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OIL AND GAS SECTOR REFORMS:


Nigeria, Uk Government Boost Bilateral Capacity

As part of efforts of the Federal Government to transform the Oil and Gas Industry in Nigeria, a bilateral capacity building workshop between Nigeria and the United Kingdom has commenced in Abuja with a charge on participants to acquire requisite capabilities to drive and deliver the objectives of the Oil and Gas sector reform.

In his opening address at the Nigeria/UK Government Energy Bilateral Capacity Building Support for the Oil and Gas sector Reforms at the NNPC Towers Abuja, the Minister of Petroleum Resources Dr. Rilwanu Lukman described the programme as not only significant but very timely considering the ongoing reform in the petroleum industry in Nigeria. Dr. Lukman disclosed that the programme commenced with a delegation led by the UK Secretary for Energy in August and December 2008 where wide ranging issues and challenges relating to the Oil and Gas industry were discussed.

“It was there that the decision to foster a strong bilateral relationship between our two countries to address these challenges was reached adding that further meetings by Focus Groups identified major areas for collaboration including the ongoing transformation process in the Nigerian Oil industry and the Climate Change initiative,” the Minister observed. He asserted that with the successful British Oil and Gas Industry transformation which evolved from a largely government-owned industry to a privately controlled industry, their experience would offer significant learning and benchmarking lessons for Nigeria’s transformation process in the Oil and Gas sector.

Dr. Lukman noted that the UK government recognized the inevitable shortages in the requisite skills that is bound to challenge the Country’s transformation effort and as offered to provide support. “I would like to immensely thank the UK government for this kind gesture. Indeed, this level of support indicates the acceptance and confidence the UK government has in our transformation process. I have no doubt that this would go a long way to accelerate and sustain the success of the transformation process,” he declared.

The Minister of Petroleum Resources said the training programme this week focuses on regulation and related processes adding that this is designed to underline the level of significance that the ongoing reform programme attaches to the new focus of seeing the Government as essentially a regulator in the Industry.

Bolstering the Minister’s position, the British High Commissioner, His Excellency Bob Dewar represented by Mr. Peter West indicated the UK’s commitment to the provision of technical expertise for Nigeria’s Oil and Gas Sector noting that the UK attaches great importance to the bilateral relationship with Nigeria.

He commended the Federal Government for promoting transparency and accountability in its transformation efforts and assured of their readiness to support the transformation process.

In his remarks, the Group Managing Director of the Nigerian National Petroleum Corporation, Dr. Mohammed Sanusi Barkindo noted with relish that Nigeria had always had a constructive bilateral relationship with the British Commission saying some of these discussions are coming to fruition today.



OIL AND GAS IN NIGERIA


Overview

Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. It is the 10th largest oil producer in the world, the third largest in Africa and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector which supplies 95% of its foreign exchange earnings.

The upstream oil industry is Nigeria’s lifeblood and yet it is also central to the ongoing civil unrest in the country, which gained worldwide publicity with the trial and execution of Ken Saro Wiwa, and eight other political activists in 1995.

The upstream oil industry is the single most important sector in the economy. According to the 2008 BP Statistical Energy Survey, Nigeria had proved oil reserves of 36.22 billion barrels at the end of 2007 or 2.92 % of the world's reserves. The Nigerian government plans to expand its proven reserves to 40 billion barrels by 2010. Most of this is produced from the prolific Niger River Delta. Despite problems associated with ethnic unrest, border disputes and government funding, Nigeria’s wealth of oil makes it most attractive to the major oil-multinationals, most of whom are represented in Nigeria, with the major foreign stakeholder being Shell. Nigeria produced an average of 2355.8 thousand barrels of crude oil per day in 2007, 2.92% of the world total and a change of -4.8 % compared to 2006.

According to the 2008 BP Statistical Energy Survey, Nigeria had 2007 proved natural gas reserves of 5.29 trillion cubic metres, 2.98% of the world total. Due, mainly, to the lack of a gas infrastructure, 75% of associated gas is flared and 12% re-injected. Nigeria has set a target of zero flare by 2010 and is providing incentives for the production and use of gas. The government also plans to raise earnings from natural gas exports to 50 percent of oil revenues by 2010. It has been reported in the 2008 BP Statistical Energy Survey that Nigeria had 2007 natural gas production of 34.97 billion cubic metres, 1.18% of the world total.

Nigeria's downstream oil industry is also a key sector including four refineries with a nameplate capacity of 438,750 bbl/d. Problems such as fire, sabotage, poor management, lack of turn around maintenance and corruption have meant that the refineries often operate at 40% of full capacity, if at all. This has resulted in shortages of refined product and the need to increase imports to meet domestic demand. Nigeria has a robust petrochemicals industry based on its substantial refining capacity and natural gas resources. The petrochemical industry is focussed around the three centres of Kaduna, Warri and Eleme.

Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming NNPC in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates all sectors of the oil industry, both upstream and downstream.

In April 2000, the Nigerian government set up a new committee on oil and gas reform to deal with the deregulation and privatisation of NNPC. Seven subsidiaries of NNPC are due to be sold including the three refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and the partially owned oil marketing firm, Hyson Nigeria Ltd.

Nigeria is a member of OPEC and is its 12th largest producer. The former Secretary-General of OPEC, Dr Rilwanu Lukman, is a Nigerian national and Petroleum Advisor to the President.

The petroleum industry in Nigeria is regulated by the Ministry of Petroleum Resources. The government retains close control over the industry and the activities of the NNPC, whose senior executives are appointed by the ruling government.



UPSTREAM

The upstream oil industry is the single most important sector in the country's economy, providing over 90% of its total exports. Oil is produced from five of Nigeria’s seven sedimentary basins: the Niger Delta, Anambra, Benue Trough, Chad, and Benin. The Niger Delta, the Onshore and Shallow Offshore basins can be considered fairly well to well explored. Ventures here are low risk and the basins contain about 80% of producing wells drilled in Nigeria. During the later 1990s exploration focus turned to high risk ventures in the frontier basins of the deep water offshore with encouraging success. These ventures are becoming increasingly attractive with developments in deepwater exploration and production technology.

Nigeria is a member of OPEC. Its crude oils have a gravity between 21•API and 45•API. Its main export crudes are Bonny Light (37•) and Forcados (31•). About 65% of Nigeria’s oil is above 35•API with a very low sulphur content. Nigeria’s OPEC quota is 1.89 million bbl/d.



DOWNSTREAM

The downstream oil industry in Nigeria is another key sector in the country's economy. The country has four oil refineries and There are eight oil companies and 750 independents all active in the marketing petroleum products. Cross-border smuggling is an ongoing problem and there are frequent reports of large scale corruption in the distribution and marketing chain. The government through its 100% state-owned national oil company, Nigerian National Petroleum Corporation (NNPC) has had an all encompassing control over the industry through its shareholding in all the companies involved and in the setting of wholesale and retail prices.



RISKS

There are risks associated with investment in Nigeria. These can be grouped into three main categories, political activity and civil unrest, border disputes and government underfunding. There is also the continuing.

Political activity and civil unrest.
The issue at the basis of most civil unrest is the equitable sharing of the country’s annual oil revenues among its population and the question of the environmental responsibilities of the oil multinationals. Although all multinationals have been targeted in the disputes, Shell has been the main target. Civil unrest has resulted in over 700 deaths since Obasanjo’s take over and resulted in the shut in of terminals and flow stations. The situation is exacerbated by corruption within the industry and the government. Obasanjo has committed government to resolving the problems and cleaning up the industry and the government in terms of corruption.

Border disputes
In the complex boundary delimitations of the Niger Delta area, border disputes are common. Nigeria is currently in dispute with both Cameroon and Equatorial Guinea over borders relating to oil finds in the Gulf of Guinea. Cameroon and Nigeria each claim the Bakassi Peninsula located in the Gulf of Guinea and which is believed to contain significant reserves of oil. In February 1994, Cameroon submitted the dispute to the International Court of Justice (ICJ) for settlement, and Nigeria later followed with its own suit to the ICJ. The ICJ began formal hearings in March 1998 but no decision had been reached by mid 1999.

Nigeria is in dispute over Equatorial Guinea’s sole ownership of the Zafiro oilfield in Block B from which Mobil began producing in 1996. Elf holds the concession OML 102 in Nigeria, just 3.5km north of Equatorial Guinea’s Block B. Nigeria and Elf contend that the seismic evidence indicates that Zafiro is part of an oilfield that straddles the international boundary between the two countries. In 1998, Elf announced the Ekanga discovery based on two wells drilled in OML 102. Equatorial Guinea claims that the wells were drilled in their territorial waters in Block B. Nigeria has called for a determination of the boundary and the establishment of a joint field operation. Negotiations have met with little success so far.

Government underfunding

A recurring problem in the upstream sector is the inability of the NNPC to meet its funding obligations to the JVs. Under JV terms, the NNPC shares costs with its foreign partners. Since 1993, budgetary constraints on the NNPC have resulted in it being unable to meet its JV commitments leading to cut backs in exploration and production. The government is seeking to diversify funding for the industry and alternative funding schemes have been approved for Shell’s EA project and are being considered for Elf’s development of the Amenam field.



EVENTS

21.Feb.2011: Nigeria Oil & Gas 2011 - Abuja, Nigeria
07.Jun.2011: Nigeria Oil & Gas Tech 2011 - Victoria Island, Nigeria

OTHER NEWS BITS

• Nigeria will encourage large companies operating in the country to list their shares on the local stock exchange.
• • AsherXino Corp has successfully completed the acquisition of 40% economic interest and operatorship of OPL 289, Nigeria
• J P Kenny completing first comprehensive Front End Engineering Design (FEED) undertaken locally in Nigeria
• Afren to acquire Energy Equity Resources' (EER) residual licence interest in OML 115, offshore south Nigeria
• Afren to acquire Energy Equity Resources Oil and Gas's ('EER') residual license interest in OML 115, Nigeria
• Chinese investors are to build US$8 billion refinery in Lagos
• Sinopec Group has confirmed an oil discovery at an offshore Nigerian block
• SPDC has begun producing oil and gas from the Gbaran-Ubie project in the Niger Delta