A Review of the Nigerian Energy Industry

NNPC makes excuses over delay of major oil and gas projects

*NPDC increases crude oil output to 130,000bpd

Chika Amanze-Nwachuku & Chineme Okafor

17 December 2012, Thisday newspapers – The inability of the Nigerian National Petroleum Corporation (NNPC) and the international oil companies (IOCs) to reach an agreement on the cost of some multi-billion dollar oil and gas projects has stalled their take-off, THISDAY has learnt.

NNPC had been blamed by the IOCs for delaying the execution of the multi-billion dollar projects, which would help Nigeria attain its target of four million barrels per day (mbpd) and reserves of 40 billion barrels before the turn of the decade.

They had also blamed the corporation’s failure to hold its periodic Group Executive Committee (GEC) meetings, where projects of this magnitude are usually reviewed and recommended to the board for approval, for the delay in the projects take-off.
The projects, some of which have been in the pipeline for nearly five years include Mobil’s Erha North phase two project; the second phase of Satellite fields development project; and Total’s Egina project.

But a highly placed NNPC official, who provided an update on the projects, said contrary to the submissions of the IOCs, the projects were at advanced stages of the tender process.

The official, who did not want to be named, explained that the NNPC was not deliberately delaying the projects, but was only insisting that the final cost of their execution must be justifiable.

According to him, the cost estimates presented by the operators were exorbitant, compared to the cost of executing similar projects elsewhere in the world, give or take a few variables.

Providing further insight, the NNPC official said the tender process is handled solely by the IOCs, which in turn revert to the corporation for approval, adding that the NNPC was only insisting on bringing down costs.

“The IOCs are our contractors and handle the tenders themselves, and then revert to us on the cost, which we have to approve. So our concerns have been the cost of these multi-billion dollar projects, because when we benchmark them against similar projects worldwide, they must conform to the costs that such projects will attract in other jurisdictions, give or take some variable,” he said.

Explaining further, he said: “If we do not curtail the costs, at the end, they will be passed on to the Federal Government and by extension, the Nigerian public.”

He said contrary to the perception that NNPC’s Group Executive Director, Exploration and Production, Mr. Abiye Membere, was to blame for the projects’ delay, it was the corporation’s insistence that the IOCs revise their costs that had stalled their take-off.

Industry sources had accused the NNPC of bungling some multi-billion dollar oil and gas projects expected to increase Nigeria’s oil output and create thousands of jobs.

The reluctance by NNPC’s management to approve the projects, IOC sources claimed, has forced some interested investors to pull out. Some of the projects also stand the risk of being abandoned.

Owing to the delays, some of the IOCs were said to have rejected a further extension on the negotiations beyond the end of this calendar year with NNPC on the affected projects.

In the meantime, the Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of NNPC, yesterday announced that it has commenced aggressive drilling in some of its oil mining leases (OMLs), resulting in increased crude oil production.

In a statement on behalf of NPDC’s Managing Director, Mr. Victor Briggs, the corporation stated that the current output from its oil concessions was in line with its 2015 target to grow production to 250,000 barrels per day (bpd), including its successful drilling of Okono 6 and 7 oil wells in OML 119, which are currently yielding 12,000bpd.

According to Briggs, Okono 6 and 7 wells were significant not just because they represented NPDC’s independent efforts at growing production but also because of the prolific nature of the wells.

Both wells produce at an average of 6,000bpd, in contrast to older wells, which produce at some 3,000bpd, said Briggs.
Briggs added: “From 2010 to date, our production rose from 65,000 to 130,000 barrels per day; the bulk of the increase consists of assets handed over to us upon divestment by some of our JV partners.

“But we realise that for us to meet the target of 250,000 barrels per day by 2015, we need to build on this by exploring further afield and drilling more wells. Okono 6 and 7 wells represent our success story in this direction.”

He noted that NPDC also plans to drill more wells next year and would deploy two more rigs, in addition to the two it currently has on site.

He said that the target is for NPDC to drill 40 wells in the next five years as part of its growth projections.
According to Briggs, the company has also made tremendous progress in the area of gas supply in keeping with the directive of the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, to step up gas production and supply to meet the national power generation aspirations.

“We have commenced gas production from our Oredo gas plant since November and we currently produce 65mmscf per day. By the end of the first quarter of next year when we shall complete the second phase of this project, we will have additional 100mmscf per day and 4000 metric tonnes of Liquefied Petroleum Gas (LPG),” he said.

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