Nigeria: Growing Crude Reserves, Achieving $10 Per Barrel Production Cost - NNPC

17 September 2020

Stakeholders have stressed the need for Nigeria to embrace innovations that will ensure optimal use of resources that can help in reducing cost of production to $10 per barrel, writes  Chika Izuora .

The drive to achieve Nigeria's target of potentially increasing its crude reserve to 40 barrels, is championed by the Nigerian National Petroleum Corporation (NNPC).

The corporation has remained resilient and propitious that its efforts in breaking new frontier basins would bring about success towards meeting the target.

It said recently that the country's ambition to grow her crude oil reserve to 40 billion barrels and three million barrels per day crude production by 2025 is still feasible.

The corporation, however, gave conditions under which such an ambitious project is possible, stating that huge investments are required across the industry value chain.

Speaking at the international conference and exhibition organised by the Society of Petroleum Engineers, Nigeria chapter, recently in Lagos, Mele Kyari, Group Managing Director (GMD) of the state-owned oil firm, said the corporation with its partners are driving the national aspiration to grow reserve to 40 billion barrels by 2025 and improve crude oil production to three million barrels/day.

"To achieve this ambition, huge investments are required across the value chain," he said.

He said the industry needs also to attract investments that would allow for the deployment of improved technology in the exploration and production of hydrocarbons from inland as well as ultra-deep offshore basins.

On their own part, stakeholders in the oil and gas sector advocates the need for operators to leverage on digital processes for optimal efficiency in the oil sector.

At a recent asset management operational webinar series, organised by Integrated Data Services Limited, some stakeholders stressed the need to embrace innovations that could ensure optimal use of resources as well as reduce the cost of operation to $10 per barrel.

Sophia Weaver, Manager, Production Technology, First E&P, stated that the past few years have been challenging for the sector with so much volatility exacerbated by the Coronavirus pandemic.

She said continuing with the conventional model of operation would not yield the desired growth in the sector.

Weaver stressed the need for operators to be more responsive to fluctuating oil prices, adding that there is need to exert control over the rather high cost of operation to ensure process efficiency.

She said: "Achieving operational excellence involves transforming the way we work and digitalize our processes in areas such as oil well and reservoirs management, drilling, logistics and supply chain management.

"Process digitalization involves the use of digital data and technologies to transform existing business processes into more efficient, optimised, more profitable and value adding operations.

"There is need for us to begin to see data as the new oil, data is critical to the development of the sector."

Speaking further, Weaver said achieving operational efficiency requires the re-engineering of traditional processes, optimisation of resources and reduction of waste.

Managing Director, Integrated Data Services Limited, Ayebateke Bariwei, also stressed the need to address perennial issues associated with operational inefficiencies in the sector.

According to him, adopting digitalised process is key to enhancing productivity, reducing waste and improving system efficiency.

Said he: "Process digitalization is about unlocking new value by using digitalised data to change the way things are done.

"Our objective is to ensure that we operate in the industry bringing the unit operating cost to $10/barrel by 2021".

Chief Operating Officer, Nigerian Petroleum Development Company Ltd, Western Niger Delta, Edirin Abamwa, in his remark said regulators must develop an environment that encourages process digitalization and help operators thrive in the sector.

"The operation cost cannot decline in isolation; there is need for an enabling environment, incentives that enable operators modify their ways of doing business, and I doubt it this current environment will make that happen.

"We still lack adequate data to aid effective decision making by operators. We still are not traditionally set up to mitigate disaster shut down, until remedy is carried out.

"It is time to move away from the traditional ways; there are a lot if development that enables operators establish census and determine if machines are operating optimally. These are still lacking among operators today."

Revving Reserves Through New Frontiers

During a recent meeting with the Nigerian Association of Petroleum Explorationist (NAPE), Kyari said significant progress is being made in the ongoing exploration of inland basins, with a realistic and achievable target of growing the nation's reserve to 40 billion barrels by 2023.

The NNPC is revving up exploration activities in all the frontier basins to achieve the 3 million barrels per day (bpd) crude oil production target.

Kyari said the NNPC would invest more efforts and resources in the search for hydrocarbons in the frontier basins and the ultra-deep-water basin in the Niger Delta to grow the nation's reserve base. He also assured that the NNPC, with the collaboration of other arms of the federal government, would create a favourable fiscal landscape that would encourage the inflow of foreign direct investment into the nation's oil and gas industry.

On his part, the Minister of State for Petroleum Resources, Timipre Sylva, recently confirmed that about one billion barrels of crude oil have been discovered in the North-East part of Nigeria.

Sylva, made the disclosure at a news conference on the 2020 Nigeria International Petroleum Summit (NIPS) held in Abuja.

He said: "The figure we are getting - the jury is not totally out yet - but from the evaluation results we are getting, the reserve that has been discovered in the northeast is about a billion barrels. Those are the kind of figures we are seeing and we are beginning to understand the geological structure of the region."

According to him, a lot of oil is yet to be discovered in the country, adding that there was a need for more exploration as more oil would be discovered.

"Let me give you an example, by the year 2002, our oil reserves stood at around 22 billion barrels. We were able to grow that reserve from 22 billion barrels to 37 billion barrels by 2007."

Straddling The Deepwater Space

The Department of Petroleum Resources (DPR), is equally optimistic on the drive with the revelation of the existence of 13 billion barrels of crude oil in Nigeria's deepwater terrain.

Deepwater oil blocks are those located in areas of water depth beyond 200 metres and extending up to 200 nautical miles seaward from the coasts of Nigeria.

Deep water producing fields in Nigeria include Akpo, Usan and Egina of Total E&P Nigeria, Bonga of Shell Nigeria Exploration and Production Company, and Agbami of Chevron Nigeria Limited among others.

Total has for almost a decade been extracting oil from a third field in the block, Akpo. It holds a 24 per cent stake in the block's lease and is the operator. Its partners are state-owned NNPC, China's CNOOC, Brazil's Petrobras, and a private Nigerian firm, Sapetro.

DPR said of the 13 billion reserves in the deep water, only two billion barrels have been explored; so there is need to have more attractive fiscal and changed regulatory regime.

There is need to amend the policy that nobody brings third parties and investors who will bring floating production, storage and offloading vessels (FPSO).

Data from GlobalData Upstream Analytics shows also that Nigeria holds the top spot among the 10 countries with the largest remaining crude oil and condensate deepwater reserves, with 5.038 billion barrels expected to be economically recovered in the country.

The US, Angola and Brazil follow with 4.739 billion barrels, 4.495bn barrels and 3.524bn barrels respectively.

GlobalData estimates that the top 10 countries hold a total of 25.881bn barrels of economically recoverable oil reserves.

GlobalData reports that over 84 per cent of the remaining reserves held by the top 10 countries are represented by conventional oil at 21.7284bn barrels.

Oil reserves associated with conventional gas developments across the 10 countries stand at eight per cent (2.0795bn barrels).

Close to eight per cent (2.0735bn barrels) of the remaining reserves are represented by heavy oil fields.

Ghana and Norway have the lowest break-even oil prices at $18 and $19 per barrel respectively; while Australia and the UK are the countries with the highest remaining break-even oil prices at $42 and $40 per barrel for deepwater developments.

DPR said oil production from Nigeria's deepwater province is currently 850,000 barrels per day, representing 40.47 per cent of the total production of 2.1 million barrels per day.

Currently, total production is 2.1 barrels of oil per day (bopd); while deepwater production is 850 bopd. Cumulative deepwater production as at December 2018 is 3.2 billion barrels.

Nigeria has 83 deepwater oil and gas blocks out of which 30 has been awarded and eight blocks out of the 30, are oil mining leases (OMLs) that have begun production. There are about 53 open blocks to be awarded.

Successful progress has been made in growing Nigeria reserves and production from the development of deep offshore hydrocarbons since 2003.

Technology has been the key enabler in converting resources into economical reserves. There abound ample opportunities to realize accelerated revenues and sustained investment in maturation of more than 40 billion barrels of oil equivalent resources presently untapped in Nigeria deep offshore area.

DPR as a regulator, is also working with other stakeholders, including the NNPC, to go into deep water, when the inland and the offshore were already saturated.

The DPR stated that the only way to do that was to come up with a production sharing contract (PSC) agreement, and that was how 83 blocks were mapped in Nigeria deep water, and 30 of the blocks were awarded. Eight of the blocks were awarded in 1993, eight in 2000 and another 14 in 2015.

To unlock the huge potentials in the deepwater, the federal government should create more attractive fiscal and regulatory regime, incentives based on reserves replacement; ensure accelerated lease renewals and encourage deep play exploration and reserves maturation.

Others measures include creating unique fiscal policy for unique emerging plays, responsive legislative environment and gas commercialization, among others.

Concerns Over Meeting Deadline

But looking at these challenges which may have prompted the shifting in target date, has stirred argument among industry players and stakeholders.

The NNPC prompted the debate when it announced a new deadline of 2025 to boost the nation's crude oil reserves from 36 billion barrels to 40 billion barrels, and a production capacity of three million barrels per day from 2.2 million barrels.

This new deadline came barely a few months to go for the initial closing date of 2020, after almost 10 years when the federal government declared in 2010 to increase reserves.

Kyari, has however revealed its ambitions to increase reserves by 2025, as the corporation with its partners, seeks to grow the national reserves to 40 billion barrels in six years time as well as improve crude oil production to three million barrels/day during the period.

Industry players have however held divergent views on the reality of the new target considering what is currently obtainable in the sector.

Some of them have rather described it as too ambitious, while others suggest its possibility if things were done right.

An energy consultant, Charles Mojomi, noted that for the target to be met, upstream production has to increase through cost reduction of crude oil production in the country, which lies at about $30 per barrel.

The reduction in this cost, he said, would not only increase investments for more production, but also enhance midstream profitability.

The ambition, which he described as a noble one, can only be realistic when refineries are revamped to increase the amount of products availability in the market, considering the fact that Nigeria is the only country under the Organisation of the Petroleum Exporting Countries (OPEC) that still relies heavily on product importations through the current direct sale and direct purchase agreement.

He maintained that the immediate focus of the corporation and the new minister should be finding real ways of attracting investment for the overhauling of the refineries to reduce export of raw materials and rather boost increase in foreign exchange savings, adding that that could also be a mechanism to drive down corruption.

The energy consultant observed that, given that 70 per cent of the nation's energy resources are located onshore within the Niger Delta, it is pertinent for government to find lasting solutions to the issues around that area, since the conflict in the region is another major factor fuelling vandalism of pipelines and oil theft.

"Vandalism would always occur in Nigeria, as long as the host communities are unhappy because it's used as a geo political tool to bring the attention of government to the plight of the people," he added.

Majomi, pointed out that until the industry looks beyond just extract and export's products for funds, to seeing it as a transformative platform that can add value to the people and economy, energy security can't be achieved.

Similarly, the Managing Director of ExxonMobil, Paul McGrath, in his address at an event organized by the Association of Energy Correspondents of Nigeria's (NAEC), expressed some concerns about the high cost of production of crude in the country, noting that the country ranks among the top 10 nations with the highest cost of crude oil production.

The security cost, he noted, was another factor to consider, as it poses a lot of fears to investors coupled with an unpredictable environment.

For him, if Nigeria wants to remain sustainable, government needs work on cost reduction modalities and mechanisms, as well as stable and competitive fiscal policies and a healthy contract integrity culture, because it is a global commodity.

On his part, Chairman, Ghana National Petroleum Commission (GNPC), Petroleum Economics Institute for Oil and Gas Studies, University of Cape Coast, Wumi Iledare, described the ambition as a cliché of the corporation as investment is not the problem, but management and leadership with key performance indicators are.

He said in the last 12 years, no oil block has been leased out for exploration; no enabling environment nor incentives, no PIGB passed. How will they now increase the barrels," he asked.

Iladare, who expressed doubt in the target timeline, taking into cognizance all the named factors, said: "2025 is just six years away; to deliver on this promise is a big question."

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