06 October 2015, Lagos – After 55 years of independence, Nigeria’s oil and gas sector is yet to witness effective reforms to enhance its global competitiveness and reflect the current realities in world energy dynamics. Ejiofor Alike reports
Though Nigeria attained independence in 1960, crude oil production began in 1956 and by 1958 the country commenced the shipments of about 5,100 barrels of crude oil per day from Shell’s Oloibiri fields in the present Ogbia Local Government Area of Bayelsa State.
Shell D’Arcy, which later changed its name to Shell-BP Petroleum Development Company of Nigeria Limited, was initially awarded the entire country as its license area but the acreage was reduced to 40,000 squares miles in 1957.
The success of this British multinational encouraged the influx of other international oil companies into the country.
In 1960 when Nigeria attained independence, her daily production had increased to 17,000 barrels per day from 5,100 barrels per day in 1958.
Shortly after crude oil was discovered in commercial quantities in 1958, the government enacted legislations to control and increase its participation in the industry.
The Oil Pipeline Act of 1956, as amended after independence in 1965, was followed with the enactment of the Petroleum Profit Tax Act, 1959, which was amended in 1967, 1970, 1973 and 1979, and the Mineral Oils (Safety) Regulations, 1963.
Other legislations include the Petroleum Act 1969 and the Petroleum (Drilling and Production) Regulations, 1969 with amendments in 1973, 1979, 1995, 1996 and the Petroleum (Amendment) Decree 1996.
Prior to Nigeria’s independence, the government collected royalties and taxes as revenue while the profit after the deduction of expenses accrued to the oil companies.
The Petroleum Profits Tax Act 1959 (PPTA) had empowered the federal government to impose tax on the profits of companies.
The PPTA defined ‘Petroleum operations’ as “the winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company”.
The operating companies were also empowered by the PPTA of 1959 to deduct all expenses they incurred in the course of exploration and production in computing their taxable profits from petroleum operations.
The law also provides that petroleum profits tax should be assessed in Nigerian currency and paid in Nigeria.
When the country attained independence in 1960, the government still collected taxes and royalties, but the profit was shared with the oil companies at the ratio of 50:50, after the companies deducted their operating costs.
In 1968, the Federal Ministry of Finance issued new guidelines to oil companies on the procedure for payment of royalties, petroleum profits tax and rents.
According to the guidelines, “all payments due to the Federal Government of Nigeria from your company in respect of the three items mentioned above should be made to the account of the Central Bank of Nigeria with the Bank of England”.
“As the amounts due are normally expressed in Nigerian Pound, the payer/company must ensure that enough Sterling is made available to make Nigerian Pound equivalent of the amount due from the company.”
The government later enacted the Petroleum Act of 1969, which vested the entire ownership and control of all petroleum in the federal government.
\This legislation empowers the federal government to license all the exploration, prospecting or mining activities in the petroleum sector.
Creation of NNPC
Not satisfied with mere collection of taxes and royalties from the multinational oil companies drilling crude oil in the country, the government in 1971 made a bold attempt to create its own national oil company, hence the establishment of the Nigerian National Oil Corporation (NNOC), via Decree No 18 of 1971.
NNOC was empowered by Decree 18 to engage in oil exploration and “in all other activities associated with the petroleum industry.”
It was set up primarily as the country’s national oil company (NOC) to compete for acreages with other multinational firms operating in the country.
Also in 1971, Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) to have a global voice in the energy market.
By 1973, the government acquired f 35 per cent shares in the oil companies operating in the country and in 1974, the second participation agreement, which increased government’s stake to 55 per cent, was signed.
Decree No. 33 was promulgated on April 1, 1977, merging the Ministry of Petroleum Resources and the NNOC to form the Nigerian National Petroleum Corporation (NNPC).
This legislation charged the NNPC with the “overall control of the oil industry,” in addition to all the functions performed by the NNOC including, “exploitation, production, transportation, processing of oil, refining, and marketing of crude oil and its refined derivatives”.
The regulatory arm of the NNPC was known as the Petroleum Inspectorate, which metamorphosed into the Department of Petroleum Resources (DPR) that regulates the oil and gas industry.
Initially, only crude oil was the focus of the oil companies and all the initial legislations in the industry were made to regulate crude oil exploitations because gas, which had little economic significance was flared.
However, due to the health hazards associated with gas flare, the government enacted the Associated Gas Re-injection Decree 1979, as amended in 1985 to encourage oil companies to re-inject the gas into the oil wells to boost the volume and flow of oil.
When gas became increasingly relevant, the government enacted more legislations to control regulate gas exploration and exploitation.
The Associated Gas Framework Agreement (AGFA) of 1992; Financial (Miscellaneous Taxation Provision) Act of 1998; Financial (Miscellaneous Taxation Provision) Amendment Act of 1999; Nigeria Liquefied Natural Gas (NLNG) Act of 1999; Downstream Gas Act (DGA) and NAGFRA of 2005, were some of these regulations.
The fifth participation agreement was signed in 1989, increasing NNPC’s stake in the joint venture to 60 per cent, while Shell controls 30 per cent, with Elf and Agip taking five per cent each.
NNPC and the partners signed a Memorandum of Understanding (MoU) in 1986 and Joint Operating Agreement (JOA) in 1991, stipulating the rights and privileges of each partner.
Under the JOA, each of the international oil companies – Shell, Mobil, Chevron, Total and Agip assumed the operatorship of the oil-producing assets in the country under a joint venture with the NNPC.
The MOU stipulates the guidelines for the reduction of the impact of the payment of tax and royalty on the foreign companies.
The JOA provides the guidelines for running the operations of the joint ventures; including equity holding, as well as rights and obligations of each partner.
With the JOA, joint venture arrangement replaced the old concessionary system.
Tax, royalty and participatory share of crude oil constitute the government take in the oil and gas business in a JOA.
The JOA provides a flat rate for the payment of royalty from the gross revenue and this is determined at any point in time by the MOU.
In a joint venture arrangement, each of the partners, including the NNPC, contribute funding, otherwise called cash-call, according to their percentage stakes in the joint venture company and also lift crude oil in that order.
In other words, each partner lifts crude oil in proportion to its equity holdings in the joint venture.
The international oil company, as the joint venture operator, deducts the operating cost and also pays taxes and royalties to the government.
Under the current fiscal terms, if the joint venture company is involved only in crude oil production, each partner, including the NNPC, pays tax at rate of 85 per cent of the chargeable profits.
However, if the joint venture is involved in gas operations, the tax rate that will accrue to each partner is 40 per cent.
In a joint venture, the operator prepares the budget, which it presents to other partners for approval at the beginning of every fiscal year.
When the budget is approved, the operator will issue a cash call statement to all the partners for them to remit their contribution for the running of the venture.
The operator is empowered to borrow money at the international or local market if any of the partners fails to meet its cash-call obligations, otherwise the project can be scaled down and executed with the limited fund available to the operator.
However, if the operator resorts to borrowing, the partner that fails to meet its cash-call obligations will pay the interest on the loan.
NNPC’s inability to meet its cash-call obligations under the JV led to the establishment of a new fiscal regime – Production Sharing Contract (PSC), which was modeled after Indonesia’s Production Sharing Agreement.
Therefore, the PSC Decree No. 9 of 1999 was aimed at relieving the government of funding obligations in the joint ventures.
Under a PSC arrangement, none of the partners has equity share in the operation as the ownership of oil at the wellheads solely belongs to the government, through the NNPC.
Nigeria’s PSC is said to be fashioned on what is called in the industry parlance, a carried interest basis, where the PSC contractor as the IOC is called, is solely responsible for funding and operating the assets.
In other words, the PSC contractor provides 100 per cent of the risk capital, in addition to the technical and manpower requirements, as well as all the cost of investment at exploration and development stages.
The agreement provides that the contractors will only recoup the investment outlay when it starts the export of crude oil.
But once the field comes on stream, the contractor will take the larger share of the oil revenue in order to recover all the cost.
The PSC model provides that no re-imbursement of exploration cost to the contractor in the event of drilling dry well or when oil is not found in commercial quantity.
In a PSC, the exploration license covers a period of 25 to 30 years but the NNPC has the powers to terminate the contract if the contractor fails to meet its obligations.
The Nigerian PSC was somewhat similar to the Risk Service Contract (RSC) agreement introduced by the NNPC in 1979 to reduce government’s funding of oil and gas exploration and production activities.
The need for PSC was fueled by the government’s desire to encourage exploration for oil and gas in the more capital intensive and risky deep waters, against the traditional onshore and shallow water exploration.
Crude oil produced in a PSC is shared in the form of royalty oil; cost oil; tax oil and profit oil.
Petroleum Profit Tax, royalty, share of profit oil and bonuses constitute government take in a PSC fiscal regimes.
NNPC and Shell signed a PSC in 1993, to create Shell Nigeria Exploration and Production Company (SNEPCO) as a separate entity from the Shell Petroleum Development Company, which is a joint venture between the NNPC and Shell.
SNEPCO operates the giant Bonga deepwater field, which started crude oil production in 2005, under a PSC with the NNPC.
Shell, Chevron, Total, Mobil and Agip, which operate joint venture with the NNPC, also have PSC arrangement with the government in some of their oil and gas producing assets, while Addax Petroleum operates as a PSC contractor to the NNPC.
In 1993, the JV partners signed the sixth participation agreement reducing NNPC’s stake to 55 per cent, while Shell retains 30 per cent but Elf, 10 per cent; and Agip, five per cent.
The JV arrangement and the PSC are the two main fiscal regimes in the country but other forms of fiscal incentives were reflected in the participatory agreements – JOA and Heads of Agreement (HOA).
Exploration and Production (E &P) companies are initially given Oil Prospecting License (OPL) to explore oil.
When crude oil is discovered in commercial quantity in the OPL, the operating license is converted to Oil Mining Lease (OML) and restricted to the oil-producing area, while the remaining portion of the field is allocated to another operator as OPL.
Enhancing local participation
Apart from government’s increasing appetite to enact legislations to control the activities of the multinational oil companies doing the oil and gas business in Nigeria, the government had also enacted the Nigerian Oil and Gas Industry Content Development Act (NOGICD) Act on April 22, 2010 following the signing of the Nigerian Content Bill into law by former President Goodluck Jonathan.
The law was created to increase the participation of Nigerian assets and professionals in the oil and gas industry.
Nigerian Content or Local Content was initially a policy formulated by former President Olusegun Obasanjo to boost local participation in the oil and gas business.
With the NNPC as the initial driver, the policy sought to ensure that majority of the contracts executed in the oil and gas sector were done in Nigeria and by Nigerians.
The government was alarmed that over 90 per cent of the $12billion estimated yearly expenditure in the industry was repatriated by foreigners, who executed a larger chunk of the contracts with no impact on the Nigerian economy.
Obasanjo’s administration had targeted to achieve 45 per cent Local Content by 2006 and 70 per cent by 2010 as local contractors were encouraged to invest in building capacities and capabilities to be able to execute world-class projects.
The policy also required the IOCs and other industry operators to set aside certain categories of jobs for indigenous contractors.
Between 2004 and 2010, only little progress was made because the country suffered not only from limited capacity and inadequate manpower, but also absence of legislation to compel the multinational oil companies to key into the programme.
With the absence of legislation to drive the implementation of the Nigerian Content, local contractors alleged that foreign oil companies sneaked jobs abroad and execute them in foreign yards, without sanctions by the NNPC.
However, with the signing of the Local Content Bill into law on April 22, 2010, legislation was created to enforce the Nigerian Content and also to sanction erring local and foreign operators.
The Nigerian Content Act created the Nigerian Content Development and Monitoring Board (NCDMB), which regulates the NNPC and other operators to ensure that they comply with the Act.
The NCDMB seeks to increase indigenous participation in the oil and gas industry, build local capacity, create linkages to other sectors of the national economy and boost industry contributions to the growth of the country’s Gross Domestic Product (GDP).
The Act is a stand-alone legislation that covers all activities pertaining to Nigerian Content development and the NCDMB is charged with the responsibility to develop, monitor and implement programmes to ensure a steady growth of Nigerian Content.
The Long Delayed reform
From the daily production of 17,000 barrels per day at independence in 1960, the country is today exporting over 2 million barrels per day.
Nigeria is also a major exporter of gas, through the Nigeria Liquefied Natural Gas (LNG) Limited, which accounts for about eight per cent of the global LNG supply.
The Final Investment Decisions (FIDs) of other LNG projects such as Brass LNG and Olokola LNG are being awaited.
But apart from the establishment of the NNPC in 1977 and the corporation’s reorganisation in 1988 when subsidiaries, including the Pipelines and Products Marketing Company (PPMC) were created, there was no deliberate effort to reform the industry and holistically update all the laws to reflect the changing global energy dynamics.
The NNPC runs the country’s 445,000 barrels per day refineries built after independence in Port Harcourt, Warri and Kaduna.
Government’s appetite to have a firm grip of the oil and gas business led it to control the prices of petroleum products, thus the creation of the Petroleum Products Pricing Regulatory Agency (PPPRA) and the Petroleum Equalisation Fund (PEF).
But the existing structure of Nigeria’s oil and gas industry and enabling legislations are no longer consistent with global standards as most of the country’s petroleum laws are obsolete.
In other words, most of the laws regulating the country’s oil and gas industry, which are mostly decrees, have become obsolete and impotent in regulating the industry.
NNPC, which was created to operate like other National Oil Companies (NOCs) such as Saudi Arabia’s Aramco; Malaysia’s Petronas and Brazil’s Petrobras, has largely abandoned its core mandates.
Former President Olusegun Obasanjo made a bold attempt to reform the industry when on April 24, 2000, he set up the Oil and Gas Reform Implementation Committee (OGIC).
OGIC was headed by the Honorary Special Adviser on Energy and Strategic Matters to the President, the late Dr. Rilwanu Lukman, with a mandate to carry out a comprehensive reform of the oil industry.
Obasanjo left office before he could implement the National Oil and Gas Policy (NOGP) report of the Lukman’s committee.
The need for a comprehensive reform in the oil and gas sector prompted the late President Umaru Musa Yar’Adua to reconstitute a new committee, also headed by Lukman, on September 7, 2007.
The new committee was tasked to “transform the broad provisions in the NOGP into functional institutional structures that are legal and practical for the effective management of the oil and gas sector in Nigeria” and its report was submitted to the late President on August 3, 2008.
The PIB, which seeks to replace the current myriad of about 16 obsolete legislative and administrative instruments and transform them into a single transparent and coherent document, was based on the reports of the two committees headed by Lukman.
The late President Yar’Adua first submitted the initial draft bill to the National Assembly but following criticism of the initial draft by the IOCs, former President Jonathan withdrew the bill to enable the executive address contentious areas.
Former President Jonathan sent to both chambers of the National Assembly a revised version of the PIB for consideration and passage into Law on July 19, 2012 but up till today, the bill is yet to be passed into law.
Lack of reform has created enormous challenges such as inadequate funding, long contracting cycles, high cost regimes, uncertainty in the operating environment, depleting revenue and dwindling investments.
These challenges have made it impossible for the country to realise its daily production target of 4 million barrels per day and reserves target of 40 billion barrels that ought to have been realised in 2010.
Barely one month after President Muhammadu Buhari promised measures to improve the oil and gas sector at the separate meetings with ExxonMobil and Nigeria LNG delegations, Dr. Ibe Kachikwu was named the new Group Managing Director of the NNPC.
The President had at separate meetings with delegations from the two companies, shortly before the appointment of Kachikwu, pledged to give priority attention to the security of oil and gas installations as well as maritime security in its bid to boost national earnings from the sector.
“It is the responsibility of the Federal Government to secure the environment. The vandalism of oil installations and pipelines, piracy, oil theft and the fall in the international price of oil have made our economic situation very disturbing,” he had said.
The appointment of Kachikwu, an outsider instead of an insider as the boss of the state-run oil firm was the strongest signal indicating that Buhari was determined to break away from the past and re-write the history of the corruption-ridden corporation.
Kachikwu, who was the Executive Vice-Chairman and General Counsel of Exxon-Mobil (Africa), is a First Class graduate of Law from the University of Nigeria, Nsukka and the Nigerian Law School, where he was the best graduating student and multiple awards winner in both institutions.
Immediately on assumption of office, Kachikwu initiated a raft of measures targeted at personnel restructuring to enhance transparency and competitiveness of Nigeria’s operating environment.
As a cost-cutting measure, he had commenced the restructuring of the corporation with the retirement of all eight Group Executive Directors (GED), and 38 senior executives in a sweeping move that has since affected more senior executives in the past two months.
He had also ordered a forensic audit of the NNPC, and pledged to split the Pipelines and Products Marketing Company (PPMC) into three portfolio companies that will manage the refineries, pipelines and supply of petroleum products.
Kachikwu had also unveiled what he called a three-pronged process in the restructuring of the corporation.
However, despite the reforms at the NNPC, nobody was prosecuted in the oil and gas industry in the third quarter of 2015.
Prosecution of Oil Thieves
Apart from the change of leadership at the Nigerian National Petroleum Corporation (NNPC) in the third quarter of 2015 and a raft of measures implemented by the new helmsman, Kachikwu to reposition the state-run oil firm, Nigeria’s oil and gas industry was characterised by a long wait for the much-publicised prosecution of oil thieves and corrupt officials during the period under review
One of the major agenda of the administration of President Buhari is the planned probe of the oil and gas industry and the prosecution of oil thieves and all those found to have contributed to the alleged corruption in the industry, particularly in the Nigerian National Petroleum Corporation (NNPC).
Buhari had right from the 2015 presidential election campaigns not hidden his determination to probe the alleged sleaze in the sector and prosecute corrupt persons, as well as oil thieves.
On assumption of office, May 29, the president restated his resolve to go after the corrupt individuals that stole the country’s oil money.
With allegations of missing money and unremitted revenues dominating the political and economic landscapes before the new administration came on board, many had waited in vain for the new administration to clamp down on oil thieves and corrupt officials in the third quarter of the year.
In his inaugural speech, Buhari had also identified corruption as one of the major challenges facing the country.
In curbing the country’s oil and gas industry and the country in general, of corruption, the president, however allayed fears of persecution of anybody or persons, saying “I belong to everybody and I belong to nobody,” adding that “a few people have privately voiced fears that on coming back to office I shall go after them”.
“These fears are groundless. There will be no paying off old scores. The past is prologue,” he added.
His Transition Committee had also in a 800-page report in April 2015, recommended an urgent overhaul of the NNPC and the removal of petrol and kerosene subsidies, among others.
The committee identified Federal Government’s indebtedness, largely in the oil and gas sector to the tune of $20.6 billion, including N200 billion unpaid subsidy claims and N1 trillion arrears of obligations to local and international partners in the sector.
The committee also recommended the merging of the Ministry of Petroleum Resources and the Ministry of Power to form a new Ministry of Energy.
In July, when he visited the United States, President Buhari said the United States would help trace and recover funds from the sale of about 250,000 barrels of oil that was stolen daily in Nigeria.
Buhari had reportedly told an audience of Nigerians in Washington that the United States and other developed nations were helping identify accounts where money had been deposited, adding that the Federal Government will prosecute the suspects.
He stated that some former ministers sold as much as one million barrels of crude oil a day.
“The amount involved is mind-boggling,” Buhari said. “A lot of damage has been done to the integrity of Nigeria with individuals and institutions already compromised.”
President Buhari had also during the visit asked the United States’ President, Barack Obama to help locate and return $150 billion believed to have been stolen by corrupt officials.
“The fact that I now seek Obama’s assistance in locating and returning $150 billion in funds stolen in the past decade and held in foreign bank accounts on behalf of former, corrupt officials is a testament to how badly Nigeria has been run,” he wrote. “This way of conducting our affairs cannot continue,” he had said.
On the non-appointment of ministers, including the Minister of Petroleum within the period under review, President Buhari called for patience, saying he was trying to “put some sense into governance” and deal with corruption
However, during the third quarter, he submitted the first batch of ministerial nominees containing 21 names to the Senate and revealed that he would retain the substantive Minister of Petroleum.
Buhari had also at a recent meeting with President Xi Jinping of China on the sidelines of the 70th United Nations General Assembly held in New York, stated that the prosecution of those who misappropriated the revenue of the NNPC under the past administrations would commence soon but was not specific on when the trial would start and those who have been indicted.
He also used the occasion to restate his determination to fully sanitise Nigeria’s oil industry and free it totally from corruption and shady deals.
He said the new NNPC management team led by Kachikwu had embarked on reorganisation of the state-run oil firm.
“The prosecution of those who misappropriated the NNPC’s revenue under past administrations will soon commence,” he had said.
Buhari also thanked Jinping for China’s help in curbing crude oil theft from Nigeria, especially the interception of shiploads of crude oil stolen from Nigeria, and which were to be sold and proceeds paid into private accounts.
“We know your stand on corruption, and we are grateful. Your continued cooperation in curbing oil theft from Nigeria will be appreciated,” Buhari told the Chinese leader.
Though the clean-up of the oil and gas industry has started with personnel restructuring at the NNPC, the much-publicised prosecution of oil thieves did not take place within the third quarter as envisaged.
Prior to Kachikwu’s appointment, the Economic and Financial Crimes Commission (EFCC) and The Department of State Security (DSS) were said to have investigated the crude oil swap programme and the Offshore Processing Agreements (OPAs) involving the NNPC and some local oil and gas companies.
The embattled former Minister of Petroleum, Mrs. Diezani Alison-Madueke had told THISDAY in an exclusive interview in the United Kingdom that she had in a letter dated May 18, 2015, with the approval of former President Goodluck Jonathan, requested the EFCC to look into the Swaps/OPAs “in order to clarify the status of crude oil allocations to the trading firms and the petroleum products that had imported into the country on behalf of NNPC’s product distribution subsidiary – Pipelines and Products Marketing Company.”
“In view of the negativities and various issues raised in the media on the swaps/OPAs, I had written to EFCC, with the former president’s approval about four weeks ago, to look into the swap/OPAs in order to clarify the actual situation,” she had said.
But as soon as EFCC and DSS commenced the investigation, the NNPC came out with an official statement to defend its officials, insisting that the officials under investigation were scheduled and delegated management staff of the Corporation, who only carried out their legitimate official assignments within the NNPC and were only invited to shed light on same by the law enforcement agencies.
According to the NNPC, the invitation of the officials was nothing unusual as the corporation regularly interfaced with other government agencies to provide information on relevant activities of the corporation.
The NNPC also clarified that none of the officials was arrested nor detained by the EFCC or the DSS in connection with investigation.
The corporation also denied that none of its officials had his international passport seized by any of the law enforcement agencies mentioned in connection with the investigation.
The investigation of the OPAs and the swap transactions has since been completed but nobody has been prosecuted for any shady deals.
However, as part of the raft of measures being implemented to reposition the NNPC, Kachikwu has since terminated the controversial OPA entered into in January, 2015 with three companies.
In taking this decision, the corporation alleged that after detailed appraisal of the operation and the terms of the contract agreement, it was convinced that the OPA was skewed in favour of the companies.
Also as one of the measures aimed at cost reduction and strengthening of operational efficiency across the value chain, Kachikwu had also cancelled the contracts for crude oil deliveries to Warri, Port Harcourt and Kaduna refineries due to what he described as the exorbitant cost and inappropriate process of engagement.
Kachikwu has since clarified that he did not cancel the contracts because the companies or their owners were bad but because he wanted a better yield for the NNPC and the country.
“We cancelled the contracts when we felt there were challenges; there were issues. That is not to say that the contracting parties were bad. Again, I place less emphasis on individuals and institutions and I place more emphasis on processes and outcomes. So, it is not to say that a company was bad or was not good. I am not a judge and I am not going to be the jury. But if a contract doesn’t give me a good financial yield for the company and for the country, I am going to cancel it,” he explained.
“It is not to say that the individual who is the operator of that contract is bad. What it simply calls for is to open it up and ask others to give you an alternative yield and if they come up with the best alternative, so, be it. I think if you look at some of the contracts we cancelled, we saved average of over $150 million monthly just by those contracts being cancelled and being given new models even for the interim period,” he added.
Kachikwu had also hinted that wrongdoing would not be rewarded at the NNPC.
He told journalists in Lagos recently that “there are a lot of good people within the NNPC, who may have done wrong things at different stages of their career because they were propelled by politicians to do that”.
“….. Individuals, who have aided or abetted the wrong that has sank the corporation will obviously be left out. There is no space in any business in the world for you to keep doing wrong things and keep progressing,” he added.
Apart from the cancellation of these contracts, the government has not taken deliberate steps to bring erring former government’s officials to book for corruption or oil theft.
NNPC’s Funding for 36 Oil Wells
A landmark achievement in Nigeria’s oil and gas industry during the third quarter of 2015 was the $1.2 billion multi-year drilling financing package for 36 Offshore/Onshore Oil wells secured by the NNPC under the NNPC/Chevron Nigeria Limited Joint Venture.
The funding package which is being financed by a consortium of Nigerian and International lenders is an integral part of the Accelerated Upstream Financing Programme initiated by NNPC to address the perennial challenge experienced by the Federal Government in providing its counter-part funding of JV upstream activities.
A breakdown of the NNPC/ Chevron JV deal which was executed at a signing-ceremony in London indicate that the $1.2 billion is to be channeled into the development of 23 onshore and 13 offshore wells on Oil Mining Leases (OMLs) 49, 90 and 95 in two stages over 2015- 2018.
According to the NNPC, stage one comprising 19 wells is projected to deliver 21, 000 barrels of crude oil and condensate per day alongside 120 million standard cubic feet of gas per day, mmscf/d, over 2015 and 2016.
Stage two, comprising 17 wells is projected to yield 20, 000 barrels of crude oil and condensate per day alongside gas production of seven mmscf/d between 2016 and 2018.
It is envisaged that both stages of the project would generate $2 to $5 billion of incremental revenue to the Federation account.
Beyond the contribution to the national treasury, the projected peak incremental gas production of 127 million standard cubic feet per day (mmscf/d), which is the electricity equivalent of 400 megawatts, would help boost the Federal Government’s domestic gas aspirations with expectant positive effect on power supply.
Speaking at the ceremony, Kachikwu had described the new alternative funding arrangement as the new contractual model in upstream financing which would serve as a template for future initiative to supplement the Federal Government’s Joint Venture Cash Call commitment.
While commending the NNPC/ Chevron Joint Finance Team and the Consortium of local and international lenders led by Standard Chartered Bank and UBA for a job well done, the GMD noted that the Corporation will not relent in the renewed effort to restore probity and transparency to the process of generation, collection and remittance of crude oil proceeds.
Managing Director of Chevron Nigeria Limited, Clay Neff, on his part, pledged the readiness of Chevron to work assiduously with the NNPC to meet its set target in the project.
With the completion of its financing, Project Cheetah stands as the pioneer project under the Accelerated Upstream Financing Programme of the NNPC. The project is operated under the NNPC/CNL JV which is owned on a 60-40 basis in favour of the NNPC.
Erha North project
It was also during the period under review that Esso Exploration and Production Nigeria Limited (EEPNL), a subsidiary of United States oil giant, ExxonMobil Corporation started oil production five months ahead of schedule at the Erha North Phase 2 project offshore Nigeria.
Erha North Phase 2 came on stream $400 million below the budget estimate, with Nigerian contractors accounting for more than $2 billion of project investment for goods and services, including subsea equipment, facilities and offshore installation.
To save costs, the company said subsea development was tied into existing infrastructure of Erha field to ensure capital efficiency
The Erha North Phase 2 project, will add 65,000 barrels of crude oil to Nigeria’s daily crude oil output, is a deepwater subsea development located 60 miles offshore Nigeria in 3,300 feet of water and four miles north of the Erha field, which has been producing since 2006.
The Erha North Phase 2 project includes seven wells from three drill centers tied back to the existing Erha North Floating Production, Storage and Offloading (FPSO) vessel, reducing additional infrastructure requirements.
The project is estimated to develop an additional 165 million barrels from the currently producing Erha North field.
Peak production from the expansion is currently estimated at 65,000 barrels of oil per day and will increase total Erha North field production to approximately 90,000 barrels per day.
Commenting on the milestones, the President of ExxonMobil Development Company, Neil W. Duffin, stated that executing successful projects such as Erha North Phase 2 ahead of schedule and under budget resulted from ExxonMobil’s disciplined project management approach and expertise.
Duffin said the ahead-of-schedule startup was supported by strong performance from Nigerian contractors, which accounted for more than $2billion 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.
ExxonMobil expects to increase its global production volumes this year by two percent to 4.1 million oil-equivalent barrels per day, driven by7 seven percent liquids growth. The volume increase is supported by the ramp up of projects completed in 2014 and the expected startup ofmajor developments in 2015.
Erha North field was discovered in 2004 and initial production commenced in 2006. Operator, EEPNL holds a 56.25 percent interest in Erha North Phase 2, while Shell Nigeria Exploration and Production Company (SNEPCo) holds the remaining 43.75 percent share.
The world-class Erha deepwater development is in Oil Mining License (OML) 133, about 97 kilometres offshore Nigeria in 1,200 metres of water.
The Erha and Erha North have a total crude oil production capacity of over 200,000 barrels per day.
Erha and Erha North project consists of 32 subsea wells tied back to an FPSO. The project also uses a Catenary Anchor Leg Mooring (CALM) buoy, which is reputed as one of the largest in the world, for docking of crude oil carrier and transfer of product.
EEPNL and its co-venturer, SNEPCO, had in May 1993 acquired the rights to explore offshore Oil Prospecting Lease (OPL) 209.
The field was converted to OML 133 in March 2006 after it came on stream, with the NNPC as the concessionaire.
- This Day