Oil companies ramp up drilling in pre-existing fields
Nigerian oil exploration companies are returning to pre-existing fields to drill for more oil as investments into new wells become too few and far between in a sector where investors are betting on short-term cash rather than investing for later growth.
Shoreline group, an independent Nigerian producer is the latest Nigerian company returning to existing fields in a new drilling campaign aimed to increase production by 70,000 barrels per day (bpd) by the end of the year.
“We have reserves, it’s just drilling and processing and that’s what we’re doing and putting in place,” Kola Karim, Shoreline Chief Executive Officer told Bloomberg.
On July 1, the Nigerian National Petroleum Corporation (NNPC)/First E&P JV and Schlumberger will return to the Anyalu and Madu fields under Oil Mining Licence, OML 83 and OML 85, offshore Nigeria to find more oil.
Under the agreement, global oil services giant, Schlumberger would provide $724.14m out of the required project cost of $1.082bn while the balance of $358.79m is to be funded with cash flows generated by the project.
The Anyala and Madu fields are projected to have 193 million barrels of crude oil and 0.637 trillion cubic feet of proven gas reserves with production plateau of 50, 000 barrels of oil per day and 120 million standard cubic feet of gas per day.
Analysts say more of these kinds of deals will happen in an environment where regulatory uncertainty and the cost of new fields make old ones attractive.
“For these oil companies, thinking behind this is survival, there’s a lot of uncertainty in the market, you can’t come into a market that is so uncertain that start to do a new development, you can’t survive it because you don’t know what the regulatory regime will be,” said Chuks Nwani an, energy lawyer.
Ayodele Oni, partner at Bloomfield oil firm and energy lawyer says “It is cheaper and many of these ones, the fiscal term is the petroleum profit tax act which they already know, many of these new developments might be under the PIGB, so no one is sure of what the fiscal terms will be so no one wants to commit money.”
Nigeria has passed a governance aspect of the Petroleum Industry Bill which was broken down into four components, but the fiscal aspect which is the most important for guiding decisions on financial investments remain stuck in the national assembly over disagreements with terms.
The absence of investments into new fields have seen Nigeria’s oil reserves stagnate at 36.18 billion barrels, as at the first quarter of 2018, according to Ibe Kachikwu, minister of state for Petroleum Resources, at the recent Nigeria Oil and Gas (NOG) conference in Abuja.
Africa’s biggest oil producer has targeted 40 billion barrels in reserves since 2010 but has not achieved the target due to dwindling rate of discoveries and further slump in investments in discovered fields.
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