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Thursday, June 24, 2021
Home Analysts 'Nigeria can now account for its oil and gas without contradiction’

‘Nigeria can now account for its oil and gas without contradiction’

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Engr. Sarki Auwalu is the Director, Department of Petroleum Resources(DPR).Auwalu,in amediainteractivesessionthrough webinar last week Tuesday, explained the reasons behind mar- ginal oil-fields bid round and what the regulatory agency is do- ing to support the Federal Government’s gas inventiveness. He also said that the various tracking initiatives of the regulatory agency are yielding positive results. Excerpts:

What is the state of gas flaring in Nigeria today?

We looked at what was happening before now, we keep on changing date but we can tell you today that we are dangling between 10 and 11 per cent of the total volume produced as flared volume and we see five per cent re- duction. That is why we keyed into the Nige- rian Gas Flare Commercialisation Programme (NGFCP). That is key and this programme is to point at where these flare points are, put money into it and give people opportunity to take the gas that is ordinarily being flared, take it and use it. The NGFCP is designed as the strategy to implement the policy objectives of the FGN for the elimination of gas flares with potentially enormous multiplier and develop- ment outcomes for Nigeria. The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilization projects developed by competent third party investors who will be invited to participate in a competitive and transparent bid process. We have the technology, the fiscal terms, synergy and the political will. So, do we allow the 800mcf/d being flared daily to go on like that or we commercialized it? No. In fact, we are the first in the world to go towards this direction. The World Bank now said, hey, this is what you want to do, come, the World Bank, FOSTER, all of them met us and said okay, lets arrange the programme. Then how do we arrange it? We first identified all the flared points, about 96 of them; we know the gas volume that is coming and also being flared in each of the points.

So what we now did was to asked inter- ested players to expressed interest. However, we had overwhelming interest. We then put together the programme and even have com- mercial packages submitted by interested companies in which over 200 companies are pre-qualified to take the only 96 points. What this has shown to us is that there are many Ni- gerians that are interested in utilizing the flared gas. Among these 200 companies are consor- tiums, so when you expand these companies, you will see up to 524 that came together to get these flared points. So, we are highly optimis- tic to clear the flared points. Once the NGFCP programme is fully achieved which we are at the commercial stage now, we are pushing the programe in speed of time to tell you how gov- ernment is desirous to monetize and see to the utilization of flared gas in the country.

Though a lot of flared out dates have been announced in the past, we can say the flared out date is 2020 because we have people inter- ested in all the flared-out points. In fact, what is holding the programme now is COVID-19, because the players need to access the flared point sites. That is where we are. We have told them there is no access to the points now. If there was no COVID-19, the report we have today would have been different because mostof them were pre-qualified with money, tech- nology and other resources but they have to go and see physically what they are bidding for and putting their money on. After that, if acceptable to them, we then sign farm-in and farm-out agreements with the lease holders and then take the gas.

The lease holders don’t need to pay govern- ment for flaring. The off-takers will take the gas, sign agreement to process the gas and take it for domestic usage. They can then process it to either CNG, LNG. They are at liberty to change but we want more gas for domestic us- age so that the economy will have that feel- ing. If not for COVID-19, as a matter of fact, we have to officially extend the programme by another six weeks, thinking that the lock- down would have been eased and from there they would now submit final commercial of- fer. That was our plan. In that direction, we are creating business for government.

There have been concerns over accounting process of Nigeria’s oil and gas. What is your take on this?

On gas accounting, we use technical allow- able, gas-oil ratio, the meters. When we see gas we know that there is venting because in venting you don’t put meter. If there is high pressure in the system, it will automatically re- lieve itself. When the gas is relieved, we know what production gives us, know the utilization. If we see any discrepancies in gas we know that that particular gas is for venting even if you vent, you account for it and pay. We have end-to-end accounting of loss and gains in the system. After we have cross-checked the vol- ume, we now cross-check the volume with the price they pay. So it’s a double layer checks. The producers have their production figures; we have our own which they collect from us. We give them the allowable, they don’t give us. There is no agency in Nigeria that gives us figures, we give them and we follow on the figures we give out.

We also do account for oil losses especially on land terminals where we get most of the losses. Today, we have five land terminals in Nigeria and these terminals are linked with trunk lines that receive crude from producers especially from indigenous producers and they inject the crude into the main trunk lines and, unfortunately, we have a lot of third party in- terference along the way, people puncture the lines and steal the crude. So, we account for theft volume because we know the production of each well. We know what each companies is supposed to produce based on our techni- cal allowable and we know at end point what is going into the main terminal. So when we calculate, within the line, we can know where the lines have been tampered with. The gov- ernment security forces are fighting the thieves and the fight is ongoing, to reduce that. We encourage barging because its only when it passes through the pipe that it can be punc- tured and stolen. When we introduced bargingmeasure, the theft volume reduced signifi- cantly. We know it has its own impact because it exposes security forces to risk. Anytime we want to barge we need protection from secu- rity forces but that is the only way we can re- duce the theft volume.

How about the export terminals?

On export terminals in Nigeria, we monitor what goes into the tanks. The assertion that no- body knows the export volume actually is not true. We know every molecule. We know eve- rything. As a matter of fact, we are improving the system to track the molecule from well- head to flow stations and to terminals as we speak. The essence of this is to be double sure and this system is working. Even the export certificates we give are generated remotely. On top of export certificate, we generate out- turn feeders in which if we are not sure, we fol- low the vessel to where it’s going to discharge to really account and confirm the figures we have. It’s not really correct that Nigeria doesn’t know what it produces or export because we know. Today, there is no vessel that comes into Nigeria to take our crude oil without us know- ing its state of origin, date of arrival, where it’s going, number of hours to take the crude from the terminal and as the loading, we are seeing it live. So we know the volume and we ac- count for them. Every molecule is accounted for in every terminal. Even produced water, we account for it.

Where is the Federal Government con- ducting bid round considering the COV- ID-19 pandemic?

I will like to say this. The marginal fields bid rounds are overdue to be done. The appetites for it by Nigerians and foreign investors are real. The last time marginal oilfield bid round was conducted in Nigeria was in 2003. Be- tween 2003 and now, there are many profes- sionals that have come out of this industry to practise what they love to do most. When the last bid round was conducted, about 24 com- panies were considered and issued certificates and we have success ratio of over 50 per cent. They are now oil producing companies and this award when it was done in 2003, it created opportunities for the economy and so many things. So we felt that it’s time now to open up again to create the same opportunities but with a difference, and that is why we carefully studied the success we recorded, lesson learnt and improve upon the process.
Today, we are doing the bid round electroni- cally. You register and submit your technical and commercial bid. You are evaluated and you have every report that will enable you to decide technically and commercially. Pre- viously, that was not the case. People got the marginal oil fields without this information, now we try to create the information so that we get more participants, more opportunities for investors to see that all the fields have one advantage or the other and that is why we aredoing this.So far, a lot of investors have shown willingness andit has been a success story. I’m happy to tell you that a lot of professionals in the industry are ready and there is appetite to invest especially in the marginal oil-fields because the development is small and profitable. Third- ly, it’s long overdue and government needs revenue. Al- ready government has reduced this year’s benchmark to $27 per barrel and we know that oil price is hovering between $30 and $35 per barrel. What do we do? We have a resource that can offer the opportunity to Nigeria indigenous oil companies most essentially as it’s being produced at much lower cost, so that government will make money and the companies will make money too.If you look at the whole process, we assumed that we should be able to conclude within 10 weeks. The com- panies should be able to get all the information required, submit their technical, commercial bids altogether that will give ample opportunity and time for companies to really register because it’s competitive bidding and you cannot give a very short time. Again, we also encourage companies to come together as Nigerians to take advan- tage of the opportunity. When experts come together as a consortium, look for one field, there is opportunity for such a consortium to really bid and get it right.

Why did DPR move the marginal bid round forward before the passage of the Nigeria Petroleum Industry Bill (PIB) into law?

We did this for two reasons. We have existing Pe- troleum Act which is yet to be abrogated and also have existing fiscal terms for companies that are participating in the business. So, we don’t know when PIB will be passed though, we are confident that it will be passed and after all, the marginal fields bid round is not oil block bid round. These are fields that are abandoned. The reasons why we went ahead is that we looked at the extant laws and opportunities for lower cost of development, attractive fiscal terms and the appetite of the inves- tors show that they will have interest in the bigger oil blocks that will be on offer after the PIB. Also, what we have done is just to tell the world that we are ready for business. All the fiscal terms for the marginal fields are very robust and attractive.

We learnt that some of the oil fields listed for bid are subject of litigation?

On the 11 revoked marginal oil-fields awards. First, marginal fields do not have licence. No mar- ginal field owner has licence. Marginal fields have award letters. The owners of marginal fields are awardees. They are not holders of the blocks and not licence. The licence holders are the Oil Mining Lease (OML). The owners of oil blocks are given oil mining leases out of which a field is carved out because its marginal to them and so award letter is issued to a company under that condition andthe condition for the award is to bring the field awarded to production within 10 years and when the exercise was done previously in 2003, 24 or 20 companies were awarded and out of these com- panies only 11 companies have failed to produce within the last 17 years.They may be at various stages on a sole risk ba- sis but they failed to achieve the condition of the award despite additional extension upon extension given to them. I think 2013, their awards expired and with that, an extension was granted. In 2016, the ward extension also expired and they were granted another two years extension to bring the fields to production and in 2018, another extension was granted. However, this is 2020, two years after the expiration of another extension, they could not bring the fields to production and who’s losing? Technically, the government is losing. So what do we do, do we leave the fields or bring them to bas- ket so that we get maximum part of them? As I said earlier, the fields are awards and there are condi- tions attached. However, for those aggrieved that went to court, I have no comment on it since they have gone to court and for others that didn’t go to court, we do believe that this is a fresh opportu- nity for them. Rather than have another two years extension, they can come back and go after what they know better than anybody and they can have a renewed allocation which will again give themfresh start. So, if they see this positively, it’s a very good opportunity for them because if they truly know, within the last 17 years, they should have produced the fields as due but for those in court, we have no comment on them. Let me say this, marginal fields of those in court are not part of these 57 marginal fields put on offer. Those that are not in court are part of the 57 and we expect that they can come back because they are Nigerian companies, they deserve to have the fields and we are there to encourage them.

Some of the operators insisted that some of their oil blocks are among the listed fields offered for sale and that that was the reason they went to court?

As I said earlier, fields that are on litigation are not part of the 57 fields on offer. Any field under litigation is removed. There is no field among the 57 that is under litigation or any encumbrance. But remember those fields are under an award, they are not licensed and the awards have conditions attached to them and those that failed the conditions, the govern- ment really took necessary steps to retrieve those blocks and put them on offer for them and every other investor. Again, any field that is under litigation is removed.

Nigeria and Iraq were said to have flouted the Organisation of Petroleum Exporting Countries (OPEC) quota as agreed for May. Is there any justification for that?

We allocate the allowable according to the OPEC’s cut and we implement it and we are implementing it. We have a volume of con- densate in Nigeria. This condensate is out of OPEC quota and some of the condensates are being spiked into crude oil which ordinarily would not be part of OPEC volume. When we heard this, we now separated the condensate from the crude, we now sell condensate and sell crude as crude. I can tell you authorita- tively, we didn’t violate OPEC quota. We even go further to reduce the condensate volume from those fields that are essentially marked to have a huge volume of condensate so that we can maintain the reservoir balance. I can’twas given to them as technical allowable be- cause it’s not the commercial volume that OPEC wants us to reduce. It’s technical allow- able volume which we abide by. In fact, we have even issued the volume of July in June. What we are doing in advance, is calculate the volume and share the technical allowable throughout the industry a few weeks ahead of time so that we all comply.

What is the actual figure for crude oil re- serve in 2019 when compared with January 2020?

The volume of crude oil and condensate re- serve as of January 2019 was 37 billion bar- rels as against that of January 1, 2020, which is 36.89 billion barrels and the volume of gas as of January 2019 was 201 trillion standard cubic feet as against that of January 1, 2020, which is 203.13 trillion standard cubic feet of gas. However, we have a decrease in oil which may be as a result of lack of oil discovery in 2019 and that is one of the reasons we are ag- gressively encouraging this IOR to see how we can boost our oil and gas reserves.What has been the success rate of your re- mote vessel tracking since it was launched two years ago?On the launching of Crude Oil and LNG Tracking (COLT), yes, I can tell you that we have recorded remarkable results. As of June 4, 2020, we have identified nine vessels under arrest of Western Naval Command, we have written to EFCC, arrested several vessels and some of these vessels were traced to suspected questionable characters. We are working with the Nigerian Navy and the EFCC on this. We have achieved great success in this area. This is an additional value for money.


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