‘Nigerians can actually manage oil, gas assets’

In 2003 the Department of Petroleum Resources, DPR, awarded the Oil Mining Lease for Uquo marginal field located in OML 13, onshore Akwa Ibom Sate. The oil asset, acquired by Frontier Oil, was among 23 others as part of the Federal Government’s Marginal Field Programme meant to boost Nigeria’s crude oil production, reserves addition, employment generation and above all, indigenous participation in the oil and gas industry.

The Uquo field and upstream development is an unincorporated joint venture between Frontier Oil (60 percent) and Seven Energy (40 percent).

Uquo marginal field prides itself as a 100 percent indigenous oil and gas asset. “In terms of operating the plant itself, we are also proud to say that we have various experienced hands. What we have been able to do is to tell the whole world that Nigerians can actually manage these assets. We do not have a single expatriate on site. Nigerians are capable of delivering effective results from oil and gas plant and that is what we have been able to achieve”, said Wole Adefila, Operations Director, Frontier Oil Limited during a facility tour to the company’s oil and gas fields in Eket, Akwa-Ibom State.

One year after the official commissioning of the gas plant by former President Jonathan, the Alaoji, Calabar and Ibom independent power plants depend on the gas from the 200mmscf/d Central Processing Facility for its power generation. In addition to these power plants, gas from the facilities also serves the power generation needs of the UniCem Cement plant and as feedstock for the Notore Fertilizer plant.

Adefila said that “the journey has not been easy. When this block was won by frontier, we did not start any appreciable development until 2005, effective in 2006 and 2008. The reason was that as an oil field that has been abandoned by Shell for a long time, we had no information about the field. So, the first thing we had to do was to go back and collect information as much as we could from Shell”.

The Uquo marginal field is predominantly a gas field although it also has crude oil. Uquo’s gas reserves are non-associated gas, thus, expectations did not turn out as anticipated, as the field was not an oil field as indicated by the DPR data. This presented a different kind of challenges, as gas development is not something industry operators look forward to, at last, not way back then. The nature of the resource found required new plans for the field development altogether with regard to what to do with it and how to harness the gas.

After a long gestation, spanning almost a decade the prospects began manifesting, which debuted in the Uquo Gas Plant. In December 2012, first gas was produced for testing and commissioning purposes. First commercial gas deliveries from the facility commenced in early 2014 to the 190 MW Ibom Power station making Frontier Oil the first and only indigenous operator who has succeeded in the monetization of both crude oil and non-associated natural gas from the marginal field awarded.

The gas produced from the Uquo field is sold to Accugas Limited. The FUN crude oil evacuation system is also a joint venture project owned equally between Frontier Oil, Universal Energy and Network Exploration. The joint venture appears seamless.

“Once trust is established, it will become a lot easier to manage the affairs in the companies. Once the parties are able to fulfill their obligations, the joint venture will surely succeed. Funding is important and there should be mutual trust and respect. The joint venture companies should be work together collaboratively, because it is a symbolic relationship”, said Adefila.

“Mutual trust, respect and proper funding will make joint venture to succeed and we are ready to do it again if there is another opportunity. We do not want to be a one asset company. We are looking at taking up other fields around us. We are even ready to partner with owners of the assets around us, which have not been able to make reasonable impact due to technical challenges. We are ready to provide the technical capability, which we know we have in-house to help them develop their fields and make the best out of them”, he added.

Challenges however remain. Dada Thomas, Chief Executive Officer of Frontier Oil in a paper presented at the recently concluded Society for Petroleum Engineers (SPE) forum in Lagos expressed concern over the low level of gas usage in Nigeria in comparison with other developing countries.

“Nigeria’s low gas consumption is contributing in some ways to Nigeria’s economic misfortune and resulted in its low GDP per capita. Countries consuming substantial volumes of gas have been able to significantly meet their energy needs and achieve high GDP per capita.”

Dada, therefore, urged the government to put the necessary policies in place to make this attainable. “Government should create an enabling environment for Nigerian entrepreneurs and their partners to create value locally. Government should incentivize indigenous independent operators as they incentivized international oil companies in the past.”

According to him, “Some 182tcf (trillion cubic feet) of gas is in Nigeria waiting to be developed. What is lacking and urgently required are the political will, enabling policy, commercial and regulatory framework to unleash the true potential of gas to the benefit of all Nigerians”.

Given the right operating business environment, part of Frontiers aspirations is to expand its gas plant.

“In our gas plant, there is still space for expansion. It will be possible to make profit if there are off-takers and effective gas pricing mechanism. If the gas pricing is not right, it will definitely take you a longer period to breakeven. We do not have enough consumers of gas in Nigeria. We need more consumers to take our gas that is the only way we can make more money”, said Adefila.

“We have the capacity to expand up to ten trains as the demand for our gas increases. So if the demand is there and the pricing is right, we will expand. Oil prices have been plummeting since last year. Our gas price still remains as it was. The gas business is not like crude oil. In gas business, there is an agreement, with the customer that last for 10 to 15 years. The price is fixed as at the time of that agreement so you do not expect any change. If there is anything of such, the two parties normally come together to decide whether to increase it or not”, Adefila added.

The declining oil price, no doubt has affected operations even in the gas sector. “We have been affected and we are still being affected. For example, our budget for last year was based on $80 to $100 per barrels and it is less than $40 recently, so it is difficult to manage a budget based on $80 per barrel with the reality of today of $40 per barrel. We have been affected in respect to our service provider. We are having challenge in respect to making payments to our service contractors and that has affected us. We have decided to temporary suspend production from our well nine due to lack of funds”

“The present pricing regime is not really encouraging to investors”, said Adefila adding that “there is need for government to encourage local companies by improving on gas pricing and by also giving indigenous operators equal opportunities with the International Oil Companies to perform more. We need more assets from the government. Frontier Oil Limited has proved that Nigerians can do those jobs that were hitherto done by IOCs. We need encouragement from government”.

Frontier has also conducted its operation without any major health or security incidents achieving an industry landmark by recording more than nine million man-hours of Loss Time Injury free operations.

FRANK UZUEGBUNAM