See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/321586751 OVERVIEW ON THE EMERGENCE OF MARGINAL OIL FIELDS IN NIGERIA AND THEIR CONTRIBUTION TO THE COUNTRY'S OIL PRODUCTION Article · December 2017 CITATIONS READS 2 5,728 2 authors, including: Adava Godwin Rivers State University of Science and Technology 3 PUBLICATIONS 6 CITATIONS SEE PROFILE All content following this page was uploaded by Adava Godwin on 06 December 2017. The user has requested enhancement of the downloaded file. OVERVIEW ON THE EMERGENCE OF MARGINAL OIL FIELDS IN NIGERIA AND THEIR CONTRIBUTION TO THE COUNTRY'S OIL PRODUCTION EZE, C. L., GODWIN A. C., AND DOMINIC E. U. ABSTRACT The Federal Government of Nigeria initiated the development program of the Marginal Oil Field to increase production, reserves, employment, and indigenous participation in oil and gas business. Between 2000 and 2010, 30 marginal fields were farmed out to indigenous oil companies by the multinational oil companies. As at 2016, only 10 of the fields have been put into production. The marginal fields began production in 2005 with an output of 141,028 barrels which represented less than 0.02% of the country's production. This increased to 0.09% in2006. In 2007,the production significantly dropped to 0.054%. In the following years, there was increase in the number of producing companies with a corresponding increase in production. By 2014, nine marginal field operators were contributing about 2.46% of Nigeria total oil production. More than 66% of the marginal fields have not started production more than 10 years after the fields were acquired. Keywords: Marginal field, stripper wells, Oil production, Farmor, Farmee 1. Introduction The Petroleum Act of Nigeria 1996 paragraph 16A defines Oil Marginal Fields as "such fields as the president may from time to time identify as marginal". This definition which does not place much emphasis on the technical and economic factors that defines an oil field asa marginal field gives the impression that the president can 'create' marginal fields. The Guidelines on farm-out and operation of Marginal Fields (2013) defines marginal fields as "any Field that has reserves reported annually to the Department of Petroleum Resources (DPR) and has remained unproduced for a period of over 10 years". Marginal field has been defined as a field which given economic situation is unprofitable(Peter, 2001). However, with passage of time and change in technical, local or economic situations, such fields can become economically viable.Marginal oil wells also called stripper wells require unique field development and reservoir management strategies in order to yield good returns on investment. This makes development costs very high which is a typical characteristic of a marginal oil field. The Conditions That Make Marginal Field The conditions that could make an operator declare a field marginal at any given time are multiple but often include size of reserve, remoteness of field, technological constraints, environmental concerns and price instability. Size of Reserves Some oil fields are considered marginal fields based on the smallness of the reserve; they are considered too small for production to be economically viable by large multinational oil 229 Nigerian Journal Of Oil And Gas Technology - Vol 2 No. 1 companies. Development of small fields is often challenging, as they need the same expensive infrastructure as large fields, while the expected revenue streams are smaller due to the smaller reserve sizes.What is considered small reserve by one oil company may not be considered small by another company depending on the capacity of the company and also the availability or nonavailability of bigger reserves. In the U.S. basin 48, very small fields with an Estimated Ultimate Recovery(EUR) of only 1 million barrels are defined by the American Association of Petroleum Geologists as significant fields, but such discoveries would be abandoned as noncommercial or left undrilled in many foreign countries (Ivanhoe and George, 1993). Remote Location Oil fields located in very remote areas often lack infrastructure such as roads, power, communication and others in the immediate environment. Operators prefer the fields with some level of existing infrastructures. Based on the huge financial and time investments required to put the necessary infrastructures in place, owners of these fields often put them out as marginal fields. The logistics problems of supporting exploration and exploratory drilling in remote locations of the world have been well publicized recently. From the experience gained from the development of Prudhoe Bay field,Heimer et al., (1978) noted that a problem being recognized more frequently and requiring particular attention is that remote-location logistics do not end with exploration and drilling. Installation of production facilities poses problems just as production facilities poses problems that are intricate, potentially expensive, and difficult to solve. The health of workers stationed in remote locations, where access to health care is limitedis of special interest (Aalund, 1996., Shrimpton and Storey, 1996). Technological Constraints Oil field that requires unconventional technological requirement for exploitation is considered not economically viable. Such oil field may be termed marginal but new technological innovations may alter the situation.The Buchan oil field in the central North Sea was considered a very risky field operationally, and was expected to be abandoned after five years (Mieras, 1984). However the development of new technology made it possible for the field's recoverable reserves to be explored for longer time. In India, 67 small oil field blocks were discovered, but were not developed due to their technological and geological constraints. High Environmental Concerns Generally, oil fields attract some significant environmental concerns. However, oil fields that have high level of environmental concerns may be termed marginal. These factors largely affect the return on investment. Oil operation in offshore, extreme weather events and high security areas require increased risk mitigation to address financial, human safety and environmental threats. In developing oil fields in high environmentally concerned areas, the oil and gas industry usually prepares for the safety of the personnel and equipment to prevent losses. Drilling safely and responsibly is sure to raise the cost of producing oil in these areas. Oftentimes, the threat of 230 Overview On The Emergence Of Marginal Oil Fields In Nigeria And Their Contribution To The Country's Oil Production natural disasters forces the industry to evacuate drilling rigs and to cease production temporarily. In the event of earthquakes, cyclones and hurricanes etc., losses are inevitable. Though, production is not lost but temporarily delayed. However, the economic value of these disruptions hinge on the lost revenue of delayed production discounted for the time value of money. In 1992, Hurricane 'Andrew' destroyed 13 offshore oil and gas production platforms, 4 of which disappeared without a trace. Besides, 40 more platforms were damaged, and 5% of the natural gas supply in the United States was temporarily lost (McDonald, 1992). In 2005, Hurricane 'Katrina' sustained a wind-speed of 175 mph which destroyed 50 offshore oil platforms and drilling rigs, and damaged SPDC's 36,500-ton Mars platform, the top producer in the Gulf of Mexico, which cost about $1 billion to build (Frank, 2010). In 2013, EF-5 tornado struck an oil production site; four oil tanks were reported blown away, one of which was not found. The others were thrown considerable distances, one of which was found a mile away (Simmonset al., 2013). Besides, in Alberta Wildfire of 2016, a quarter of Canada's oil production, equal to approximately one million barrels of oil a day, was halted as a result of the fire. The fire destroyed the oil production camp. The loss output is estimated to cost the Albertan economy $70 million per day, and may have been a contributing factor to rises in global oil prices(Robinne et al., 2016). Loss of personnel, oil spills, and destruction of oil field structures coupled with the cost of repairs, frequent evacuation and remobilization in cases of false alarm or actual event of natural disaster make drilling and production activities in these environments less economically viable. However, for a small oil field that is not worth the venture with respect to cost of operation in these highly environmental concerned areas, the field could be abandoned and declared marginal. Price Instability Low price and price instability of the produced oil make the cost of production from these small fields expensive and economically less viable. A field that is not regarded as marginal at a given oil price may become marginal at a lower oil price. No company will continue to produce without profit. The only option left for the oil and gas industry in the event of price fall is to increase production; where this is not possible, given the small size of oil reserves the industry resort to shutting-down producing wells and the fields may be final classified as marginal. In the 1980s oil price collapse, many marginal wells were shut down especially in United State of America, and when the price revived majority of these wells were again put to production. In 2015, low oil prices brought an abrupt halt to the wild pace of drilling globally. Most oil companies came under pressure to stop production and consequently abandon their oil wells due to fall in oil prices. 231 Nigerian Journal Of Oil And Gas Technology - Vol 2 No. 1 Insecurity Security is another factor that determines the marginality of an oil well. The attack on oil facility and crew members have increased by the day in Nigeria. Support vessels have been severally attacked and crew members kidnapped for ransom.Shut-in of crude oil production is a common feature due to insecurity. Production are lost, facilities damaged, workers attacked(both offshore and onshore), oil companies shut down wells and economic viability of the oil fields in this area is drastically ebbing away. Pirates and militants have attack drilling rigs, such that some multinational oil companies operating in the country have suspended their activities on land, swamp and shallow offshore and have moved deeper offshore where they perceive that the risks are very minimal. This is made possible by the government's introduction of deep offshore block allocation in 1993. If the abandoned oil fields remain without development activities for ten years they would have technically become marginal fields. According to NNPC 2014 report, pipeline vandalism increased by 4.54% during 2013 production year. In the report, a total of 3,700 lines were vandalized, resulting in a loss of about 355.69 thousand metric tons of petroleum products worth about 44.75 billion naira. Between 2014 and 2015 about 4,000 oil theft and vandalism attempts were reportedat the various products pipelines across the country (Njoku, 2016). 2. Nigerian Marginal Oil Fields Niger Delta Petroleum Resources was the first company in Nigeria to be awarded a marginal field in 2000. In 2001, the Nigerian government introduced the Marginal Field program with the aim of increasing indigenous participation in the upstream sector of the industry. The government provided a guideline that allows only indigenous oil and gas companies ("IOCs") to apply for or operate Marginal Fields; these companies arealso permitted to have foreign technical partners with fair participation of less than 40%. The first major marginal field bid round was in 2003 where 24 marginal fields were awarded to 31indigenous oil companies. That same year Niger Delta Petroleum Limited acquired Omerelu Field to which it was granted right of first refusal in 2000. Afterwards, other marginal fields were awarded and they include among others Okwok in 2006, Ebok in 2007, Otakikpo and Ubima in 2010. About 31 onshore and offshore fields were supposed to have been put up for sale. This has however not taken place even as at 2016. Table 1: List of Farmed Nigerian Oil Marginal Fields (DPR, 2016) S/N Field OML Farmor Farmee 1 Egbaoma* 38 SPDC 2 Asaramatoru 11 SPDC 3 4 Atala Eremor 46 46 SPDC SPDC 5 Ibigwe* 16 SPDC Platform Pet. Corp Ltd Prime Energy Sufolk Pet. Bayelsa Oil & Gas Excel E&P Services Walter Smith Petroman Oil Ltd. Morris Petroleum Ltd. 232 Percentage Ownership 100 51 49 100 100 70 30 Year of Farming 2003 Terrain Land 2003 Swamp 2003 2003 Swamp Swamp 2003 Land Overview On The Emergence Of Marginal Oil Fields In Nigeria And Their Contribution To The Country's Oil Production 6 7 8 Ofa Oza Qua Ibo 30 11 13 SPDC SPDC SPDC 9 Stubb Creek 14 SPDC 10 Tom Shot Bank 14 SPDC 11 Tsekelewu 40 SPDC 12 Uquo* 13 13 Ororo 95 14 Akepo 90 15 Ogedeh 90 16 Ajapa* 90 SPDC Chevron Nigeria Ltd Chevron Nigeria Ltd Chevron Nigeria Ltd Chevron Nigeria Ltd Chevron Nigeria Ltd Chevron Nigeria Ltd Chevron Nigeria Ltd 17 Dawes Island 54 18 Ke 54 19 Oriri 88 20 Ekeh 88 21 Umusadege* 56 Chevron Nigeria Ltd Elf Petroleum Nigeria Ltd 22 Ebendo*/Obodeti 56 Elf Petroleum Nigeria Ltd 23 Umusati* 56 24 Amoji 56 25 Omerelu++ 54 26 27 Otakikpo Ubima 11 17 28 Ogbelle* 54 29 Okwok 67 *Already Producing Fields Elf Petroleum Nigeria Ltd Elf Petroleum Nigeria Ltd Chevron Nigeria Ltd SPDC NNPC/ SPDC Chevron Nigeria Ltd Exxon/NNPC Independent Energy Millennium Oil Network E&P Universal Energy Resources Ltd Associated Oil/ Gas Services Ltd Dansaki Petroleum Sahara Energy Ltd African Oil and Gas Frontier Oil Guarantee Petroleum Owena Oil& Gas 100 100 100 2003 2003 2003 Land Land Land 100 2003 Swamp 2003 Offshore Sogenal Ltd Bicta Energy System 51 49 51 49 100 2003 Land/ Swamp Swamp 2003 Offshore 100 2003 Offshore 100 2003 Offshore 100 2003 Offshore 100 2003 Swamp 100 2003 Swamp 100 2003 Offshore Movido E&P 100 2003 Offshore Midwestern Oil &Gas Suntrust Oil Ltd Energia Ltd. Unipetrol Petroleum Ltd. 70 30 55 2003 Land 2003 Land Pillar Oil Ltd 100 2003 Land Chorus Energy Ltd 100 2003 Land Niger Delta Pet. Ltd 100 2003 Land Green Energy Int’l All Grace Energy 100 100 2010 2010 Land Land Niger Delta Pet. Ltd 100 2000 Swamp Oriental Energy 100 2006 Offshore Britania – U Nigeria 2003 Ltd Eurafric Energy Ltd Del-Sigma Petroleum Nig. Ltd Goland Petroleum Development Corp Ltd. 45 ++ Not part of 2003 farm out programme. SPDC – Shell Petroleum Development Company of Nigeria NNPC – Nigerian National Petroleum Corporation Exxon – Exxonmobil 3. The Contribution of Marginal Fields to Total Oil Production in Nigeria (20032014) Twenty four marginal oil fields were awarded to 31 companies in 2003 and presently the fields are at various stages of development, with only nine of the fields currently producing. (Table 1). The marginal fields began production in 2005 by Niger Delta Petroleum Resources Ltd. In that year the production was 141,028 barrels which represented 0.02% of the country's production. 233 Nigerian Journal Of Oil And Gas Technology - Vol 2 No. 1 This increased to 784,278 barrels (0.09% of total production) the following year. In 2007, although the number of producing companies in marginal fields increased by one, the production significantly dropped to 0.05%. In the following years there was increase in the number of producing companies with a corresponding increase in production. However, in 2010, there was a slight drop in production.By 2014, nine marginal field operators were contributing about 2.46% of Nigeria total oil production (Table 2).This contribution is expected to increase as more marginal fields go into operation. More than 66% of the marginal fields have not started production more than 10 years after the fields were acquired. It is expected that if the existing 30 marginal fields are developed, their combined contribution to Nigeria's oil production will increase up to 10%. This will increase further when more marginal fields are farmed out and put into production. COMPAN Y Niger Delta Pet. Res. Platform Petroleum Midwestern Oil Walter Smith Pillar Oil Movido E&P Nig. Ltd. Energia Limited Britani U Rime Exploration Oriental Energy 200 3 200 4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 - - 141,02 8 784,27 8 383,79 5 1,346,66 6 1,580,28 4 1,134,50 8 712,547 407,871 328,968 918,907 - - - - 47,813 898,575 563,263 324,700 423,418 748,627 602,463 759,658 - - - - - 467,811 1,171,89 1 1,165,12 9 2,529,67 3 3,700,14 4 2,978,99 2 - - - - - 134,942 378,461 600,147 633,462 672,309 901,640 - - - - - - 158,445 73,286 - 410,526 534,290 3,481,69 1 1,210,53 9 604,793 - - 81,881 - Total - - - - - - 26,095 279,286 528,334 536,104 719,429 - - - - - - - 226,391 293,904 471,783 250,447 1,400,29 2 448, 891 - - - - - - - - - - - 462, 199 - - - - - - - - 2, 959,422 11, 113,915 12, 948,763 10, 394, 902 - - 141,028 784,278 431,608 2, 847, 994 3, 878, 439 3, 803, 447 8, 080,760 18, 061,279 19, 346,873 19, 681, 872 Source: Calculated from NNPC Annual Statistical Bulletin/Report for 2012 and 2014 Table 3: The Contribution (in barrels) of Marginal Fields to Total Oil Production in Nigeria, 2003-2014 Company Joint Venture CompaniesJVs Joint Venture Companies(Alternative Funding) Prod. Sharing Companies Service Contract Independents/ Sole Risk Marginal Fields Grand Total Marginal Field contribution (%) Year 2003 719,153,258 72,074,662 16,718,964 3,483,966 32,720,079 - 844,150,929 0 2004 722,797,515 121,973,001 24,399,567 3,886,392 37,100,014 - 910,156,489 0 2005 689,111,525 4,317,081 47,171,464 918,966,736 0.02 141,514,419 36,711,219 234 141,028 Overview On The Emergence Of Marginal Oil Fields In Nigeria And Their Contribution To The Country's Oil Production 2006 518,184,570 144,307,081 162,532,458 4,013,954 39,374,165 784,278 869,196,506 0.09 2007 462,888,989 118,579,072 192,621,306 3,932,714 24,547,019 431,608 803,000,708 0.05 2008 471,900,351 70,235,646 195,127,693 3,361,078 25,273,170 2,847,994 768,745,932 0.37 2009 331,554,144 131,497,197 268,792,256 3,237,284 41,388,620 3,878,439 780,347,940 0.50 2010 364,717,172 165,986,773 316,887,117 41,937,495 3,803,447 896,043,406 0.42 2011 348,509,885 173,007,467 289,333,720 2,802,031 44,511,369 8,080,760 866,245,232 0.93 2012 314,740,436 150,238,893 320,434,163 3,056,412 46,245,470 18,061,279 852,776,653 2.12 2013 293,397,551 105,983,982 313,965,407 3,204,453 64,589,836 19,346,873 800,488,102 2.42 2014 256,364,312 140,491,170 320,200,461 3,004,571 58,799,203 19,681,872 798,541,589 2.46 2,711,402 Source: Calculated from NNPC Annual Statistical Bulletin/Report for 2012 and 2014 Conclusions Nigerian marginal field programme has brought indigenous oil companies into the oil business in Nigeria. However, the number of these companies that have failed to commence production more than ten years after acquiring the fields does not give a strong indication that some of the companies have the capability to develop the fields. Currently the marginal fields cannot be said to have made a very significant contribution to Nigeria's oil production. There has also been a slow pace of farming out more fields to interested operators. It is however expected that when more marginal fields are developed, the marginal fields can play a significant role in Nigeria's oil production. REFERENCE Aalund, L. R., (1996). Oil Companies Focus on Emergency Care for Expats in Russia. Oil and Gas Journal, (94)18: 33-36. Department of Petroleum Resource – DPR (2013). Guidelines for the Farm-out and Operations of Marginal Fields. 28p The Department of Petroleum Resources Concessions and Leases Report, 2016,12p Frank, A. (2010). Offshore Oil Drilling and Hurricane Risks: Triple Crisis, 1p Heimer, J. 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