A Review of the Nigerian Energy Industry

NNPC’s quest for oil in the North elicits mixed reactions

*Stakeholders allege hidden agenda, NNPC GMD disagrees 

Oil exploration in the northern part of Nigeria

Oscarline Onwuemenyi

16 November 2017, Sweetcrude, Abuja – Of the many issues confronting the Nigerian oil industry, the latest overtly ambitious search for hydrocarbons in the arid North of the country by the Nigerian National Petroleum Corporation, NNPC, following the directives of the Federal Government has become a sticking point with many industry watchers.

Already, according to various sources, more than $6.5 billion, representing about 70 percent expected income generation by the NNPC between 2015 and 2016, has been sunk into oil exploration missions in various locations in the northern part of Nigeria.

The Corporation has cited the incessant hostilities by militants in the creeks of the Niger Delta as the major reason for the renewed efforts to find alternative oil producing areas in the Chad Basin, bordering Borno State, including new sites located in former Gongola State, also called ‘inland basins’.

To this extent, the policy thrust targeted at getting crude oil from the various locations at all cost saw NNPC spending more than three-quarters of its earnings in pursuing this ambition. The unaudited accounts of the corporation, seen by our correspondent, indicates that out of an estimated $9.2 billion gross income, $6.5 billion was earmarked for frontier explorations, while the rest went into other obligations and sundry payment, including overhead costs.

Most of the expenditures were incurred in 2016 when the activities of the notorious Niger Delta Avengers and similar militant groups escalated. Thus, between September and November 2016, a total expenditure on the mission increased by $1.87 billion when compared with $1.2 billion in the same period a year before.

The assertion was further supported by the NNPC Monthly Financial and Operations Report released recently, which indicated that: “A marginal increase in the trading deficit was due to an upsurge in IDSL operating costs attributed to the ongoing mobilisation activities in both Benue Trough seismic data project located in Bauchi and Party 05 in Elele, Rivers State, despite an improved revenue generation.”

Is it all politics?

Oil workers at the Lake Chad Basin

After 40 years since the government started the search for oil in the north, to no avail, many Nigerians believe that recent intensification by the President Buhari administration may be more politically-motivated, given the president is from the region, and will only end up enriching a few individuals from the region.

Stakeholders remain divided about the wisdom in the continued search for hydrocarbon resources in the north, especially as billions have already been sunk without making a commercial find. Described as a mere geopolitics of oil, some experts insisted that the drive, if not dropped, especially now that the country’s economy is in turbulence, would remain a waste of the nation’s scarce resources.

This came amid a backlog of over $6 billion Joint Venture cash call arrears, lack of support from the International Oil Companies, IOCs, a global shift from fossil fuel to renewable energy, loss of interest in encouraging production of already discovered reserves and poor economic outlook.

But the NNPC remains adamant, and is determined to pursue this wild goose throughout the North; boosted especially by the presidential directive, the NNPC Group Managing Director, Maikanti Baru, said the Corporation would not give up on the mandate given to it by President Buhari to aggressively explore the inland basins, including Bida, Benue, Chad, Gongola, and Sokoto.

Baru insists that preliminary results from the exploration in the inland basins so far, especially the Benue Trough, show there was a strong indication that commercial quantity of oil and gas find would soon be a reality.

But a geologist with Summy Marine Company, Smith Jones, said there was nothing beneficial to Nigeria for exploration of crude in the northeast or any other region that could be better than consolidating the vast oil in the Niger Delta, given the opportunity cost in the country’s favour.

“It is amazing to hear that the efforts of the past decades, which yielded no result is being revived. Even Chad, which has more of the River basin in the sub-region is currently not finding it cost effective exploring the crude oil in the area.

“Nigeria has no business wasting its resources in the same region unless there is a political undertone for that. Petrobras, a firm that was initially involved in the exploration of crude oil in the northern part of Nigeria has since indicated that it is an effort in futility, and that is what it will be,” he asserted.

According to the co-founder, Sustainability School based in Lagos, and Associate Lecturer, Centre for Petroleum, Energy Economics and Law, CPEEL, University of Ibadan, Dr. Olufemi Olarewaju, while the chances of oil discovery in the inland basins, especially in the north, cannot be ruled out, the bigger question is whether the timing is in the best interest of the country.

Wondering whether the current drive is more political than economic, in view of current realities, amid a backlog of debts, including outstanding JV cash call payments, Olarewaju, who worked in the Chad Basin in the 80s, said: “The project appears to be politically-motivated and the questions Nigerians should be asking is on the geopolitics of oil. Should we not focus on achieving higher process efficiency in the value chain of proven reserves?”

But, Baru, while addressing stakeholders from the North who visited him recently, said the Corporation’s dream is to have as many crude oil sites as possible tested for their commercial values.
This, analysts say, is the plank upon which the resources of the State are being frittered away.

Oil quest “alive and well”

NNPC seismic crew in search of oil in the North East

The NNPC boss has insisted that the quest for oil in the Lake Chad Basin area of Northern Nigeria is alive and well and the prospects seem quite bright indeed, from emerging data available to their experts.

Our findings indicate that the search for oil in the North has, so far, gulped a whopping sum of about N27 billion and $340 million respectively. NNPC is reportedly gearing up to pump more money into the quest – in compliance with the recent Presidential directive to resume oil exploration in the North.

A document prepared by the NNPC, dated October 7, 2016, and marked “update” on the oil exploration activities in the Lake Chad Basin, revealed that 33,550 sq km of 3-D seismic data would soon be acquired for processing, in an effort to get a clearer picture of oil reserves in the area.

The drills and finds are from the oil bloc 809, which is being held by the Nigerian Petroleum Development Company, NPDC, a subsidiary of NNPC, vested with the duties of exploration and investment.

But the tone of the report shows that the prospects of oil in the North are still mere potentials and remain in the realm of possibilities, despite the huge investments made so far. The document states that “Though it is too early to be categorical, there is a possibility that we may find oil in commercial quantity in the Chad Basin because of deposits in neighbouring countries of Chad, Niger, and Sudan which have similar structural settings with the Chad Basin. Therefore, it is prudent to aggressively explore the Chad Basin for possible deposits.”

The report also said that discoveries made in neighbouring countries in basins with similar structural settings like Dabo, Daseo, and Bongar in Chad amount to a reserve of over two billion barrels.

Other areas, according to the report, are Longone, Birni in Southern Chad and Northern Cameroun where over one billion barrels reserve exists; and Termit-Agadam Basin in Niger Republic which also holds a reserve of over one billion barrels.

“Already, the NNPC New Frontier Exploration Services Division which is leading the charge for crude oil finds in the Inland Basins is acquiring 3,550 sq km of 3-D seismic data for processing and interpretation in addition to the already acquired 6,000 km of 2-D data that is currently being processed,” the report said.

The document further said that “Currently over 600,000 seismic section and 30,000 wells log are being scanned and restored in good time for the eventual drilling”. The report pointed out that before now, “23 wells had been drilled with two of the wells, Wadi-1 and Kinsar, encountering non-commercial gas.”

It revealed that the search is not limited to Chad Basin alone but covers other parts of the country. “The search is not limited to the Chad Basin alone but covers extensive inquest in the entire Nigerian Frontier Sedimentary; Anambra, Bida, Dahomey, Gongola/Yola and the Sokoto Basins alongside the Middle/Lower Benue Trough”, the report said.

The University of Maiduguri was awarded the contract to conduct the environmental baseline studies/impact assessment for the Chad Basin project “as part of its Corporate Social Responsibility to the host community and because of its proximity to the operational area”, it said.

Our correspondent also learnt that a British firm was appointed by the 19 Northern governors through the Northern Nigeria Development Corporation, NNDC, to also carry out exploration activities for oil and gas in Lake Chad region and Benue Trough so as to fast-track the process and diminish the accusation by the oil-rich Delta region that the North has nothing to contribute to the nation’s economy.

This was confirmed recently by Mallam Bashir Dalhatu, the Chairman of NNDC, who was quoted to have said in Katsina State after a meeting with the governor that “We have engaged a British Company that is already working in the Lake Chad region and from Niger and Chad side in the same area with us and we have been meeting with the Nigerian National Petroleum Corporation in order to put efforts together.”

But a geologist based in Port Harcourt, who spoke with our reporter on phone on the basis of anonymity, said that the quest for oil in the North is “a fruitless engagement” that will just drain Nigeria’s scarce resources at this time of recession because they would find nothing of commercial interest in the area.

“I can tell you that they just want to waste our money there because major multi-national oil companies have been there earlier, invested huge sums of money to explore oil in the Chad Basin and later left when they discovered that it amounts to efforts in futility. But the NNPC had been compelled for a long time now to continue to search and it has become an endless search without success. But if the President insists that they should continue, I wish them luck.”

Boko Haram attacks? No problem.

In July this year, the Federal Government announced a halt in oil exploration in the Lake Chad Basin following the attack on members of an oil exploration crew working for the NNPC in the region. They were ambushed and abducted on Tuesday by the armed insurgent group, Boko Haram and the incident also led to at least 27 deaths. The victims included soldiers, Civilian Joint Task Force, CJTF, members, and University of Maiduguri staff.

The NNPC spokesperson, Ndu Ughamadu, had said members of the exploration crew consisted of a staff of the Geology Department of the University of Maiduguri hired as sub-contractors to two NNPC subsidiaries: the Integrated Data Services Limited, IDSL and Frontiers Exploration Services, FES.

The government also gave reasons why it continued with the exploration despite Boko Haram attacks in Borno, saying it did so only after it got security assurances from the military.

The Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, said Nigeria will only resume its search for oil in the Lake Chad Basin when it gets a security clearance.

Kachikwu described the kidnap of oil workers by suspected Boko Haram insurgents in the area as a major setback for Nigeria’s quest to find oil in the northern part of the country. He said following the attack, the government resolved to suspend oil exploration activities in the Basin until the NNPC received security clearance to resume.

“But if NNPC cannot do its job because of criminality, it portends danger that the economy would grind to a halt. Further activities of the Corporation in the Basin will be based on sufficient security in the area,” he said. “The security agencies, who are experts in the field of surveillance, will take a second look at the terrain before certifying it safe for exploration activities,” he added.

Exploration activities in the Lake Chad Basin, he said, were undertaken under the protection of about 200 security personnel, including the military personnel and civilian JTF.

He said prior to the exploration activities in the region, the NNPC got assurances of substantial return of security and stability for a minimum of six months.

“There was some level of stability in that area. It wasn’t a misguided venture into the terrain. But, if we take the decision not to do things because of criminality in that area of the Chad and other parts of Nigeria, it means the economy will stop. It means oil in the Niger Delta will stop,” he said.

Kachikwu said the NNPC’s decision to resume exploration activities in the Inland Sedimentary Basins, including the Chad Basin, was pursuant to the aspiration of the present administration to grow the country’s current crude oil reserve base from over 37 billion barrels to 40 billion barrels.

The minister said based on the advice from the military in November last year, after a successful campaign and degrading of the insurgency in that zone, the NNPC resumed exploration activities in the area, including Gubia Nugumeri, Munguno, Kukawa, Abdam, Guzamala, and Mobar.

But, only a few months after the Boko Haram ambush, the NNPC announced that it has commissioned another team to handle a similar mission in the Sokoto basin.

The NNPC Group Managing Director, Dr. Baru, told the Sokoto State Governor, Aminu Tambuwal, during a working visit to the NNPC Towers in Abuja, that the Corporation was determined to find oil in the northern part of the country.

“We have been on the issue of exploration in the frontier basins and so far some measures have been taken. We have already purchased aeromagnetic data and its being interpreted to determine the sedimentary character and configuration of the basin,” Dr. Baru said.

“We have also awarded a contract for the geological mapping of the basin. I am happy to state here that samples have been collected, mapped, analyzed, and geological modeling executed to ensure data integration,” he added.

He said discussions were ongoing with the NNPC integrated data subsidiary, Integrated Data Services Limited, IDSL, to award a contract for surface geochemistry, ground gravity, and magnetics.

According to him, this was necessary to determine if hydrocarbon was generated in the basins and importantly, to integrate all data for the understanding of petroleum systems the basins.

Baru said the NNPC would also carry out high resolution regional 2D seismic data acquisition to identify leads and prospects, after which a 3D seismic data acquisition would be carried out over leads and prospects of the basin.
“After all these are carried out, we will then begin to drill for oil and gas in the basin,” the NNPC GMD added.

In his remarks, Tambuwal said the result of various studies carried out by the government in the Sokoto Basin would be transferred to the NNPC to aid its exploration efforts.

He said the State government in collaboration with the Usman Danfodio University, Sokoto would organise a national conference on the Sokoto Basin in October to enable international scholars to make presentations on the topic. “We are inviting you and the NNPC to take part in this important conference because we believe it will add value in our search for hydrocarbon in the Sokoto Basin,” the governor said.

He said historical records, which revealed the presence of huge deposits of hydrocarbon in the Sokoto Basin has been a subject of interest to geologists for a long time.

Some industry experts have said the persistent push by some northern leaders, including President Muhammadu Buhari, points to an underlining reason far beyond the quest, which is far from being of economic benefit to the country.

Already, there have been visits by some northern governors to the NNPC on the issue. The President, Governors Ibrahim Gaidam of Yobe; Aminu Waziri Tambuwal of Sokoto; and Abubakar Badaru of Jigawa states were recently in separate closed-door meetings to discuss oil exploration in the region.

In the meantime, the NNPC has announced that it has embarked on a more rigorous exploration of oil in the Gongola and other inland basins, using the latest seismic data gathering technology. Dr. Baru made the disclosure last month when he paid separate visits to the governors of Bauchi and Gombe States.

He noted that “NNPC is deploying state of the art technology in the present data acquisition and we are confident that these efforts will lead to a clearer definition of the prospectively of the basin.” He said that the contractors awarded the contract for the seismic data acquisition in the Gongola Basin, was Integrated Data Service Limited, IDSL.

Baru said the contractor was a subsidiary of the NNPC and the Bureau for Geophysical Prospecting, a subsidiary of Chinese National Petroleum Corporation, BGP/CNPC, were mobilising to commence the project.

The GMD said that the seismic data acquisition activities and exploration well drillings would provide employment opportunities for the youths. Baru said the multiplier effect of the envisaged employment would contribute to the economic empowerment of the surrounding communities and the nation at large.

He said that NNPC was in the process of awarding the Environmental Baseline Studies, EBS, and Environmental Impact Assessment, EIA, to the Abubakar Tafawa Balewa University, Bauchi and the Modibbo Adama University of Technology, Yola.

GPS monument mounted by NNPC seismic crew at the Kolmani oil well in the North East

In their separate remarks, the governors of Bauchi and Gombe, Mohammad Abubakar, and Ibrahim Dankwambo applauded the President for the pragmatic move to rigorously commence exploratory activities in the area. They both stressed that the move would further grow the nation’s oil and gas reserves.

“We are ready to provide offices and accommodation for all NNPC staff that will work on this project,” Abubakar said. “Already, we have assigned two ministries that will work with your team on this laudable project. “I will work with other Governors in the North- East to galvanize support from our people towards this project,” Dankwambo said.

Also, oil search in the nation’s inland basins received a fresh impetus following the commencement of exploration activities in the Benue Trough by the NNPC. Dr. Baru, who announced this development last month during a visit to the Governor of Nasarawa State, Mr. Umaru Tanko Almakura in Lafia, stated that the effort was in fulfillment of the Presidential mandate which directed NNPC to resume oil exploration activities in some of the nation’s inland basins which include the Chad Basin and the Benue Trough.

He said the Presidential mandate was driven by the urgent need for the nation to increase its oil and gas reserves, thereby improving revenue streams and creating more business and employment opportunities for Nigerians.

He assured that as a responsible corporate organization, NNPC through its Frontier Exploration Services (FES) would do everything possible to operate peacefully among the people and with much respect for the environment. Already, the GMD noted, the Corporation’s Frontier Exploration Services (FES) had mobilised the Integrated Data Services Limited, IDSL, an upstream arm of the NNPC, to acquire seismic data in the Benue Trough commencing from the Keana area. “I am convinced that the success of the results from IDSL’s seismic data acquisition will lead to the drilling of exploration wells in the area, which hopefully, would launch Nasarawa state into the league of oil producing states in the country,” Baru stated.

Stakeholders allege hidden agenda, NNPC disagrees

While those in favour of the search disregard the economic waste but are encouraged by the success of oil finds in neighbouring countries like Niger, Chad and others, geologists who are mindful of the soil composition of hydrocarbon reserves, think it’s an effort in futility.

Speaking recently in an interview with CNBC Africa, the president of the National Association of Petroleum Explorationists, NAPE, Mr. Abiodun Adesanya, stated that despite all the confident talk by NNPC officials, there is no oil discovered in the North Eastern part of the country.

According to him, “There’s been no crude oil discovered at this time. What has happened is that since 1984 there’ve been exploration efforts in North East Nigeria. To be particular we call it the Bornu or the Chad Basin area. They’ve been drilling wells. They’ve drilled about 23 wells in that region so far. About 2 of the 23 had some minor shows of gas and between 1995 and 1997 when then the deep water aspects of Nigeria were beginning to be developed, some IOC companies namely, Chevron, Total and Shell were given certain blocks in the upper Benue Trough. Each of those companies drilled one well each in their respective blocks.

“All together we’ve had about 26 wells to date. Out of the 23 that were drilled earlier, only those two gas shows were discovered, and out of the three that were drilled by the IOCs, the block given to Shell had a gas discovery, but the gas discovery is untested. It’s un-dimensioned, so we don’t know the exact reserve size of that gas discovery and the volume has not yet been certified. Therefore, the frontier exploration service of the NNPC is doing some work at the moment to acquire additional data,” he stated.

He added, “To be honest I wouldn’t know, but from the information I have and to the best of my knowledge, no crude oil has been discovered, just gas. We haven’t been able to determine its commercial value yet because we need additional data to do so.

“Well, they’re stepping it up and you know the oil and gas industry is not a day and night kind of operation. It takes a while for things to mature up to the point where you can say, ‘Yes, we have a commercial discovery of anything, either oil or gas.’ And after that, you begin to figure out exactly how you want to utilise that resource from that point.”

Adesanya stressed that any discovery in the region has a lot of ramifications economically. “Obviously, gas is required at this point in time, and you mustn’t forget that at the time some of these exploration efforts were undertaken, we weren’t looking seriously at the utilisation of gas. If you look at the fact that gas flaring has been the order of the day for several areas, and that has reduced significantly. We need the gas for power and all kinds of industries, including ammonia, for fertilisers, etc. The benefit of this would be the fact you wouldn’t have to lay down extensive long pipelines to anywhere. You can just build your industry on top of the field, and then you would reap the benefits straight away,” he said.

The Executive Director, Civil Society Legislative Advocacy Centre, CISLAC, and Head of Transparency International Nigeria, Auwal Musa, described the move as unnecessary and not in the best interest of the country. He said: “We should not bring regional politics into everything that can benefit the entire country. The project has not been seen as a national effort to diversify revenue. If it is seen as something meant for national interest, I don’t think there is the need for the Sokoto State governor or anyone to lobby. There are signals that it is going to favour one particular region.”

Senator Shehu Sani, during a visit of members of the Kaduna State Students Union to his office in Kaduna, noted that “past leaders have amassed wealth through this venture,” and instead called Buhari to investigate the over $3billion already spent on the project.

Rather than continuing with the search, some experts argued that Nigeria should take the opportunity of the rise in oil prices at the international market to produce already discovered reserves, and maximise the benefits thereof in view of the global shift to renewables.

The Managing Director, Xenergy Gas Limited, Mr. Emeka Ene, recently drew attention to global developments, noting that, “OPEC’s World Oil Outlook published in 2016 clearly indicated that global oil demand would start declining from 2030. Natural gas will still be relevant; however, it is imperative that policymakers and oil industry players factor in this shift by incorporating alternative energy in their long-term economic and investment decisions moving forward.”

Other analysts insist that now is the time for the government to use the already discovered oil reserves to exit from the current mono-product petroleum economy.

The Managing Director, Frontier Oil Limited, Dada Thomas, noted: “The world is accelerating the shift from internal combustion engines as power units for transportation to electric-powered vehicles. This means the demand for hydrocarbons as a fuel source will decrease and supply could exceed demand and oil price especially could remain low for a very long time.

“However, the electricity to power electric vehicles will have to be generated by oil, gas, coal, and renewables with oil and coal contribution reducing over time. The world is also adopting gas as a more environmentally friendly fuel source. This is good news for countries with substantial gas resources, including Nigeria.”

Stressing the need to diversify energy sources, Thomas argued that countries like Nigeria “with vast oil reserves need to monetise these reserves as quickly as possible and use the funds to diversify and position their economies for an oil-independent future.

Similarly, a partner at PwC, Cyril Azeobu, argued that renewed exploration in the north may not be in the best interest of Nigeria. “Exploration is not an easy business; it consumes time and money, and the question is: do we want to do that now when you don’t even know what the outcome will be?”

On why it is taking the country such a long time to make any discovery in the region, Azeobu simply said: “The issue is not about the number of years, but whether it should be a priority.”

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