Nigeria’s Deepwaters: Blue Ocean for Investors, Pathway to Industrialization
By Jerome Onoja , Godspower Ike
Nigeria’s deepwater petroleum sector has remained largely unexplored, with only a handful of companies currently making giant strides in the sector. This is irrespective of the fact that the sector holds great opportunities for production and reserves accretion, as well as revenue increase.
This article seeks to explore the Nigerian deepwater space, the many initiatives introduced by government to attract investments into the sector and the numerous opportunities that abound therein.
Nigeria, despite its many efforts, is yet to fully explore the potentials of its deepwater resources, irrespective of the fact that the deepwater sector of the petroleum industry holds vast opportunities for reserves accretion, increased revenue generation and foreign exchange accumulation among others.
In particular, Shell stated that beneath the world’s oceans – in waters ranging from a few hundred to several thousand metres deep – lie vast supplies of oil and natural gas which have the potential to boost economic growth and play a vital role in the future energy mix.
The company disclosed that freezing temperatures, immense water pressure and pitch darkness all make producing oil and gas from deep water a major technical challenge.
However, despite these challenges, the United States Energy Information Agency, EIA, said global offshore oil production, including lease condensate and hydrocarbon gas liquids, from deepwater projects reached 9.3 million barrels per day (b/d) in 2015.
According to the EIA, deepwater production, or production in water of depths greater than 125 meters, had increased 25 per cent from nearly seven million barrels per day a decade ago.
It stated that shallow water had been relatively less expensive and less technically challenging for operators to explore and drill, but changing economics and the exhaustion of some shallow offshore resources had helped to push producers to deepwater or, in some areas, ultra-deepwater (at depths of 1,500 meters or more) resources.
It explained that the share of offshore production from shallow water in 2015 was 64 per cent, the lowest on record, while globally, offshore oil production accounted for about 30% of total oil production over the past decade.
In 2015, it noted that offshore production was 29 per cent of total global production, a moderate decrease from 32 per cent in 2005.
The EIA also disclosed that advancements in drilling technology, dynamic positioning equipment, and floating production and drilling units have made prospects viable that were previously unreachable.
It said, “Although technological advancements have made new areas accessible, deepwater projects require more investment and time compared to shallow waters or onshore developments. As a result, most nations with offshore assets operate only in shallow water.
“In areas with deepwater operations, production has grown significantly, and in many cases overtaken shallow-water production. The majority of deepwater or ultra-deepwater production occurs in four countries: Brazil, the United States, Angola, and Norway. Each of these countries has realized an increasing share of crude oil production from deepwater or ultra-deepwater projects over the previous decade. The United States and Brazil together account for more than 90% of global ultra-deepwater production, with ultra-deepwater production expected to increase in 2016 and 2017 in both countries.”
The EIA said Brazil leads the world in the development of deepwater and ultra-deepwater project, and had increased deep and or ultra-deepwater production from 1.3 million barrels per day in 2005 to 2.2 million barrels per day in 2015.
An increasing amount of Brazil’s production, according to the US agency, comes from presalt resources found under thick layers of salt at extreme depths.
The EIA also noted that the coast of Angola shares similar geologic features with the coast of Brazil because of the separation of the African and South American tectonic plates during the Early Cretaceous period, around 150 million years ago, adding that these geological similarities have led producers in Angola to target several major basins for presalt exploration.
In Nigeria, according to the Draft National Petroleum Policy, from the very beginning of oil exploration in 1937 until early 1993, virtually all exploration and production activities were restricted to land and swamps.
It stated that where prospecting ventured offshore, it was in areas not greater than 200 meters water depths.
To address this, the Nigerian Government opened up a new frontier in oil and gas exploration, heralding the bright prospects of a promising future, by allocating some offshore blocks in water depths reaching 2,500 metres.
It noted that these deep-water depths and plans for depths even greater than 2,500m would undoubtedly impact positively on the country’s production and reserves.
It added that although these deep-water operations are technically challenging and very capital intensive, experienced multinational companies had been awarded some deep offshore blocks and even ultra-deep concessions.
In its bid to unlock Nigeria’s potentials in Deep water, Shell Nigeria Exploration and Production Company Limited (SNEPCo), which carries out Shell Companies in Nigeria’s offshore activities, is drawing on Shell’s global industry-leading deep-water expertise as well as its Nigerian engineers and technicians to deliver safe, world-class and economic projects that provide jobs and training for local people.
The company said the deep waters of the Gulf of Guinea hold rich oil and gas resources, stating that tapping into these fields will deliver vital energy to help meet growing energy demand in Nigeria and beyond.
Over the past decades, according to SNEPCo, industry-wide production from deep-water fields had added more than 800,000 barrels per day to Nigeria’s total oil output, which currently stands at around 2.1 million barrels per day.
The Nigerian Government via its short and medium term priorities aimed at the development of Nigeria’s oil and gas sector, termed the ‘7 Big Wins’, has set ambitious targets to increase total oil production in the next few years with a plan to significantly increasing deep-water exploration and production.
Currently, there are a number of deepwater projects going on or about to commence in the country, while a number of the projects had been concluded and had started producing.
It was reported that the offshore market in Nigeria had been around $12 billion from 2010 to 2012 with Usan (ExxonMobil), Bonga (Shell), Akpo (Total) and Agbami-Ekoli (Chevron) being major projects, among others.
The Nigerian Oil and Gas Journal disclosed that from 2012 to 2014 the market grew to $17 billion, with an expected decline in 2016.
In later years’ projects like Egina, Bonga-Southwest- Aporo and Etan/Zabazaba are expected to drive investments to a level of $20 billion. Producing fields were estimated to account for half of the offshore market in Nigeria from 2016, with the largest being Agbami-Ekoli, Bonga, Usan, Akpo and Erha (ExxonMobil).
Major international oil companies present offshore Nigeria are ExxonMobil, Shell, Chevron, Total, and Eni. ExxonMobil is currently developing future phases of the producing Erha field. Shell has two projects, the Forcados Yokri redevelopment and the large Bonga Southwest project. Total is currently developing the Egina field and Eni’s Etan/Zabazaba field is expected to come on-stream before 2020.
In addition, Chevron and several smaller exploration and production (E&P) companies have smaller new projects expected to be initiated before 2020.
Some of the projects, which are scheduled to come on stream in 2020, are Bonga Southwest and Aparo, with a capacity of 225,000 barrels per day (bpd); and Bonga North, with a capacity of 100,000bpd, all belonging to Shell.
Others are Eni’s Zabazaba-Etan, 120,000bpd capacity; ExxonMobil’ s Bosi, 140,000bpd; Satellite Field Development Phase Two, 80,000bpd and Uge 110,000bpd; and Chevron’s Nsiko, with a 100,000bpd capacity.
Zabazaba/Etan, which is Oil Prospecting License (OPL) 245 is located on the southern edge of the Niger Delta, in water depths ranging from 1,700 to 2,000 metres and is operated by Eni.
The block holds significant discovered hydrocarbon reserves and is thought to be very prospective, with two oil and gas discoveries already made on the block. Etan and Zabazaba were discovered in 2005 and 2006 respectively.
Eni plans to develop the Etan and Zabazaba fields in phases with subsea wells tied-back to a leased floating production, storage, and offloading (FPSO) vessel. The project is currently in the early tender phase,
The first phase of the development is expected to use a Floating, Production, Storage and Offloading vessel (FPSO) on the Etan field and the second phase an FPSO on the Zabazaba field. The converted Etan FPSO will have a capacity of 120.000 barrels per day. The project is anticipated to entail investments of around $10 billion with potential startup of Etan in 2018.
Bonga Southwest/Aparo (BSWA) field is located in the Gulf of Guinea offshore Nigeria. The field location is about 130 kilometers offshore in water depths of 1160 metres to 1340m. The field straddles OML 118, 132, 140 block boundaries, while the host facilities would be located in OML 118.
Existing infrastructure around the area is at Bonga Main, which is some 19km Northeast of BSWA, but offers limited synergy. The project objective is to produce about 800 million barrels, developed in two phases (Phase 1 + 2) over 25 years.
The operator, Shell Nigeria Exploration and Production Company, SNEPCO, said the Front-End Engineering Design (FEED) and detailed engineering of the project is to be performed in-country, with 50 per cent of the topsides modules (by weight) to be fabricated in-country and the FPSO integration also to be performed in-country.
The $12 billion project by Shell was initially planned to reach final investment decision in 2015/2016 with first oil expected in 2020/2021. The project is now facing indefinite delays as commercial bids for contracts related to FPSO and subsea work were too high, and will be retendered. Uncertainties in the fiscal framework are also highlighted as a reason for a possible project delay.
However, Shell is optimistic of reaching a potential final investment decision earliest in 2017. The development concept comprises an FPSO unit with nameplate oil processing capacity of 225.000 bblpd of oil and 270 million cubic feet per day of gas. The field will also need a 44-well subsea production system.
Another major deepwater project in Nigeria is the Egina project. Located some 130km off the coast of Nigeria at water depths of more than 1,500 metres, the Egina oil field is one of Total Nigeria’s most ambitious ultra-deep offshore projects.
For the most part, the company said the project is being developed locally to accelerate the pace of technology transfer and expand the local industrial fabric.
The projected production capacity of the Egina field is 200,000 barrels per day and the expected date of commencement is 2018. Total, which is the operator of the field, owns 24 per cent interest in the field and its partners in the project are CNOOC and Petrobras Sapetro.
Total said it began the drilling program on the Egina field in December 2014, stating that this intense project will keep two rigs busy for a total of 3,000 days.
It added that five out of the planned 44 subsea wells have already been drilled, at water depths of between 1,400 m and 1,700 m, and 13 more will be completed when the field comes on stream.
It said the wells would be connected, using umbilicals and risers, to an FPSO designed to hold 2.3 million barrels of oil.
Meanwhile, Intsok, a Norwegian oil and gas firm, in a report titled, ‘Nigeria offshore Market Report 2016 to 2020,’ said the largest producing fields in 2014 were Agbami-Ekoli, Bonga (main field), Akpo, Usan, Erha and Ubit.
These fields, the company said, are expected to provide the majority of production towards 2020, adding that in 2020, fields currently under development are expected to constitute 25% of the offshore production in Nigeria.
According to the report, the largest contributors are the projects Egina, Sonam, Forcados Yokri (redevelopment) and Erha Satellite development.
It stated that Samsung and Ladol contracted for the Egina FPSO, is planning to invest in a yard dedicated to integration of floating production vessels in Nigeria.
However, it said, “The future of large new investment projects in Nigeria remains uncertain as a result of the legislative stand-still in the country, the security situation and demanding local content requirements. Relatively few new large projects are expected to reach FID before 2020.
“The main projects are Bonga-Southwest-Aparo and Etan/Zabazaba. The projected start-up date for many of the new projects has been pushed out in time because of the uncertainties mentioned above.”
Managing Director of Aiteo, Mr. Chike Onyejekwe, stated that Nigeria’s deepwater potentials is capable of generating about $3 billion yearly, besides producing up to 600,000 barrels per day and 200,000 jobs, which is equivalent to growing the oil and gas industry by 30 per cent.
He estimated that the deepwater operators are spending over $5 billion yearly, hence the need for a fair legislative document that would encourage further investment in the sector.
A top official of SNEPCo, Stefan Vos De Wael stated that, with the huge potential posed in the deepwater basins in Nigeria, the IOCs are planning to invest about $165 billion into the industry in the next five years.
According to him, the investment will go into new oil and gas development and infrastructure that would boost production and development of industries’ competences.
The United States Energy Information Administration (EIA), stated that IOCs participating in onshore and shallow water oil projects in the Niger Delta region became affected by the instability in the region, forcing a general trend for IOCs to sell their interests in onshore oil projects. Some of the already divested blocks include Oil Mining Licences (OMLs) 3, 38, 41, 26, 30, 34, 40 and 42. Other which would have gone at the time of this report include: OMLs 13, 16, 25, 60, 61, 62, 63, 131 and OPL 214. Today, our estimates put oil block ownership by Nigerian companies at over 100 while ownership of marginal fields by Nigerian companies is over 30.
Shell had stated that oil theft incidents in the country has cost it an estimated $700m, a figure hotly disputed by the federal government and the NNPC. Overall, many of the assets being sold are mature assets onshore the Niger Delta region, which are naturally more vulnerable to operational and security problems in the region.
To further drive the development of deepwater projects, Nigeria’s Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, had commenced a series of roadshows to various countries in a bid to mobilize investment in the Nigerian petroleum industry, especially in deepwater projects.
Kachikwu said the roadshows are aimed at raising bulk funds for the Federal Government through successful leveraging of some of the country’s oil assets, raising investments through positive policy mixes and opening of all sectors to greater private sector participation and funding.
Kachikwu also said the key target was to raise $5 billion in the short term, within 1 year, and $15 billion to $20 billion in the mid-term, between two and three years.
To achieve this, Kachikwu said the Federal Government is seeking to cut contract approval times from two years to three to six months, while he said the government hopes to reduce strangle hold on oil sector by the Federal Government and cut down over supervision.
Kachikwu’s visit to China saw the signing of a memorandum of understanding (MOU) worth over $80 billion, between the country and Nigeria. The funds were earmarked to be spent on investments in the upstream sector, as well as in other areas, such as in oil and gas infrastructure, pipelines, refineries, power and facility refurbishments.
In another visit to India, Kachikwu was able to secure a $15 billion investment for the country. Both countries agreed to work on a Memorandum of Understanding to facilitate investments by India in the Nigerian oil and gas sector and specifically in areas such as Term Contract, participation of Indian companies in the refining sector, oil and gas marketing, upstream ventures, the development of gas infrastructure and in the training of oil and gas personnel in Nigeria.
Kachikwu also visited Italy, where where he got commitment from Italy to invest in refining in Nigeria and also in other sectors of the economy.
He met with the Ministers of Foreign Affairs and Economic Development of Italy to formalize the new trend of cooperation between oil majors and Nigeria and also met with 10 other oil and gas companies in Italy to further expand the partners of investments in Nigeria’s Oil and Gas sector.
In his latest investment drive, Kachikwu visited ExxonMobil in the United States, where he secured the commitment of the company to increase its investment in Nigeria.
However, investing billions of dollars that ends up in capital flight isn’t the ultimate model. The attempt by indigenous companies to participate in closing the investment gap on the supply chain of services in deep and ultra deep water terrain is commendable; though it still leaves a huge blue ocean opportunity for foreign investing community to tap from. Some Nigerians have invested in purchase of equipment and training facilities and formed technical alliances with partners in developed climes.
The General Manager of Aveon Offshore, Joseph Duntoye empasised in an interview that Aveon Offshore possess pioneering ideas and advanced methods in proffering state-of-the art solutions in engineering with proven competence in seabed to surface engineering and project services in SURF (Structures, Umblicals, Risers and Flowlines) and Subsea engineering (platforms, pipelines and equipment).
Mr Anthony Okolo, of Royal Niger believes Nigerian companies can now render services in subsea maintenance of structures and should be given the right of first refusal on contracts. He rued a missed opportunity with an IOC and blamed it on the continued lip service some companies pay local content development without adequate assessment of capacities and capabilities.
“It is preposterous and damaging to pay humongous amount of money for overseas training of divers in deepwater simulation” when his company has the same world-class facility in Nigeria, says Mr Emmanuel Onyekwena, Managing Director of Tolmann, a PETAN company.
However, deep offshore drilling has not seen convincing participation by indigenous firms and the level is abysmally low.
It bears repetition to state that the largest FPSO topside integration in sub-Sahara Africa would be carried out at the Lagos Deep Offshore Logistics, sometime in the third quarter of this year. The LADOL fabrication base is positioned to attract over $10 billion dollars worth of investment into the country. Fabricating 15,000 tons for Egina FPSO is a significant progression from where the industry was three years ago, when a few Nigerian companies participated in the construction of six NLNG vessels contracted to Samsung Heavy Industry and Hyundai Heavy Industry by supplying cables, paints and anodes valued at just $10 million. In 2016, that was followed by the 2,700 ton Sonam Non-Associated Gas Wellhead Platform (Sonam NWP) built by Hyundai Heavy Industries in partnership with Nigerdock in Lagos.
On the demands for deep offshore vessel maintenance, the Executive Secretary of the Nigerian Content Development and Monitoring Board, Mr Simbi Wabote, recently confirmed that the industry would save millions of dollars in maintenance of vessels, particularly now that the nation can boast of four dry docks in Port Harcourt in addition to the two in Lagos – Nigerdock and Naval dockyards.
In spite of these developments, the entire hull side of an FPSO still remains a “black box”. That in itself is another huge investment and knowledge gap to be filled.
To support the drive for investment promotion, the Federal Government, in the proposed Draft National Petroleum Policy, said it intends to develop upstream resources, through maximising production from existing production blocks; reduce Niger Delta insecurity; ensure accountability of production; maximise additions to reserves and future production.
In addition, it intends to diversify resource base, and identify low cost resources; allocate oil licences and leases under a transparent process among others.
The Federal Government is also considering setting up an Investment Promotion Office for the petroleum industry, which would provide technical support in promoting a project; serve as a centre of expertise on upstream and downstream petroleum opportunities within Nigeria, which will work with the Nigeria Investment Promotion Council (NIPC).
It is also expected to provide a database of projects and investment opportunities, as well as an informative website and also provide support with promotions and roadshows.
With the current initiative proposed by the Federal Government and the vast opportunities in the deepwater segment of the Nigerian petroleum industry, investors stand to gain from investing in the sector.
Investors have been assured of safety and high return on their investments, while their investments would further help develop Nigeria’s deepwater segment, boost the country’s crude oil and gas production and reserves and invariably, shore up the country’s revenue base.