17 September 2015, Lagos – Nigeria’s daily crude oil production has been boosted by additional 65,000 barrels per day, bpd, as Esso Exploration and Production Nigeria Limited, a subsidiary of ExxonMobil Corporation, yesterday announced first oil from its Erha North Phase 2 project.
Nigeria currently produces about 2,000,000bpd, of which ExxonMobil, which became the leading producer some years ago, contributes about 30 percent of production. This percentage has edged even higher with these additional barrels.
Notwithstanding the crash in oil prices, the additional barrels are cheery news, as there had not been additional production in the country for a while now and existing production was hampered by crude theft, thus reducing total output.
Confirming the start-up of production from the facility, ExxonMobil also said in a statement yesterday that the new volumes now ramps up total production in Erha North field to approximately 90,000bpd.
The statement said: “The project is estimated to develop an additional 165 million barrels from Erha North field.”
It added that the project saved $400 million in cost.
The Erha North Phase 2 is a deepwater subsea development project under a Production Sharing Contract, PSC, located 60 miles offshore, in 3,300 feet of water and four miles north of the Erha Field, which has been producing since 2006.
It is situated in Oil Mining License, OML 133, where ExxonMobil operates the field with 56.25 percent interest and Shell holds the remaining 43.75 percent.
Speaking on the cost saving, President, ExxonMobil Development Company, Mr. Neil Duffin, was quoted as saying: “Executing successful projects such as Erha North Phase 2, ahead of schedule and under budget, results from ExxonMobil’s disciplined project management approach and expertise.
“We are able to create additional shareholder value by optimizing existing infrastructure, which reduces capital spending requirements and improves capital efficiency.”
Duffin said the ahead-of-schedule start-up was supported by strong performance from Nigerian contractors, which accounted for more than $2 billion of project investment for goods and services, including subsea equipment, facilities and offshore installation.
“These contracts are bringing direct and indirect benefits to the Nigerian economy through project spending and employment, consistent with project objectives,” Duffin said.
However, industry analysts argue that the cost saving could be double edged, as while it underscores ExxonMobil’s prudent management and efficiency, it also questions the National Petroleum Investment Management Services, NAPIMS’s capacity to efficiently assess the budgets for industry projects.
Challenge to economy
Ordinarily, the boost in production output is expected to enhance Federal Government’s revenue, since Nigeria is a mono-product economy.
However, the crash of the oil market throws up the additional challenge of where to sell the product, in addition to the fact that even when the barrels are sold, government’s take on account of the PSC contract will not be much, due to producers cost.
Although the PSCs are considered by international oil companies, IOCs, as the best contracts for them in terms of return on investment. But the contracts have also been widely criticized as being tilted heavily in favour of the oil companies at the expense of Nigeria.
This is because the operator uses the first oil to offset development costs before declaring the left over for profit sharing, a situation the Petroleum Industry Bill, PIB, is seeking to redress to reflect current environment realities.
The Group Managing Director, Nigerian National Petroleum Corporation, NNPC, Dr. Ibe Kachikwu, has already declared that government was going to review existing contracts that will favour all stakeholders in the industry.
Commenting on the challenge of marketing the crude, the Managing Director, International Energy Services, Dr. Diran Fawibe, whose company also partook in the subsea production system for the Erha North 2 project told Vanguard on the telephone that oil companies also need to device strategies to sell Nigeria’s oil, particularly those under PSCs.
He said: “The new volume will put a lot of pressure on Nigeria’s output in terms of marketing the oil.
“So it will not be the government only that will look for ways to market the product. The oil companies will have to devise strategies to also sell their own products. But if the market is good, then it is a win-win situation for all stakeholders.”
Meanwhile, Exxon-Mobil said it expects to increase its global production volumes this year by two percent to 4.1 million oil-equivalent bpd, driven by seven percent liquids growth.