Playing marginal fields game in tough times
Following the slide in oil prices, the question of marginal fields and how to develop them has become an issue particularly for smaller companies amongst Africa. While explorers may hope to strike it lucky with wildcat exploration, such a strategy relies on timing, opportunity and above all, luck.
The African oil patch is full of marginal oil and gas fields which if developed will help to boost the economy of the continent tremendously. Whether offshore or onshore, these fields which are considered marginal based on ranking of mega oil companies are abundantly “wasting” in many countries of Africa. Be it in Nigeria where there are more than 200 marginal oil fields, Equatorial Guinea, Ghana, Angola, and even in the region’s new frontiers, name it, some of these fields will remained undeveloped.
Exploiting a field that is already known, but not developed for whatever reason, allows companies to move far quicker into starting up production, which opens up a range of doors, not least providing some certainty for investors and financiers.
Some of the yet to be discovered oil and gas fields may end up been marginal fields due to the level of reservoirs which big oil companies consider not to be commercially attractive enough for them to produce. However, some of these field have the potentials of producing up to 100,000barrels of oil which at today’s price of oil turns out to be billions of dollars buried and untouched, while millions of Africa’s struggle in abject poverty – some living with less than $2 a day.
Rogers Beall, Africa Fortesa’s chairman, told the Africa Small and Marginal Oil Fields Conference, organised by Energy & Corporate Africa, recently in London said “companies that have struggled are those working in countries where the government has failed to provide an economic regime sufficient to ensure production”.
Orca Exploration has 283 billion cubic feet (8 billion cubic metres) of gas in Tanzania “but the government is making the company sell that gas very cheaply in order to fuel the government power plant. They are selling it at 25 percent of its value.” Beall also noted the example of Harvest Natural Resources in Venezuela, which has been unable to make headway with its reserves because of punitive government terms. Companies that have managed to make progress with small finds, as gauged by share prices, include Aminex in Tanzania, San Leon Energy in Poland, Circle Oil in Morocco and Victoria Oil & Gas in Cameroon, Beall said. “Marginal fields are the answer.”
Nigeria, perhaps, the best known marginal fields of the continent, and where the most work by indigenous operators has been done, are the resources in Nigeria. The country is fairly well explored, given its history with the majors.
The large companies may have opted not to develop resources that fall below a certain commercial threshold, but these smaller fields can still be huge resource for nimbler operators.
Unfortunately, West Africa is losing abundant revenue due to many fields classified as marginal which may never be put into production. Yet, there are tendencies that more deep water fields will still be discovered in West Africa. All of the fields to be discovered in future may not be like the Bonga and Agbami in Nigeria or the Jubilee Field in Ghana.
For minnows, particularly indigenous ones, marginal fields can offer intriguing opportunities. The Nigerian government has made a concerted effort to drive its companies into picking up local assets, through a combination of tax breaks and by making it clear to sellers that indigenous companies must be given priority. A statement from the office of Nigerian President Muhammadu Buhari last week also stated a policy of supporting indigenous producers by the government.
Beall picked out two factors as playing a key role for small companies: small fields and conditions conducive to their development. The industry has overlooked the opportunities offered by small fields, noting the reluctance of exploration managers for such work. Beall cited a number of examples of companies that had pursued high-risk, high-impact exploration and been unable to sustain share price value as a result. Chariot Oil & Gas and Petromaroc have struggled in this regard, he said, noting the large amounts of shareholder cash that had gone into these companies, to little outcome.
During the oil price boom, the range of companies working in this space proliferated, backed up by easy credit from local banks. Now, the squeeze is on and warnings have come from the Central Bank of Nigeria (CBN) that the financial sector is over-exposed. Consolidation seems likely, therefore, which should bring operating costs down and make Nigerian companies more competitive. The majors dominate Nigerian production,
Anthony Adegbulugbe, chairman of All Grace Energy noted that small companies are reliant on their infrastructure in order to move production to market. “There are 300 marginal fields in Nigeria”, Adegbulugbe said, adding that the fields will remain undeveloped unless small companies can meet this challenge. “It is challenging to put marginal fields on stream at times of low oil prices,” adding that it is important for small companies to co-operate amongst themselves in order to reduce costs by working collaboratively and through pooling human resources.
According to the Department of Petroleum Resources (DPR), there are 12 marginal fields producing in Nigeria with output of 62,667 barrels per day, ranging from 2,000 bpd to 35,000 bpd. Emmanuel Bekee, DPR’s assistant director of upstream operations said at the conference that there were a range of opportunities linked to the marginal fields, for instance in the refining sector, in addition to providing gas for local consumption. While Nigeria has taken steps to improve access to marginal fields for its companies, challenges remain.
Bunu Alaibe of Green Energy International noted the difficulty posed by bureaucracy, saying that the “gestation period (to acquire a field) was six to 10 years”, with a range of interests being involved, including the government, partners, legacy interests and local communities. Companies, Alaibe said, must “work with communities to assist them so they become stakeholders, rather than just landlords who collect rent”.
Given the rising price of services, finds in the deepwater need to be large, perhaps more than 200 million barrels in order to be developed economically or so conventional wisdom suggests. Such an assessment suggests as many as 70 percent of discoveries in the offshore are too small for development, even where exploration risk is effectively zero, Keith Millheim, Atlantis Offshore’s CEO said. There are also other complications that may discourage companies, such as if the oil is heavy.
Millheim noted four discoveries in West Africa; Nigeria’s Chota field, Benin’s Kaba, Ghana’s Odum and Obo in the Nigeria-Sao Tome and Principe Joint Development Zone (JDZ), that appear to be too small for development. This presents a challenging scenario for West African countries that rely on the major E & P companies for development of their resources.
These finds, however, should not be written off, he said. In order to develop these assets, speed is of the essence. Rather than taking four to 10 years to start up, Millheim said, the technology exists to bring them into production within 12 to 24 months, through the use of a floating production unit (FPU) and shuttle tankers.
“What we invented was a system to get everything off the sea floor and get direct access to the existing well. This technology provides the ability to go into an existing well, with a subsea tree, in order to get early production. Nothing is on the seafloor apart from the anchors and the shut-off pipes, everything is retrievable and you do not need heavy lift equipment,” Millheim said, with this technology having production capacity of 10,000-25,000 bpd. “The economics work at US$40 per barrel, the technology is within reach and small companies can do this.”
FRANK UZUEGBUNAM