09 September 2014, Lagos – Expectations were high when in 2003 the Department of Petroleum Resources, DPR, awarded the Oil Mining Lease, OML 13, among 23 others as part of the Federal Government’s Marginal Field Programme.
This is because the programme is meant to boost Nigeria’s crude oil production, reserves addition, employment generation and above all, indigenous participation in the oil and gas industry.
In view of the data provided by DPR on the field prospects, the field owners expected to commence development and start crude production as soon as possible.
The development of the field was to be carried out under a joint venture between Frontier Oil Limited (operator), and Seven Energy, as the technical partner and sole financiers.
Change in plans
However, expectations did not turn out as anticipated, as the field was not an oil field as indicated by the DPR data, but a gas one. This presented a different kind of challenges, as gas development is not something industry operators look forward to, at last, not way back then.
The nature of the resource found required new plans for the field development altogether with regard to what to do with it and how to harness the gas.
After a long gestation, spanning almost a decade the prospects began manifesting, which debuted in the Uquo Gas Plant. Accordingly, by December 2012, the first gas was produced for testing and commissioning.
Located in Uquo, in Akwa Ibom State, the initial gas production from the field was dedicated to supply the Ibom Power via a 62km 18-inch pipeline that runs from Uquo to Ikot Abasi.
Under the development terms, the gas produced from the Uquo Field is sold to Accugas, a wholly owned subsidiary of Seven Energy Group. The initial customers were two – the Ibom IPP and the Calabar IPP.
The first gas to the Calabar IPP is scheduled for before year end through a 37km 24-inch pipeline from Uquo to Oron.
To ensure the security of investment, the company said it began “a focused education programme along the pipeline’s right of way to ensure the safety of the communities located along the route and the security of supply to the Ibom IPP.”
While Accugas completes the construction of the pipeline, Frontier Oil completes the commissioning of Train 2 of the gas plant. The facility is billed to provide additional capacity to supply 131MMcf to the Calabar IPP.
Consequently, Frontier Oil and Accugas will be supplying gas to generate about 750 megawatts of power from the Ibom and Calabar IPPs, the equivalent of 10 percent of Nigeria’s generating capacity.
Harnessing gas resource
The discovery of gas at the Uquo Field made Seven Energy decide to become a leading supplier of gas to the Nigerian market for power generation and industrial consumption.
Its integrated business model is designed to capture the full value chain from upstream exploration appraisal, development and production, through ownership of processing and distribution infrastructure and marketing to end users in the growing domestic gas market.
With the largest population and one of the fastest growing economies in Africa, there is now an increased focus by the Nigerian Government on developing power infrastructure through gas to support economic growth.
This is because the demand for gas is projected to grow from 1.8 billion cubic feet per day, Bcfpd in 2012 to 6.7 Bcfpd by 2025 (equivalent to 11.4 percent per annum, p.a.).
The increase is buoyed by the significant energy price difference between domestically produced gas and imported refined petroleum products (in particular diesel) and the expected growth in demand for domestic energy.
Under the Gas Master Plan, the Nigerian Government is seeking to facilitate an increase in installed power capacity to 40 GW by 2020 (currently 6 GW) with the majority expected to come from new gas fired power plants.
Setting new strategies
In view of the above, Seven Energy developed new targets to:
• Create long-term growth by exploiting first mover advantage
• Acquire controlling interests in low cost undeveloped gas fields with clear near term monetisation opportunities.
• Secure long-term off-take agreements with credit worthy customers.
• Build and operate processing and distribution infrastructure in secure and strategic locations.
• Acquire strategically located oil reserves with near-term cash flow potential and gas resource upside.
Operations and alliances
Seven Energy’s core areas of operation are located in the north west and south east onshore Niger Delta with net production and resources of about 363 million barrels of oil equivalent, which includes over 2 trillion cubic feet, Tcf of gas.
The company’s assets include OMLs 4, 38, and 41 under various partnerships through indirect interest through Strategic Alliance Agreement with the National Petroleum Development Company, NPDC, and Seplat Petroleum as the operator.
The group also has interests in other marginal fields including OML 56 – 49 percent (Operator – Chorus Energy); OML 13 – 40% (Operator – Frontier Oil); OML 14 – 51 percent (Operator – Universal Energy, which is 62.5 percent owned by Seven Energy).
Seven Energy also has a number of upstream operations including:
• Over 1Tcf of gas under contract to supply the Ibom Power station and the Calabar NIPP power station
• 200 MMcfpd Uquo Gas Processing Facility
• 62 km Uquo to Ikot Abasi pipeline (completed) and 37 km Uquo to Oron pipeline (under construction)
Over the years, the company has shown significant growth in financial performance, continued investment and strengthened capital structure such as:
• 18.0 percent increase in revenue to $102.4 million and EBITDA increased by 340.2 percent to $33.9 million in 2012.
• Upstream and midstream investments worth about $232 million in 2012.
• strengthening capital structure with over $340 million and additional $280 million arranged since the beginning of 2012, through a combination of equity, refinanced and enlarged long term project finance, listed convertible bonds and short term working capital.