,
Severn Energy took over the 40% participation interest in Uquo marginal field
following the acquisition of GOGE in May 2009. In an effort to monetized the
gas from the field, Frontier have signed gas supply agreement with Seven
Energy to supply gas to Ibom and Calabar Power plant respectively. In 2012,
Frontier became the operated of 35, 000 bopd crude oil delivery infrastructure
owned by FUN Group (which is a joint venture by three marginal field
operators namely: Frontier, Universal Energy Resources Limited and Network
Exploration and Production Nigeria Limited). The group entered into crude
handling as well as crude sales and purchase agreement with ExxonMobil.
Frontier own and operates a 200 mmscf/d plant on the Uquo gas field. The
company have successfully grown it gas supply agreement from one in 2013
to four in first quarter of 2015. Data from NNPC shows that total crude oil and
gas production from Uquo marginal field at the end of August 2015 was 21,
938 bbls and 2,530,740 mscf respectively.
Network Exploration and Production Nigeria (NEPN) Limited was awarded
100% ownership of Qua Iboe field during the 2003 marginal fields licensing
round but production from the field did not commence until March 2015 with
initial production at rate of 2150 bpd. The field which is located onshore near
the mouth of the Qua Iboe River in Akwa Ibom State was a farm-out from
OML 13 held by Shell. The field is estimated to contain 11.3 mmbbl of oil
(proven and probable reserves). In 2008, NEPN entered into finance and
technical Service agreement (FTSA) with Mart Resources of Canada.
However, the partnership between the two companies was aborted in 2012.
Oando Exploration and Production Limited (OEPL) in 2012 acquired 40%
participating interest in the Qua Iboe field from NEPN and became the
technical and financial services partner. The partnership between Oando and
NEPN brought a dramatic turnaround as within three years, three new wells
were drilled, crude oil processing facility, pipelines and crude oil sales
infrastructure constructed. The data published on NNPC website indicates
that production at Qua Iboe field in August 2015 was 73,576.00 bbls.
Universal Energy Resources Limited is the owner of Stubb Creek field. The
company was awarded 100% ownership of the field following the marginal
field licensing round in 2003. The field is estimated to contain 20 mmbbl oil
and 450 bcf of gas (proven and probable reserves). Seven Energy
International Limited has 62.5% equity interest in Universal Energy following a
successful acquisition in 2010. Sinopec International Petroleum Exploration
and Production Company (Nigeria) Ltd was appointed by Universal Energy as
the technical partner and has 49% interest in the Stubb Creek field. The first
oil from the field was achieved in February 2015 with an initial gross
production rate of 2000 bpd using early production facility. The oil from the
field is transported to the Quo Iboe export terminal through a newly
constructed 23 km pipeline.
What could be learnt from these performing marginal field operators
• Almost all the above companies achieved their first oil by re-entering
an existing oil well that was abandoned by the original leaseholder.
They used early production facility (EPF) to process the crude oil. They
even used road trucks to evacuate the produced oil (Example,
Energia). They used the the ‘poor boy’ approach to generate quick
cash and woo financial partners. This portrayed seriousness which
make their business attractive for local banks.
• Collaboration through the use of common crude oil export facilities is a
critical success factor for some of the operators. The case of FUN
Group represents perfect example of collaboration that brought benefit
to all the parties involved.
• Above average corporate social responsibility is key to peaceful
operation
• Those companies are able to access funds and technical support
through strategic partnership arrangements
• Well organised management team
• Excellent financial management and credibility that saw some of the
operators buying the shares of their foreign technical and financial
partners. The case of Brittania-U and Midwestern is good example
• Quick access to loan plus, equity contribution from shareholders,
money from foreign partners (juicy field, less risky)