Making marginal fields productive

When the Federal Government initiated the idea of marginal field scheme more than 10 years ago, it was widely hailed in the country because it was seen as a way of allowing the full participation of Nigerians in the upstream sector of the petroleum industry dominated by foreigners. Unfortunately, since the introduction of the scheme, only a paltry number of operators that got these assets are producing. To be specific, of the 27 marginal oilfields awarded by the government since 2003, only nine are currently producing, while the rest are still planning production or are simply dormant.

Reasons for non-production at the 18 other fields are varied, ranging from the unbankability of the assets to lack of infrastructure, according to industry watchers. Other issues include high development costs, fiscal levies and technology constraints, environmental concerns, and poor access due to the remote locations of the marginal fields. The problem has further been compounded, of late, by the political instability in the country and, of course, the unstable price of the produced gas/liquid.

Recently, the Department of Petroleum Resources (DPR) told the public that it would withdraw the licences of marginal field operators who are not producing or developing their assets. The DPR has also told investors bidding to acquire marginal fields in the current bid round to make sure that fields allocated to them are developed within two years or risk losing them.

For us, beyond withdrawal of licences, it is perhaps time to look at the various challenges the marginal field operators are facing to see if and how they could be addressed. This is because if the key issues remain unaddressed, no matter who gets the licences, the fields that are currently not producing may remain unproductive in time to come.

But again, it bears stating that the non-producing marginal field operators should look at those that are producing to see what they have done right and borrow a leaf. For instance, it is said that aside from the key issues of technical capability and finance that all bidders need to address, there are also the issues of finding reliable and available equipment and services to enable development of the fields; obtaining export capacity in the oil pipelines operated by the international oil companies (IOCs), especially where negotiating strength of a marginal field operator is not significant; dealing with pipeline losses and how these are allocated to the operators who feed into the pipeline; and dealing with local community issues. The non-producing operators could study how the producing operators have navigated though these hurdles.

Furthermore, some multinational companies reportedly demand upfront payment from marginal field operators before they can render services that would enhance their oil recovery and productivity. Sometimes this money runs into millions of dollars that marginal field operators can only afford upon sale of their crude. This situation leaves the operator in a dilemma, much like being caught between a rock and a hard place. This is where the regulators and industry watchdogs must step in to help the marginal field operators achieve their production potential.

Needless to stress, oil production is highly technical and capital-intensive. And it goes with a lot of risks, especially as it affects the investment layout. And access to the humungous amount of funds required for the business, industry watchers say, is becoming a big challenge given the difficult business environment that Nigeria presents to foreign investors and financiers who may want to partner with the indigenous owners and operators of marginal fields. This is further compounded by the divestment activities of IOCs, some of who insist that pipeline sabotage, oil thefts, foggy state of fiscal and non-fiscal provisions of the impending PIB, and security challenges are deterring them from mobilising needed investment for the country’s oil and gas sector.

Given the importance of marginal field asset development as a key contributor to indigenous participation in Nigeria’s energy landscape, we call on the government to help find solution to some of the problems. For instance, there is need for government intervention between the marginal field owners and IOCs who own some of the pipelines through which the crude produced from these assets must pass so as to eliminate all unnecessary inhibitions.

More importantly, there should be an overarching strategy for managing Nigeria’s natural resource base for current and future generations. The government should, as a matter of practice, tie every licensing round or sale of marginal fields to realistic and realisable development plans.

On their part, the asset owners should, very importantly, encourage synergy with a view to establishing consortia and leveraging on individual strengths and values that consortium members bring to the table in tendering formidable bids.