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Oil slump hits marginal field operators

By on February 25, 2015

Marginal field operators, whose fields have yet to start producing either oil or gas since they were awarded licences in 2003, are under increasing pressure from the plunge in oil prices and may lose their licences next month, industry analysts have said.

The Department of Petroleum Resources, which regulates the oil and gas industry, had recently said it would revoke the licences of non-performing marginal fields in March this year.

It said it would review a number of criteria for non-performance of assets, including but not limited to proposing a field development plan and access to funding.

A marginal field is any oil and gas field in which available reserves do not make it commercially viable for the holders of Oil Mining Leases, typically the International Oil Companies to develop. Such fields are located within existing OMLs operated by the IOCs and are left dormant for a considerable amount of time.

The DPR had in 2003 awarded 24 marginal fields to 31 indigenous companies as part of the Federal Government’s marginal field programme aimed at increasing reserves, production, employment, local content and indigenous participation in the upstream oil and gas business.

Only eight of the fields are currently producing, with the operators of the dormant fields continuing to grapple with financial and technical challenges, among other issues.

The DPR stated on its website that 30 marginal fields had so far been awarded, with 22 yet to reach production. The non-producing fields include Atala on OML 46 (Bayelsa Oil & Gas), Ofa on OML 30 (Independent Energy), Oza on OML 30 (Millennium Oil & Gas Company), Qua Ibo on OML 13 (Network E&P), Akepo on OML 90 (Sogenal Limited) and Oriri on OML 88 (Goland Petroleum).

The Team Lead, Oil and Gas Upstream, Diamond Bank Plc, Mr. Onome Atife, said in a telephone interview with our correspondent that when it was announced last year that marginal field licences would be revoked if the operators did not do minimum work on them, it was expected that there would be a lot of activities this year to ensure that those licences were not revoked.

“But unfortunately, with the current trend of lower oil prices, there may not be a lot activities in that area. So, maybe the government will change its mind about revoking the licences, given the current situation,” he said.

The Head of Energy, Ecobank Research, Mr. Dolapo Oni, said low oil prices would make it difficult for the operators to raise money as the lead time for those fields was long.

He said, “It is a bad time for them. Most of them will be unlikely to scale the deadline, especially those that do not have access to foreign markets to raise money will find it difficult to scale the hurdle.

“There is a mandatory work commitment expected from the operators by the regulator. Probably what they need to show the DPR to get an extension is either that they have fulfilled the mandatory work commitment or that they have raised sufficient funds to carry out what they need to do.”

Oni noted that three more fields were likely to start production within the next one to two years, citing Ubima, Otakikpo and Ororo, in which Eland Oil, Lekoil and Sirius Petroleum recently acquired interests.

The Deputy Manager, Public Affairs, DPR, Mr. George Ene-Ita, told our correspondent that the position of the Federal Government had not changed with respect to the non-performing fields.

“If by the end of next month, like the Minister of Petroleum Resources said, they don’t show any indications that they are going to do anything, those licences will be revoked,” he noted.

Asked if the government would not consider the impact of the plunge in oil prices, Ene-Ita said, “Oil prices started plummeting six months ago. What has oil priced got to do with people who have got oil blocks for over 10 years without developing them?”

Last week, Sirius Petroleum Plc, which recently acquired 40 per cent interest in the Ororo field, said it had re-appraised the field economics in the light of current oil prices, adding that the preparations for drilling the Ororo-2 development well were continuing in parallel with the finalisation of the funding process.

The Chief Executive Officer, Sirius Petroleum, Bobo Kuti, said the firm was working closely with Nima International Limited and the equity providers to conclude the funding.

“We believe that the project remains highly profitable, even in light of the overall economic conditions in the oil sector,” he added.

 

[Punch]