A recent report by the Organisation of Petroleum Exporting Countries (OPEC) that about 160 projects with an overall estimated cost of some $156 billion are being undertaken by members of the OPEC in the oil and gas upstream sector.
Besides, Nigeria, a member of OPEC, expects oil and gas investment to hit $40 billion in the next five years.
OPEC said that regardless of all the challenges and uncertainties, OPEC members continue to invest in additional upstream capacities.
It added that on top of the huge capacity maintenance costs that member countries are faced with, they continue to invest in new projects and reinforce their commitment to the oil and gas market as well as to the security of supply for all consumers. “Needless to say, this is only a reflection of OPEC’s well-known policy that is clearly stated in its Long-Term Strategy and its Statute,” it added.
But beyond the fresh investments expected in the sector by OPEC and Nigeria’s target of attracting N40 billion in the next five years, the need for investors to make the right investment decision is paramount.
Any attempt to be carried away by the huge potentials in the sector without carrying out the needed due diligence required by any serious investor or that of partners will lead to losses on the part of those making such investments.
It is therefore imperative for indigenous oil producers to get themselves more acquainted with the nitty gritty of the business before moving in seal Final Investment Decisions (FID), more especially in the face of the target that has been set for indigenous producers to increase their production capacity to the national crude oil basket.
FG sets target for indigenous oil producers
Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, had at the closing ceremony of the maiden edition of the Nigerian International Petroleum Summit (NIPS) held in Abuja last February set the target for indigenous oil producers’ contribution to the national crude oil basket from the current 10 percent to 30 percent.
Indigenous oil companies recorded significant increases in their crude oil production, with their total output rising by 214 per cent in one month, a November 2017 report from the Nigerian National Petroleum Corporation (NNPC) indicated.
The data showed that the total oil production from the indigenous independent firms stood at 7.487 million barrels in June 2017, up from 2.388 million barrels in May.
Many of the local firms were hit by the militant attacks on oil and gas facilities in the Niger Delta in 2016 as they posted steep decline in production until June 2017 when the Forcados export terminal came back on stream.
The companies, including Seplat Petroleum Development Company Plc and Neconde Energy Limited, suffered severely from the shutdown of the Trans Forcados Pipeline, their main export route, for more than a year.
Total oil production from the local firms, including marginal fields’ operators, fell to 46.01 million barrels in 2016 from 80.17 million barrels in 2015, bringing their share of national production down to 6.4 per cent from 10.3 per cent.
Look before you leap
Exploration remains an exciting adventure—but despite the technological advances, it is just as risky as it always has been. The only way to reduce risk is to understand how it all works as much as possible without a degree in petroleum geology.
Oil and gas exploration is part divination and part science ﬁction, so if you are thinking of investing in this early phase there is a lot you need to know in order to be able to balance risk with reward.
In no other segment of oil and gas investing is the risk higher. At the same time, in no other segment is the reward as potentially astounding.
Today, exploration is both easier and more complex—and signiﬁcant advances in exploration technology have brought the hordes back to Texas once again to see if they couldn’t ﬁnd more oil under the ground by spying on rock formations under the Earth. It is more complicated because the process now relies on mind-boggling seismic imaging technology and massive supercomputers in many cases to compute and analyze the massive amounts of data brought to the surface.
It’s easier because the new technology can pinpoint a potential drilling site with much more accuracy, saving explorers a lot of money at the end of the day and often avoiding the many dry holes that led up to the Spindletop gusher. The new technology also takes us much deeper underground, and even into the ultra-deep waters offshore, opening up vast new possibilities for discovery and production.
Opportunities in subsea
The key to the deepwater oil boom is subsea technology. First, imagine drilling operations that begin around 2 miles under the water, and then drill another 10,000-20,000 feet under the seabed, through rock and salt formations. This is where the oil is—and no human can get there, but subsea technology can. It’s a phenomenal feat for a phenomenal investment.
So, if you’re looking for that ultimate, long-term investment and can handle the high risk, welcome to the ultra-deep. This is the ﬁnal frontier-and it’s a huge one.
The real advantage of subsea production systems is that they allow you to use one platform—strategically placed—to service many well areas. And as the cost of offshore production rises, this could represent signiﬁcant savings.
Right now, there are opportunities for 70 percent-30 percent spread for total global onshore and offshore oil and gas production, respectively. Of that 30 percent of offshore production, subsea oil and gas production represents 9 percent while subsea production could rival traditional offshore production in less than 15-20 years.
The market for subsea facilities is expected to grow to $130 billion in 2020 (it was $27 billion in 2011), driven by the increasing trend towards deepwater oil and gas development.
Cost, Cost, Cost
This is where investors will have the hardest time weighing decisions. Oil exploration is expensive and risky, but it can also be very rewarding. Here are some key things to consider:
Offshore exploration is signiﬁcantly more expensive that onshore and if we’re talking about deep waters, you’re looking at investing in a large, integrated company for whom the drivers of growth may be difﬁcult to determine.
An offshore well can cost $30 million to drill, but costs range anywhere from $10 million to $100 million depending on location and depth, with ultra-deep wells often topping $100 million.
On the ﬂip side, a junior Exploration and production (E&P) can may be able to drill a conventional well for as little as $500,000 in some cases, with the average onshore well running about $4 million.
Because of the high costs of drilling wells, the companies that spend the most on exploration data—particularly seismic 3D—will ultimately end up the winners because they will have a much better chance of hitting oil with their ﬁrst well.
EATECH bags best process automation engineering award
An indigenous engineering firm, Engineering Automation Technology Limited (EATECH), has won the Best Instrumentation, Mechanical and Process Automation Engineering Award for 2018 for its various technological innovations and products designed to boost safety in Nigeria’s petroleum and aviation industries.
The award was presented to EATECH by the Institute of Oil and Gas Research and Hydrocarbons Studies at the African Oil and Gas Globe Awards held in Abuja. Director-General of the Institute of Oil and Gas Research and Hydrocarbons Studies, Ambassador Moses Essien, lauded the company for its commitment in making huge investments in growing the local engineering manpower capabilities to undertake some of the most technical and difficult jobs in Nigeria’s oil and gas industry that were hitherto performed by expatriates. EATECH was also commended for recently launching some products into the Nigerian market to assist detect adulterated aviation fuel (Jet A-1) and poor quality lubricants, which had wreaked havoc on some aircraft and vehicles in the country.
Deputy Chairman of Council, Institute of Oil and Gas Research and Hydrocarbon Studies, Prof. Charity Emaviwe, who presented the award to EATECH, said the Federal Government must do everything at its disposal to enact the requisite laws that would encourage the growth and prosperity of local firms doing business in the oil and gas sector.
In her response after receiving the award, the Chief Operating Officer of EATECH, Mrs. Ugochi Alisi, thanked the board of the Institute for taking pains to recognise professional organisations that believe in best practices and good governance, noting that the award would serve as a great source of inspiration for the management and staff of EATECH to put in greater efforts in recording more successes in the years ahead.
According to her, EATECH since its formation 10 years ago had committed huge funds and energy in human capacity building and was always looking out for those opportunities to do more to prove that it could compete with international oil firms in the execution of various projects in oil and gas industry.
Alisi dedicated the award to the Almighty God and the entire staff of the company and praised the Federal Government’s local content law in the oil and gas industry, saying it had given birth to a company like EATECH to create job opportunities for hundreds of Nigerians.
She said the company last year had inaugurated a multi-million naira fabrication yard in Eket, Akwa Ibom State to enable it undertake it’s instrumentation, mechanical and process automation engineering work for companies located around the Niger Delta region.
She explained that, the facility currently also serves as a training centre for hundreds of instrumentation technicians and that it would go a long way in saving the country the huge capital flight associated with undertaking such trainings overseas. She, however, called on regulatory agencies in the oil and gas industry to be more vigilant in their regulations as most international oil firms (IOCs) were still yet to comply with the local content law in their consideration of local firms for project awards.