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875,000 bpd deepwater projects await FID

By on March 27, 2015

Seven deepwater oil projects, with a combined capacity of 875,000 barrels per day, are awaiting final investment decision from International Oil Companies operating in the country.

But the lingering plunge in global oil prices, coupled with the delay in the passage of the Petroleum Industry Bill, is seen as a threat to the operators’ ability to go ahead with the projects.

The projects, which are expected to start coming on stream in 2020, are Shell’s Bonga Southwest and Aparo (225,000bpd) and Bonga North Shell (100,000bpd), Eni’s Zabazaba-Etan (120,000bpd), ExxonMobil’ s Bosi (140,000bpd), Satellite Field Development Phase 2 (80,000) and Uge (110,000bpd) and Chevron’s Nsiko (100,000bpd).

Industry analysts have said that several projects, especially big, expensive ones, would be affected if the global oil prices remain low.

Global oil benchmark Brent, which fell below $50 per barrel this year from $115 in June 2014, stood at $55.37 on Wednesday.

Prior to the fall in oil prices, the delay in passing the PIB had resulted in fewer investments in new projects, and there has not been a licensing round since 2007, mainly because of regulatory uncertainty.

The United States’ Energy Information Administration noted that the regulatory uncertainty had also slowed the development of natural gas projects as the PIB is expected to introduce new fiscal terms to govern the natural gas sector.

It said IOCs were concerned that proposed changes to fiscal terms may make some projects commercially unviable, particularly deepwater projects that involve greater capital spending.

The EIA noted that no major oil fields had started production since the 125,000-bpd Usan deepwater field came online in February 2012, adding that the 40,000-bpd Bonga North West field came online in 2014, helping to offset production declines.

“There are several planned deepwater projects in Nigeria that have been repeatedly pushed back because of the delayed passing of the PIB and the uncertainty that new fiscal/regulatory terms will impose on the oil industry.

“The latest drafts of the PIB have also prompted questions about the commercial viability of deepwater projects under the proposed changes to fiscal terms,” the EIA said.

It said as a result of the uncertainty, only two of nine planned deepwater oil projects had been sanctioned by IOCs, while the rest have not received a final investment decision to develop.

“The planned deepwater oil projects have the potential to bring online 1.1 million bpd of new production over the next five or more years, however, only 23 per cent (260,000 bpd) reached the critical development milestone.

“Additionally, global crude oil prices have fallen substantially since mid-2014. If global crude oil prices remain low, this will also exacerbate project delays in Nigeria,” the EIA said.

The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Joseph Darwa, had in January said the challenge for the Nigerian oil and gas industry was how to manage major projects through both price and fiscal uncertainties.

Commenting on the current slide in oil prices, he said, “A number of deepwater projects may suffer delays or cancellation, including one in Angola, three in Nigeria and one in Ghana; while in shallow waters, two projects in Angola, one in Nigeria and two in Ghana may suffer delays.”

The Managing Director and Chief Executive Officer, Upstream Companies of Total in Nigeria, Mrs. Elisabeth Proust, had recently said with the rapidly falling oil prices, the decision to invest in large projects after discovery and appraisal would be scrutinised more by stakeholders.

She further said the decision would also depend on investors’ confidence in the stability of the contractual and fiscal terms and the perception that the country would respect the terms during the duration of the contracts.

“With this in mind, any petroleum law should seek to encourage investment and to grow production, and needs to be a robust investment vehicle that works during both good and not so good times,” Proust said.

 

[Punch]