License rounds, data, natural gas development and sound policy with input from industry players are key to unlocking more oil and gas investment in Africa, particularly in Nigeria, according to a panel of energy industry experts.
The Africa exploration-focused discussion, moderated this week by the African Energy Chamber’s Verner Ayukegba, was held as Nigeria—the biggest oil producer in Africa—made notable headway on an oil reform bill that has been in the works for about two decades and launched its first marginal oilfield licensing round in nearly 20 years. It also comes as Africa’s energy sector, like other parts of the world, copes with COVID-19, slowed energy demand, smaller budgets and fewer jobs with access to capital difficult for some.
Chuks Enwereji, chairman of International Association of Drilling Contractors’ Nigeria Chapter, pointed out how the rig count in the country dropped from 37 in February to 25 in March to 11 in July. But some rigs are coming back with about 16 active today.
“Recovery is imminent. As oil prices rally above the $40 per barrel mark and with the reopening of economies around the world, we’re beginning to see some rigs go back to work,” Enwereji said. If oil prices continue to rise toward $50/bbl, “we are cautiously optimistic that activities will increase.”
Adding to the optimism is the marginal field bid round that attracted interest from more than 600 companies for 57 blocks offered, including some previously held by majors Chevron Corp., Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA.
Panelists seemed to agree that there is more work to do to lure investors.
The oil and gas environment was not “very vibrant” in Africa before COVID in the opinion of Chichi Emenike, head of gas ventures for Lagos-based independent Neconde Energy Ltd.
“Capital investment in the region has been falling for some time and this is across Africa, not particularly in Nigeria,” she said. The shift to cleaner energy and the need for higher and quicker returns on investments are among the factors at play she mentioned as various projects compete for funding.
Shifting From Crude to Gas
Emenike, however, is bullish on natural gas, saying “gas is the new crude.”
Working with partners, Neconde is developing the OML 42 asset onshore West Delta, Nigeria, where focus has turned to natural gas amid a push by the energy ministry. And despite the unprecedented collapse in oil prices and the global pandemic, Nigeria LNG Ltd. in May awarded Saipem, in a joint venture with Daewoo E&C Co. Ltd. and Chiyoda Corp., a contract valued at more than $4 billion for the engineering, procurement and construction of the Nigeria LNG Train 7 project slated for the Bonny Island LNG complex in Nigeria.
“You’re going to continue to have those geopolitical situations where crude prices will continue to rise and fall…but there’s a need for gas in the Nigerian market,” Emenike said. “There’s a need for gas across the world.”
She called Nigeria “more of a gas nation than a crude nation” that could become a hub, given its proven gas resources of at least 202 Tcf and location.
“Now, when you start looking at the capex to develop this gas, honestly, it’s not looking too bad for us,” she said, referring to Neconde. OML 42 has about 3.8 Tcf of gas.
She said Nigeria needs to wake up, take focus off the crude oil business, and drive toward a cleaner energy economy. Looking from a domestic energy security view, she called developing natural gas a no-brainer when it comes to creating jobs and powering homes for Nigeria’s growing population.
Opportunity lies across the entire value chain, she said, later adding partnerships with companies with midstream technology expertise and experience and established relationships in the gas market could be formed.
She acknowledged, though, that there are still issues around pricing, the commercial framework for gas and other regulations. It also requires locking down market before making an upstream investment. “If the economics are not making sense, it just doesn’t work,” she said, adding regulations that encourage and incentivize investment are needed. “This year in particular, we have seen some traction. That traction is opening up different opportunities, but there’s still a whole lot to be done.”
Overcoming Regulatory Hurdles
Another challenge is creating a clear line of sight for investors to see future returns on investments.
“We have said quite a lot that Nigeria is a country that cannot be ignored. All the serious global players in oil and gas need to be in Nigeria,” said Chijioke Akwukwuma, managing director of ODENL. “And to a large extent, that is true. You can’t ignore a country that has the 10th largest oil reserves. And we have the 11th largest gas reserves globally.”
However, “the world is not going to wait for us to get our act together and begin to invest here simply because we have the potential. Capital is going to flow away.”
Akwukwuma turned back to how much time has been spent on the PIB, vision plans with poor executions and the last marginal field rounds. About 20 years later, nothing has been done on over 50% of the fields awarded, he said.
“Have we taken a step back to ask ourselves certain questions with regard to why? Have we sorted out the issues that made it unprofitable for the people who got those fields to do something with those fields?” he asked.
Interest shown in the latest round indicates there is still some attraction.
Still, Akwukwuma doesn’t think that will result in any meaningful activity for his business next year. He singled out disconnect between governmental agencies, but applauded industry groups coming together, enabling the industry to speak with one voice when communicating with regulators.
“We need to do more to make sure that some of these self-inflicted challenges are taken away so that businesses like ourselves are not only going to be in survival mode, but they’re going to be able to thrive,” he said.
Progress is being made, despite what Wole Oyetoran, country manager for PGS Nigeria, called “serious problems with regulatory delay.” He turned to some of the positives. In November 2019, Nigeria passed the Deep Offshore and Inland Basin Production-sharing Contract (Amendment) Act after an 11-year delay, establishing a flat royalty rate among other changes. “It is better to have a law that is not perfect than to not have a law” at all, he said.
Oyetoran is also hopeful that the PIB will be passed quickly and perhaps will lead to licensing rounds, eventually leading to discovery of resources to halt declining reserves and bring in more oil revenue.
Seeking Licensing Rounds
For geophysical contracting firms like Polarcus, licensing rounds drive business, according to John Scott, vice president of Western Hemisphere for Polarcus. However, many have been canceled or postponed, outside of Nigeria’s marginal licensing round, he said.
“The pandemic...has had a big impact on the geophysical contracting business. I think, as of today, you’ve probably got 50% of the assets actually employed in current working projects. …There’s definitely been a hiatus in projects coming into fruition from our side.”
He noted, though, that there are projects starting in Angola, Gabon, Egypt and Mauritania, where exploration is happening but not many other areas like Nigeria.
“There is a definite need for new seismic all across the West African continental shelf,” Scott said, adding that would depend on the pandemic, stabilization in oil prices and what happens in Nigeria.
Ross Compton, EAME consultant for the International Association of Geophysical Contractors, shared similar sentiments. Key to getting investment are license rounds, he said.
Regarding acquisition of multiclient data, he said “favorable terms relating to confidentiality periods of data that’s acquired” is crucial, so companies acquiring data over acreages ahead of licensing rounds are more confident about getting a sufficient return on their investment over time.
“It’s challenging and it’s expensive to acquire that data in the first instance and to release it too rapidly I think it can be very detrimental to those investment decisions,” Compton said. “I think that together with the licensing rounds [are] really the key thing that we’re looking for going forward in order to support those investment decisions.”
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