Foreign Participation In The Nigerian Oil and Gas Industry

Posted by on 12/29/2003 2:45:56 PM | Views: 749 |

Foreign Participation In The Nigerian Oil and Gas Industry

By

N.K.Obasi

BACKGROUND

Foreign participation in the Nigerian petroleum industry dates back to the early 20th century when European authorities recognised oil as the fuel of the future and encouraged private busi nesses to undertake aggressive exploration all over the world. In Britain, specifically, the Royal Navy had begun its changeover from coal to oil fuel and a British contributor observed in the monthly jour nal, The Nineteenth Century, that "there is no big ger and no more obvious gap in our...Imperial equipment than the paucity of our supplies of oil." British oil companies, therefore, began exploration in Trinidad, the East Indies, Burma, Persia and elsewhere.

Although the Persian oil fields were already in production, had vast reserves, were clos er to the surface and therefore required no new technology, the imperial authorities nevertheless realised that the involvement necessary to assure Britain secure supplies from that region might lead to certain political and strategic complications. They therefore considered that a similar source of oil within the British Empire, if discovered, would be ideal.

In 1906, a British businessman, John Simon Bergheim convinced the Colonial Office and the Government of Southern Nigeria that, based on his knowledge of the region's geology, petroleum exist ed in Southern Nigeria and that his company, the Nigeria Bitumen Corporation, could find it. He had already achieved a monopoly on prospecting rights in Nigeria by buying up all other drilling licenses.

For the next six years, officials in the Colonial Office protected Bergheim's monopoly of the prospecting rights, rewrote mining legislation at his request cre ating the Southern Nigerian Mining Regulation (Oil Ordinance) of 1907 and provided the Nigeria Bitumen Corporation with a loan to support its search for petroleum. By 1912, the Corporation had sunk about 15 wells in Southern Nigeria, east wards from the Lekki lagoon towards the Niger Delta, and had already spent 143,000 pounds.

In September that year, however, Bergeim was killed in an automobile accident and with him died much of the aggressive drive to find oil in Nigeria. Thus, the first search for oil in Nigeria ended in mid-1913 and was not resumed seriously for almost 25 years. Shortly after Bergeim's death, World War 1 set in and oil exploration in the country ceased until

1937, when an Anglo-Dutch consortium, Shell D' Arcy, came to Nigeria and had the whole country as one concession. Between 1938 and 1939, the company drilled seven bore-holes for about 16,296 pounds around Owerri without any success. This second phase of the search for oil in the country was interrupted by World War II (1939-1945) but by 1951, the company had drilled its exploration well, called IHUO-1.

A second well soon followed in 1953 called AKATA-1, with just marginal gas. Between 1953 and 1955, Shell had drilled 13 addi tional wells. It eventually struck its first commercial well in 1956 at Oloibiri in present-day Bayelsa State. That discovery, after an investment of over 30 million naira, proved the venture commercially viable. Later, in the same year, more oil was found at Afam in Rivers State. Subsequently, the con struction of pipelines from Oloibiri to Port Harcourt was undertaken to facilitate export. The export of the first cargo of crude oil took place on 17 February, 1958.

The successes of Shell encouraged other com panies to join in the exploration race. Mobil had been awarded the Sokoto Basin, the Benue Trough and fringes of the Niger Delta to explore in 1956. After some seismic and field geological surveys in the Sokoto Basin where it recorded no success, it withdrew from Sokoto and obtained licence to explore in the Dahomey Basin. Between 1959 and 1961, Mobil had drilled four wells in Dahomey Basin which were dry and the company pulled out of the area. Meanwhile, in 1959, the sole concession right over the whole country, earlier granted to Shell, was reviewed and exploration rights were extended to other foreign companies.

This was in line with the policy of increasing the pace of exploration, while at the same time ensuring that the country was not too dependent on one company or nation. Shell thus, relinquished about 50 per cent of its Niger Delta concession and retained the successful or poten tially successful parts. In April 1960, Tenneco, an American company, arrived in Nigeria, and was granted a concession along the western coast. This was the position when, in October 1960, Nigeria gained independence from Britain.

The attainment of independence in 1960 led to intense exploration activities, as the nation put in place policies that would lead to major economic and political changes in the oil sector. Firstly, expioration companies outside Britain and U.S.A. were invited to establish presence and explore in Nigeria. Oil was also becoming a vital energy fuel, and Nigeria's production had more than tripled from 5,000 barrels per day in 1958, to 17,000 barrels per day in 1960.

Within the first five years of independ ence, therefore, no less than nine international oil companies had become active in Nigeria, namely: Shell-BP, IVIobil, Tenneco, Texaco, Gulf (now Chevron), Safrap (now Elf), Agip, Philip and Esso. These internationals were soon joined, in the late 1960s, by Japan Petroleum, Occidental, Deminex, Union Oil, Niger Petroleum and Niger Oil Resources. The climax of that era was the forma tion of the Nigerian National Oil Corporation (NNOC), the predecessor of the Nigerian National Petroleum Corporation (NNPC), and the admission of Nigeria into OPEC, the Organisation of Petroleum Exporting Countries, in July, 1971.

Oil production had, by this period, moved from 17,000 barrels per day (bpd) in 1960 to 45,000 bpd in 1966 and later to 1 million barrels per day in 1970, short ly after the civil war. Nigeria's economy became increasingly dependent on crude oil, on account of revenue accruing thereof, to meet the challenges of the post-civil war era. The Nigerian government also entered into joint venture agreements with sev eral multinational oil companies engaged in oil exploration and production activities in the country.

In January 1986, the government introduced more attractive fiscal terms for private sector partic ipation in oil and gas development in the country. This was through a Memorandum of Understanding (MOU) providing a guaranteed margin of two dol lars per barrel to the producing companies in exchange for certain exploration and enhanced recovery commitments. Five years later, the gov ernment offered new MOU's which provided for much better terms in recognition of inflation and to encourage foreign partners to continue to expand their investments. Since then, the investments of the major oil companies in the country have risen steadily in response to these incentives. This response has been most evident not only in the oil sector but also in the vast and continuing expansion of activities in the gas sector, led by Shell, Mobil and Chevron.

MAJOR MULTINATIONAL OIL COMPANIES ENGAGED IN JOINT-VENTURE OPERATIONS IN NIGERIA

Shell: Shell, whose forerunner, Shell D'arcy was a pioneer of oil exploration in the country, is today the leading oil company in Nigeria. The Federal Government acquired 35 per cent of the company in 1973, forming the basis of the joint ven ture operation that persists today, and the company assumed its present-day name in 1979. Shell has interests in four companies in Nigeria, namely Shell Petroleum Development Company of Nigeria Ltd.

(SPDC), Shell Nigeria Exploration and Production Company (SNEPCO), Nigeria LNG Ltd. (NLNG), and National Oil and Chemicals Marketing Pie. Shell Petroleum Development Company of Nigeria Ltd. (SPDC) is the largest oil and gas explo ration and production company in the country. It is a joint venture in which NNPC holds 55 per cent, Shell 30 per cent, Elf 10 per cent and Agip 5 per cent. The present Joint Operating Agreement and Memorandum of Understanding were last revised in 1991.

Today, SPDC produces almost half the coun try's oil from more than 90 oil fields in the Niger Delta area. It also supplies 95 per cent of the coun try's commercial gas and its oil mining lease area of 31,000 square kilometres contains more than half of the country's oil reserves. The scale of the com pany's operations is massive, involving an infra structure of 6,200 kilometres of pipelines, more than 1,000 wells, 87 production stations, eight gas plants and two large oil terminals at Forcados and Bonny, spread throughout the Niger Delta.

The company is divided into two divisions based in Warri, Delta State, and Port Harcourt, Rivers State, with a small corporate centre in Lagos. These divisions operate with a high degree of autonomy and are run in each case by a general manager who reports to the Managing Director in Lagos. SPDC has some 4,000 staff, ninety-five per cent of whom are Nigerian. In addition, the compa ny has another 8,000 contract staff, again mostly Nigerian, and it is estimated that another 20,000 people are employed by contractors working for SPDC. Shell has been an active participant in the nation's gas sector.

The company's involvement in utilisation of Nigeria's natural gas began in the early sixties when it initiated a project to supply gas to some industries in Aba and to the National Electric Power Authority (NEPA), then known as the Electricity Corporation of Nigeria (ECN), for its Ughelli power station. Since then, several other major plants have been constructed at Utorogu and Alakiri to supply quality gas for the manufacture of fertiliser at Onne and for power generation at Egbin, near Lagos. The company now has a N10 billion gas sale and purchase agreement with the Nigerian Gas Company (NGC), under which Shell is to sell 250 million standard cubic feet of gas per day to NGC over a 20 year period.

In April 1998, the company, on behalf of the NNPC, Shell, Elf, Agip joint venture, signed a 65 bil lion dollar contract for the harnessing of gas from its flares in the Niger Delta, through the Odidi Associated Gas gathering project. The Odidi proj ect, located 30 kilometres west of Warri, involves the collection of 80 million standard cubic feet per day (scf/d) assorted gas currently flared from five flow stations: Odidi-1, Odidi-ll, Egwa I, Egwa II and Batan. The gas will then be transported via a low pressure pipeline system to a central processing facility adjoining Odidi-I flow station where it will be compressed and conditioned to sales specification before being fed into the Nigerian Gas Company's Escravos-Lagos pipeline system.

Work on the project commenced in 1996 following approval by the Department of Petroleum Resources. The Odidi AGG project is scheduled for commissioning during the fourth quarter of the year 2000. Shell's most significant involvement in the nation's gas industry, however, is its investment in the Nigeria Liquefied Natural Gas (NLNG) project in Bonny, Rivers State. The joint venture partners in the project are NNPC which owns 49 per cent stake; Shell, the managing partner with 25.6 per cent; Elf, with 15 per cent and Agip, with 10.4 per cent. Shell's involvement with the project dates back to 1963 when the company teamed up with British Petroleum (BP) in seeking to establish the first ever LNG plant in Nigeria and indeed all Africa.

That dream, however, was scuttled by commercial oil finds in the North Sea. It subsequently suffered a number of false starts due to political changes in Nigeria until it was effectively launched in 1993. A major step in Shell's contribution to the proj ect was the company's successful commissioning of its Soku Oil Rim Development (ORD) in July 1998. The ORD, an extension of the original Soku flow station in the east of the Niger Delta, had been in production since Shell first discovered hydrocar bons in the area in the early 1960s.

The new facil ity will allow nearly 500 million standard cubic feet of associated gas from the Soku field to be processed and pipe-fed to the NLNG project, daily. Shell, as the managing partner of the NLNG project, has also been its driving force. The commence ment of shipments overseas from the Bonny plant in late 1999 not only elevated Nigeria into the elite league of gas-exporting countries; it has also underscored the growing contributions of Shell's joint-venture interests in Nigeria's expanding oil and gas industry.

Mobil: Mobil, another leading actor in the Nigerian oil and gas industry, traces its history in Nigeria back to 1907, when a predecessor compa ny began marketing Sunflower brand kerosene in the country. The small company, beginning on the docks of Lagos, has evolved into the present-day Mobil Oil Nigeria (MON), with some 400 employees overseeing assets of some $145 million and annu al sales of petroleum products of more than six mil lion barrels a year.

Mobil established its exploration and production presence in the country in 1955 with an exploration effort in northern Nigeria. Although that first venture was not successful, Mobil continued the search by moving offshore. In 1961, the company, received its first offshore Oil Prospecting Licenses (OPLs). It drilled its first wildcat in 1963 and made its first discovery in 1964. Production began in 1970. The initial crude oil production was pumped into a moored )n tanker, the Mobil Japan, which served as a floating i's storage tank.

The onshore production and storage ie facilities at the Qua lboe Terminal near Eket in Akwa :)y lbom State were completed a year later. Over the ie quarter century since the production began, Mobil ig and its joint venture partner, Nigerian National Petroleum Corporation (NNPC), have produced ie over two billion barrels of crude oil and condensate. in Today, Mobil is the second largest liquid hydrocar in bon producer among the multinational oil compa in nies operating in Nigeria.

A major milestone in the company's paiticipa er tion in the Nigerian petroleum sector was the com er missioning of Mobil's Oso-Natural Gas Liquids (OSO-NGL) project in Bonny, Rivers State on, 19 ck November, 1998. The project actually dates back sh to November 1992 when the famous Oso er Condensate project, with a field production of about 'at 110,000 barrels per day of condensate, was com oil pleted. Subsequently, studies were conducted on a the feasibility of natural gas recovery project. in Initially projected to cost about 855 million U.S. dol lars, the joint venture, in which Nigeria holds 49 per 3j- cent equity (through NNPC) as against Mobil's 51 ig per cent, actually cost 810 million dollars.

In consonance with the practice worldwide, the ku NGL is being sold to dedicated buyers and "n sales/purchase contracts have been signed with ir- various buyers, notably in the United States. The ;il- first sales shipment left Nigeria for South America 'et on board the merchant tanker vessel, HELIOS, on 30 27 August, 1999. A gas marketing subsidiary of ly. Mobil is in charge of delivery and marketing of the et, products. Huge revenue is expected to be raked in :e- from the project both for Mobil and for NNPC which int is expected to earn 3.2 billion dollars over the pro ite duction period from petroleum tax and royalties.

Chevron: Chevron Nigeria Limited began its its exploration and production activities in Nigeria as Gulf Oil Company (Nigeria) in December 1961, when it obtained its first oil prospecting license from he the Federal government. The receipt of another in prospecting license in June 1962, consolidated the company's interest over a concession area meas in uring 5,000 square kilometres offshore and about he 2,500 square kilometres onshore in the Niger Delta.

To facilitate its operations in the concession area which now straddles both sides of the Niger Delta, the company established a base at Escravos, near Warri, in Delta State to coordinate its operations in the west and another in Port Harcourt, Rivers State, on for the eastern operations.

On 8 December 1963, the company made its ire first discovery, which was also Nigeria's very first by successful offshore well. Befittingly, the field was christened 'OKAN,' meaning 'one' in Itsekiri language spoken by the local people of the nearby onshore area. That discovery marked the beginning of the enduring relationship between the multinational and the country.

On 1 April, 1965, the company commenced export, shipping Nigeria's first consignment of off shore crude to the world market. Over the next few years, the company's exploration and production job's grew with the successive spudding and commissioning of the Delta South Oil Field (1969); and the Parable, Malu, Isan and Abiteye oil fields (1972).

On 1 April, 1973, the Federal Government, through the Nigerian National Petroleum Corporation (NNPC), initiated a process of participating working interests in the company's operations by which, through the then Nigerian National Oil Corporation (NNOC), the Nigerian government, acquired a 35 per cent stake in the company. By 1979, this stake increased to 60 per cent. In 1984, when Gulf Oil Corporation and Chevron Corporation merged their global operations, Gulf in Nigeria effectively became a subsidiary of Chevron.

The name change to Chevron Nigeria Limited was effected in July 1991. The CNL/NNPC joint venture ownsll OPLS. A landmark development in Chevron's participation in the Nigerian petroleum industry is the West African Gas Pipeline (WAGP) project. Under this project, gas is to be pumped from Nigeria's Escravos area in Delta State to the West African countries of Benin, Togo and Ghana.

A memorandum of understanding for the project was signed on 11 August, 1999 between the governments of Nigeria, Benin, Togo and Ghana and the consortium of Chevron, Shell, Nigerian National Petroleum Corporation, Ghana National Petroleum Corpora tion, Societe Beninoise de Gaz and Societe Togoleise de Gaz. The memorandum confirms the consortium as the project developer, defines the legal framework for its execution and sets the stage for its commercialisation. It also confirms Chevron's status as project manager as earlier proposed in the joint venture agreement.

According to Chevron Nigeria Limited, which operates the Escravos fields, the target date for completing the 992km, 18-22 inch diameter offshore pipeline is 2001 and the first deliveries of gas to Benin, Togo and Ghana will be made on 1 January, 2002. A study conducted for Chevron by the Dames & Moore Group of consultants estimates that the proj ect will yield the following benefits:

(i) Secure investment totalling 1.8 million U.S. dollars into Nigeria and the other three West African countries;

(ii) Create 10,000-20,000 direct jobs in the sub-region as a result of WAGP gas being available;

(iii) Reduce gas flaring by 78 million tonnes i in Nigeria and thereby reduce green i house gas emissions in West Africa by as much as 100 million tons over a 20 ; years period; and

(iv) Save hundreds of thousands of acres of native forests.

On the whole, the WAQP project, under Chevron management, promises to be a commer ; cial and environmental success and is expected to i serve as "prototype tor the inter-connection of the region, identifying and removing roadblocks to eco i nomic integration" of the West African sub-region.

CONCLUSION

From the above, it can be concluded that foreign participation in Nigerian oil and gas projects is not only extensive but critical to the success of the entire enterprise. This is a vivid demonstration of how co-operation between Multi-national companies and Nigeria can assist the economic development nf the nation.






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