31 August 2013, Lagos – The Department of Petroleum Resources, DPR, Thursday, disclosed that out of the more than 77 oil blocks awarded between 2005 and 2007, only one is producing, a situation that has called for urgent intervention by the Federal Government.
This is even as price of Brent crude oil dropped below $116 a barrel, Thursday, as anticipation of a possible delay in a military strike on Syria. This helped calm concerns over Middle East oil supplies.
Speaking at a forum on the 2005 to 2007 licensing round in Lagos, Mr. George Osahon, DPR, also declared that the rest of the non-producing oil blocks are presently at less than 30 per cent development.
“Only one block is currently producing, while less than 30 per cent of blocks are actively worked; several Production Sharing Contracts, PSC, are yet to be signed; bank guarantees yet to be put in place; work obligations are not respected and downstream obligations not performed,” he said.
It is widely believed that block owners merely acquire such assets for status ship, as most simply go block hawking when they acquire the licences. While it may have been easy to fling such blocks away to the first bidder, stringent measures introduced have made it impossible for Nigerian oil blocks to be sold so easily in the open market
He lamented the fact that majority of the operators are using the delay in the passage of the Petroleum Industry Bill, PIB, as an excuse not to develop their fields, stating that this is improper and a ploy to blame the government for their lack of seriousness
According to him, in the last three to four years, nothing is happening in Nigeria’s upstream sector, while in the marginal fields sector; only eight oil blocks are currently producing out of the 24 awarded to 31 successful companies.
Giving a breakdown of the oil blocks awarded since 2005, Osahon revealed that in 2005, the Federal Government awarded 44 oil blocks across the country; 16 were awarded in 2006, and 17 in 2007.
Osahon identified partnership and partner relations issues, and lack of access to financing as the major challenges affecting the development of the oil blocks.
Other challenges, according to him are technical challenges and unavailability of data, insecurity, limited capacity and issues of packaging.
He said that the Federal Government is concerned about the inability of operators to meet industry targets for reserves and production capacity, limited activities in the oil and industry and implications for the industry vitality and social challenges.
Other concerns of the government, he said, are “Inability to establish national competitive advantage in the global energy scene; wrong impression about investment climate with PIB being touted as the reason for limited industry activities and limited attraction for investors.
On the way forward, he said, “Awardees and operators should take advantage of forums presented by the DPR to build relationship with prospective investors and financial institutions; awardees are encouraged to build synergies where possible, as in contiguous blocks for data acquisition or conjugate development.
“DPR will commence entertaining concern of awardees from Tuesday to Thursday each week for the next three weeks, where specific challenges such as evacuation and downstream project obligation and other issues or obstacles to operations will be addressed.”
He advised companies to, henceforth; undertake in-depth studies on prospective blocks before bidding and acquiring such blocks, warning that the oil and gas business is expensive and highly risky.
Insecurity, a bigger factor
But the Managing Director, Oando Exploration and Production Limited, Mr. Pade Durotoye, identified insecurity as one of the biggest challenges confronting oil blocks development.
He said the challenge has made it impossible to get seismic crew to work on the acreage; which is compounded by the demand for performance bond and 100 per cent cash collateral required for the performance bonds among others.
He called for the removal of the performance bond so that such funds can be used for blocks development, while an effective platform should be provided to negotiate minimum work commitment in line with current realities around the asset.
He further called for the detachment of downstream commitment from the PSCs obligations; organic buy out terms for local content vehicles that have no funding and which requires carrying and also develop a clear force majeure procedure with Production Sharing Contracts.
Brent crude for October delivery hit a low of $114.94 a barrel, down $1.67, before recovering to trade around $116.00 by 1350 GMT. It jumped over 5 percent in the previous two sessions, posting its strongest two-day gain since January 2012.
October U.S. crude fell $1.50 to a low of $108.60 a barrel before rallying to around $109.40, following a near four per cent gain over the past two days.
“The market is reassessing the supply implications of the conflict in Syria,” said Eugen Weinberg, global head of commodities at Germany’s Commerzbank.
“Our view is military action will not destabilise the whole Middle East, which means the risk premium is being overstated. If the conflict is contained in Syria, prices are too high.”
Oil has jumped this week to multi-month highs on fears that the potential strike on Syria could spread unrest to major oil producers in the Middle East and disrupt supply.
Even without disruption to supplies from key oil producers such as Saudi Arabia and Iraq, the oil market already has a host of supply issues to worry about.
Libya’s crude output has fallen to around 250,000 barrels per day (bpd) from pre-war levels of 1.6 million bpd as workers’ strikes crippled exports, Prime Minister Ali Zeidan said on Wednesday.
Iraqi oil production has fallen by around 500,000 bpd due to maintenance and problems with local pipelines, while output has also been restricted from the North Sea, the Gulf of Mexico, the Black Sea and Nigeria.
Analysts say between two million and three million barrels per day of oil has been removed over the last few months, tightening a market that otherwise would have been well supplied.
Brent’s premium over U.S. crude futures CL-LCO1=R has risen to more than $6 a barrel, the widest since June, on expectations of increasing supply at the U.S. contract’s delivery point in Cushing, Oklahoma.
*Michael Eboh, Vanguard