IOCs to Dispose of More Assets After PIB Passage, Licence Expiration

• Up to $12bn of portfolio potentially up for grabs, says Ajumogobia
• NNPC saves $2bn through cheaper contracts

Ejiofor Alike in Lagos and Chineme Okafor in Abuja
International oil companies (IOCs) operating in the country will continue to hold back on the divestment of onshore assets until after the passage of the Petroleum Industry Bill (PIB) that governs fiscal terms, and the expiration of some of the joint venture onshore assets in 2019, investigations by THISDAY have revealed.

A former Minister of State for Petroleum Resources, Mr. Odein Ajumogobia has also hinted that the asset disposals will continue in the foreseeable future, with up to $12 billion of the portfolio of oil multinationals potentially up for grabs.
The investigation has revealed that the companies would not put more assets on offer until their licences expire in 2019.
THISDAY had reported that the eight Oil Mining Leases (OMLs) – 18, 24, 25, 26, 29, 30, 34, 40 and 42 – sold by Shell and its partners between 2011 and 2015 would expire in 2019.

It was learnt that the renewal terms that will be negotiated for the remaining onshore leases by the federal government would determine whether the IOCs will dispose of the remaining acreages or renew their licences.
Shell Petroleum Development Company of Nigeria Limited (SPDC), which had pioneered the asset disposals with the sale of OMLs 4, 38 and 41 to Seplat Petroleum Development Company Plc, had in its yearly report and Form 20-F 2016 stated that 17 onshore OMLs would expire in 2019.

According to the report released in the first quarter of 2017, about 164 million barrels of oil equivalent (boe) will be produced before the expiration of the licenses, while the acreages will produce 377 million boe after 2019.
A source close to the IOCs, who spoke to THISDAY off the record, said the divestments would likely continue after the expiration of the licenses and passage of the PIB.

“The litmus test will come when the expiring concessions will be renewed. It is either the assets will be surrendered or renewed, depending on the terms of the renewals. If the terms are not favourable to the IOCs, they will surrender the assets to the government. In that case, it will not be a case of direct divestment but non-renewal,” he explained.
“The companies are also concerned about the fiscal regime and are waiting for the passage of the aspect of the PIB that governs the fiscal terms.

“It is an open secret that one of the companies divested and went to East Africa where the fiscal terms are more favourable. So if the fiscal terms in the PIB don’t favour the IOCs, they will divest more assets.

“If the terms are favourable, they will also likely review their portfolio and sell more assets to put money where the expected rate of returns is higher,” he added.
THISDAY also gathered that Chevron is holding back on the planned divestment of its 40 per cent stake in OMLs 86 and 88, both located in shallow waters off Bayelsa State, pending the conclusion of discussions with partners, which will be determined by the fiscal terms in the PIB.

Speaking on the challenges of the asset disposals at a recent dinner organised by the Petroleum Club in Lagos, Ajumogobia stated that Shell would likely divest more blocks in line with its strategy to reposition its deepwater portfolio.
Ajumogobia revealed that all blocks except OMLs 23, 28 and 35, which are crucial for gas supply to the Nigeria LNG Limited, could be open for discussion, adding that up to $12 billion of the portfolio of IOCs will potentially be up for grabs.

He also added that pipeline infrastructure could be included, especially the Shell-operated Trans-Niger Pipeline (TNP), which together with the Aiteo-operated Nembe Creek Trunkline (NCTL) are the two main pipelines used by Shell and other producing companies in the eastern Niger Delta to evacuate crude to the export terminal.
Shell sold NCTL to the Aiteo Group in the last divestment programme concluded in 2015.

Apart from the 17 onshore blocks currently operated by Shell, which will expire by 2019, ExxonMobil’s shallow water OML 104, containing the Yoho and Awawa fields will also expire by 2018.

The former minister, who also stated that the asset disposals were expected to continue in the foreseeable future, added that there are “opportunities for indigenous companies and possible foreign independents to continue to participate in the Nigerian oil and gas industry and be involved in creating history for the industry and country in terms of value and job creation”.

He added that the non-passage of the PIB’s fiscal terms was a constraint on investment and financing.
Also speaking on the asset disposals by the IOCs, the Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe told THISDAY at the weekend that a combination of many factors had fuelled the sale of assets by the IOCs.

He said with the attacks on onshore and shallow water assets by the militants, the IOCs had to realign their portfolios in direct response to the attacks.
Fawibe also noted that the price of oil at that period rendered the contributions of some of the onshore assets to the companies’ overall portfolios very marginal.

“The IOCs have a global business model and they will look at the overall model and see how each country fits in. There is calm in the industry and we shall wait for the passage of the PIB that concerns the fiscal regime,” Fawibe added.

Meanwhile, the Nigerian National Petroleum Corporation (NNPC) yesterday disclosed that in the last one year it renegotiated and got discounts worth $2 billion on upstream oil and gas contracts it gave out and are being executed by its various service providers.

The corporation also stated that within the same period, it was able to drive down production costs in oil fields in the country by $5 per barrel, from $27 to $22 per barrel.
A statement from NNPC’s Group General Manager, Public Affairs, Mr. Ndu Ughamadu in Abuja, explained that this was disclosed by its Group Managing Director, Dr. Maikanti Baru, in a podcast to mark his first year as the head of the state oil firm.

The statement said the corporation lowered production costs from $27 to $22 per barrel in its quest to drive down the high cost of oil production in the industry in Nigeria.
It quoted Baru to have said NNPC would continue to pay close attention to cost reduction strategies and efficiency in upstream oil production.
Baru, the statement added, has directed that each of NNPC’s Autonomous Business Units (ABUs) and Corporate Services Units (CSUs) focus on identifying their focal points for efficiency.

This would ensure that they realise the key performance indicators enshrined in the 2017 budget of the corporation.
He also noted that NNPC would continue to push to attain a six-month contracting cycle in the industry.
Baru equally stated that in the last one year, NNPC under his watch recorded a significant increase in Nigeria’s crude oil reserves and production, adding that on average Nigeria’s daily oil and condensate production was 1.83 million barrels (mb), while its year-to date (YTD) 2017 average production was 1.88mb.

According to him, the reported improvement in security and resumption of production at the Forcados Oil Terminal (FOT) and Qua Iboe Terminal (QIT) pipelines would see Nigeria producing more than 2.2mb of oil and condensate per day.

He explained that in October 2016, the Owowo oil field located close to the producing ExxonMobil-operated Usan field was discovered, adding that its location could allow for early production through a tie-back to the Usan Floating Production Storage and Offloading (FPSO).

The field, he also noted, has added current estimated reserves of one billion barrels to Nigeria’s reserves.
The Nigerian Petroleum Development Company (NPDC), he said, also grew its production from 15,000bpd to 210,000bpd as of June 2017.

Baru further revealed that through presidential intervention, the ownership of OML 13 was settled and restored to the NPDC. He said NPDC was expecting its first oil from the well before the year ends.
He also said NNPC rekindled the confidence of its joint venture partners to pursue new projects, following the negotiated agreement on the repayment of outstanding JV cash call debts up till 2015.

In the gas sector, Baru said gas supply to power plants and industries in Nigeria also increased.
He listed some of the projects NNPC had embarked on in the sector to include the completion of repairs of the vandalised 20-inch Escravos Lagos Pipeline System A (ELPS-A) in August 2016, which he said ramped up Chevron’s Escravos gas plant supply from nil to 259 million standard feet per day (mmscfd), as well as that of the vandalised Chevron offshore gas pipeline in February 2017 which equally increased the company’s gas supply to 430mmscfd.

Other gas related projects undertaken by NNPC within the period included the completion of repair works on the vandalised 48-inch Forcados Oil Terminal (FOT) export gas pipeline in June 2017, which reactivated shutdown gas plants like the Oredo gas plant, Sapele gas plant, Ovade gas plant, Oben and Nigeria Gas Company’s (NGC) gas compressors.
NPDC’s Utorogu NAG2 and Oredo EPF 2 gas plants, he stated, were also commissioned on the back of the corporation’s works in the gas sector.

He said there was also a significant growth in domestic gas supply in the last few months, adding that during the period, domestic gas supply increased from an average of 700mmscfd in July 2016 to the current average of 1,220mmscfd, with about 75 per cent of the volume supplied to the power sector.

In the downstream oil sector, Baru said NNPC stabilised product supplies through modest local refining by its refineries in Kaduna, Warri and Port Harcourt, and importation through oil swaps which he said had saved Nigeria N40 billion in 2017.

“We have also commenced the resuscitation of our product transportation pipeline network, thus enabling us to move products to depots at faster rates and cheaper distribution costs to consumers.
“The Aba, Mosimi, Atlas-Cove and Kano Depots have all been re-commissioned and are currently receiving products, thereby enhancing product availability across the country,” said Baru.