Operators May Earn N4.37tn from Marginal Oil Fields

Proposed crude oil exploration from 57 marginal oil fields is expected to boost Nigeria’s oil production by at least 8.835 million barrels monthly, an analysis by The PUNCH has shown.

With the newly issued marginal field licences, the country’s oil production is expected to grow by 285, 000 barrels per day, going by the estimated 5,000bpd output projected for each field.

As a result, operators of the new marginal oil field licences are estimated to rake in at least N364bn ($883,500,000) monthly if the oil price remains stable above $100/barrel for a long time.  Already, experts have predicted that oil prices may remain above $100 per barrel zone over the next one year.

Going by the analysis, the operators of the fields may rake in about N4.368tn in a year in the absence of external factors such as the activities of oil vandals, and production shutdown, among others.

However, the additional 8.835 million barrels per month is expected to go a long way in boosting the nation’s oil production.

A marginal oil field is described as any field with oil and gas reserves, booked and reported annually to the Nigerian Midstream and Downstream Petroleum Regulatory Authority, but remains explored for a period of over 10 years.

The marginal oil field programme was introduced to encourage increased indigenous participation in the Nigerian petroleum sector and grow the country’s crude oil and gas reserves.

Each field is expected to produce at least 5000 barrels of oil per day at the initial exploration stage.
However, it is expected that production could grow to 10,000b/d and as high as 25,000b/d, depending on the viability of the field and the readiness of investors to pump in more funds.

The Federal Government has been yearning to see the nation’s oil reserves and daily production rise to 40 billion and three million barrels respectively.

The government believes the 57 marginal oil fields won last year by 161 companies will boost the nation’s reserves and production.

The 2020 marginal oil field bid round started in June of the same year. In May, 2021, 161 companies were shortlisted as winners of the 57 marginal fields which were put on offer.

The offers spanned onshore, swamp and shallow water. The marginal oil field licences were handed over to the winners of the bids last month by the Nigerian Upstream Petroleum Regulatory Commission.
Some of the companies which emerged winners from the exercise included: Matrix Energy, AA Rano, Andova Plc, Duport Midstream, Genesis Technical, Twin Summit, Bono Energy, Deep Offshore Integrated, Oodua Oil, MRS and Petrogas.

Others were: North Oils and Gas, Pierport, Metropole, Pioneer Global, Shepherd Hill, Akata, NIPCO, Aida, YY Connect, Accord Oil, Pathway Oil, Tempo Oil and Virgin Forest, among others.

However, despite efforts to encourage indigenous players,  marginal oil fields are yet to make any significant impact in the Nigerian oil and gas industry and are currently accounting for less than four per cent of the country’s crude oil output.

Experts have said Nigeria’s low crude oil output is putting a strain on its revenue and ultimately the country’s general economy that relies heavily on revenue from oil.

In 2003, twenty-four marginal fields were allocated to 31 indigenous companies, however, as of 2016; only seven were producing, contributing approximately one per cent to Nigeria’s daily oil production.
Exactly a decade after the award of the first programme, another licensing round was announced in 2013 with 31 fields on offer.

The country has also consistently missed its OPEC quota due to low crude oil production.
Economic and financial experts have however reacted to the development.

“Beyond OPEC, Nigeria’s economy will continue to face local pressure as a result of the Russian/Ukraine war. Although oil prices are high, we are unable to produce enough oil to increase our revenue, and that is putting a lot of pressure on our external reserves and exchange rate”, Chief Executive Officer at Cowry Asset Management Limited, Johnson Chukwu told The PUNCH during an interview.

According to an oil and gas expert, Bala Zaka, the issuance of the licences may not boost the nation’s economy significantly.

“The licence issuance has already been delayed for over one year, so there is no way it can benefit the country, because if the licences had been issued earlier, the winners would have started work. They would have added to the dwindling oil and gas production of the country.

Some of these awardees would have also borrowed loans. Don’t forget, Nigeria’s currency has witnessed serious devaluation, and most of them may not be able to afford paying up, many of them would have even returned the loans, while some would have moved onto other businesses.”

Zaka, however, advised the bid winners not to delay exploration any further if they hope to take advantage of the boom in oil price.

If holders of the newly issued 57 marginal oil fields spring into action immediately, oil production is expected to begin in 2023. Brent International hit $104 per barrel 8pm on Sunday
The former Group Chairman/CEO, International Energy Services Limited, Dr. Diran Fawibel, advised the NUPRC to make sure that all the processes were properly streamlined to enable the licensees to begin operations immediately.

He said, “The Upstream Petroleum Commission needs to deepen their engagement with the authority, and make sure all the processes are streamlined, and the operators will not have any problem. Once they are given their licences, we expect them to go into operations quickly.

“The government wants to improve the oil production through the marginal fields as you know that our production figure has been lagging behind, and we don’t meet the OPEC quota. The government is now looking to the independent and marginal field operators to improve their operations and increase production level.

“If the oil companies are not making investments, we expect the marginal field operators to put their acts together and fund the development of the fields. We hope it won’t be that they just take the permits and sit on them because it will be a big tragedy for the country. It is better late than never.

“These operators should go full blast and within a short time, about 12-18 months, some of the streams should come on stage and add to crude oil production.”

According to a professor of Economics at the Olabisi Onabanjo University, Tella Sheriffdeen, there is no short-term solution to the country’s low crude oil production.

“There is no short-term solution to the low crude oil output because there’s nothing we can do at the moment to increase it. We will just have to keep bearing the revenue loss. The only thing is that the federal government needs to plan for the long term by looking for ways to increase production,” he said.

PUNCH