NNPC and TotalEnergies announce $550m investment in Nigeria’s Ubeta Gas Field

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OPINION: The Cost of Orthodoxy

Pulling Nigeria’s ailing economy from the brink calls for a radical improvement in efficiency within its oil & gas industry, writes Ofserv CEO Dimeji Bassir who presents opportunities to cut down the cost of production within Africa’s biggest oil market. To quote Joel Barker in The Business of Paradigms “It’s so easy to say no to a new idea. After all, new ideas cause change; they disrupt the status quo. They take people out of their comfort zones and create uncertainty… Plus, it is less work to do things the way we have always done it……less work, maybe. Costly, definitely” New ideas are resisted from greasy rig floors in the Niger Delta swamps to cushy business offices and conference rooms in regulator’s offices in Abuja; each, with very prohibitive costs of inaction. Yet it’s business as usual in Nigeria’s oil industry despite current economic realities in the country, which provide the impetus for a radical transformation of its cost base. Pulling the ailing economy from the brink calls for a radical improvement in efficiency within its mainstay industry. Dwindling daily production and significantly reduced foreign exchange earnings, and foreign reserves, establishes the urgency to drive down unit cost per barrel of oil produced. Simply stated, Today’s ‘Good’ is tomorrow’s ‘Not good enough’ and what sets us apart today will be the baseline tomorrow. The future belongs to those who act with urgency and foresight. A huge, yet untapped opportunity Successful upstream operations is underpinned by the ability to balance the trio of cost-schedule- production and maximise NPV, i.e. produce the most barrels in the quickest manner possible at the cheapest mean cost across a portfolio of assets. Incremental improvement in well delivery (drilling & completion) efficiency in the US had characterised the shale oil boom which effectively began in 2007. Efficiency gains cut well costs by a third and reduced cost per barrel by 75% in the decade between 2007 and 2017. In effect, America became an oil and gas power house within this period, doubled US Shale production and tripled total daily oil output. In Nigeria, the oil and gas industry is the largest revenue contributor to the Nigerian economy but production has declined by 40% from 2010 to date. Declining oil production presents major revenue challenges and precipitates chronic macroeconomic crisis in the short to medium term. Dimeji Bassir Reducing unit production costs by driving down well delivery costs presents an untapped opportunity to increase government earnings & reduce its fiscal deficit. Being the most complex, costly and highly specialised upstream development activity which easily accounts for up to 60% of oilfield development CAPEX, drilling presents a unique opportunity to reduce the cost of oil production. For this reason, in the early eighties, drilling engineers and other personnel operating in the UK’s North Sea recognised the need to learn from each other and compare performances across their respective drilling operations. This led to the formation of the drilling performance review (DPR) in 1989, a drilling benchmarking club. Most international operators who are value-driven continue to subscribe to the DPR till this day for the inherent benefit to their global operations and enterprise’s financial performance. In general, up to 60% of drilling time goes to Non-productive time (NPT) and inefficiencies which is known in drilling parlance as invisible lost time (ILT). The cost of ILTs, being an invisible factor, to the Nigerian oil industry is in the order of billions of dollars overspent annually. Improving drilling performance therefore is an enabler to reducing cost of oil production. Lower drilling costs stimulates more drilling activities which in turn increases production and reduces unit production costs. You can’t improve what you don’t measure Drilling performance in Nigeria is laden with tremendous inefficiencies. An indicative benchmark of an average Nigerian, and similar North American well reveals significant underperformance in the Nigerian well as measured by days to drill a 10,000 feet well. A 10,000 feet well routinely delivered in 10 days in North America could take as long as 85 days in Nigeria. This disparity is surmised to be causative of the consistently high well delivery cost in Nigeria. Disproportionately long well durations delays time to market (deferred production), reduces project NPV – costly wells reduces the number of profitable opportunities – which in turn reduces rig activities and associated demand for services. By top down estimates, the industry spends circa $11.4 billion to produce 1.25 million barrels daily and approximately $6 billion in drilling wells. A 30% performance gap between the authorised expenditure (budget) and actual costs as gleaned from an analysis of Nigerian wells represents a $1.8 billion a year opportunity. The relentless pursuit of excellence in well delivery begins with establishing key indicators which must be tracked with rigour and provides indication of drilling performance and efficiency trends. An excellent drilling efficiency metric commonly tracked is the dollar spend per reservoir foot of hole. US-based oil services research firm Spears & Associates, Inc. looking at this metric in US land operations from 2006 to date showed the cost of a foot of exposed reservoir falling by 75% in over a decade when considering what was paid to the contract driller. Similarly, the directional driller cost per exposed reservoir foot fell from $45 to $35, a decrease of 25%. In addition to the reduced cost per barrel, other implications of drilling efficiency gains break down as follows: Where there is a will, there is a way Investments in the Nigerian oil and gas sector declined by 70% between 2017 and 2021 closely correlating with the contraction in production output. Nigeria could only attract $3 billion in investments (approximately 5% of the total investment into the sector in Africa) in the five years between 2017 and 2022 despite having 38% of the continent’s total hydrocarbon reserves. As the government pushes for more transfer of resource ownership to locals via organised acreage farm-outs and International Oil Company (IOC) divestments, Nigeria’s oil industry’s uncompetitiveness is certainly at its pinnacle. For the sake

Nigeria’s NNPC Ltd and Golar LNG announce new FLNG project

In a significant move towards harnessing Nigeria’s abundant natural gas reserves, state-owned NNPC Limited has forged a Project Development Agreement (PDA) with Golar LNG for the establishment of a Floating Liquefied Natural Gas (LNG) facility off the shores of the Niger Delta. Both companies have been in discussions around the launch of FLNG ventures for several months, having already signed a Memorandum of Understand and Heads of Terms for that purpose. The PDA was signed on June10th, 2024 in the presence of NNPC Limited’s key executives including Chief Financial Officer Umar Ajiya, Executive Vice President for Gas Power & New Energy Olalekan Ogunleye, and Executive Vice President for Upstream Mrs. Oritsemeyiwa Eyesan, alongside Golar LNG’s CEO Karl Fredrik Staubo. This collaboration represents a significant stride towards commercializing Nigeria’s gas resources, aligning with President Bola Ahmed Tinubu’s vision to expedite the economic exploitation of Nigeria’s gas assets. The agreement is poised to tap into the extensive proven gas reserves from shallow water resources off the Nigerian coast. The PDA delineates a comprehensive plan for monetization, leveraging approximately 400-500 million standard cubic feet per day (MMscf/d) to produce LNG, LPG, and Condensate. Both NNPC Limited and Golar LNG have underscored their dedication to achieving a Final Investment Decision (FID) by the close of Q4, 2024, with the aim of commencing gas production by 2027. Golar LNG Limited, recognized as a leading independent owner and operator of LNG infrastructure, brings its expertise in managing LNG carriers, floating storage and regasification units (FSRUs), and floating liquefaction (FLNG) vessels to this ambitious venture. The project would be the first FLNG carried by NNPC in Nigeria and follows several such ventures currently under development by the private sector, the most advanced of which is the UTM FLNG.