Marginal Field Development: Best Practices & Lessons Learned

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“Marginal Field Development: Best Practices & Lessons

Learned”

SOCIETY OF PETROLEUM ENGINEERS’ 37TH_{NIGERIA ANNUAL}

INTERNATIONAL CONFERENCE & EXHIBITION (NAICE 2013)

by

George Osahon

Director, Petroleum Resources

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Outline

 Introduction

 Legal framework for marginal field development programme

 Major thrusts of decree 23 of 1996

 Outcome of 2003 marginal field awards

 Incentives

 Current Status

 Challenges and Remedies

 Emerging Opportunity

 Conclusion

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Introduction

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Marginal Field Development: Best Practices & Lessons Learned

 Lease Administration was originally structured in favour of IOCs

 Access to the assets by Indigenous/ Independent Operators was very difficult.

 IOCs left significant Oil & Gas Resources un-appraised/unproduced many years after discovery for several reasons including the industry creaming phenomenon

 The Petroleum (Amendment) Decree No. 23 0f 1996 was enacted to award such fields as “marginal” to Indigenous Companies.

 Consequently, Guidelines for the Farm-out and Operation of Marginal Fields were prepared in 2001

 In 2003, twenty four fields were awarded to 31 Companies

 These fields are presently at various stages of development with 9 already producing

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Legal Framework For Marginal Field

Development Programme

Petroleum (Amendment) Act, 1996

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 Promote indigenous participation and build indigenous capacity in the

upstream sector

 Provide alternative sources of funding for exploitation of hydrocarbon

resources

 Increase production capacity through accelerated development of

discovered reserves

 _{Increase the oil and gas reserves base through aggressive exploration}

 Encourage capital inflow.

 Gainfully engage the pool of the high-level competent Nigerians in the

petroleum industry.

 _{Create employment opportunity for Nigerians.}

Major Thrusts of Farmin Act No 23

of 1996

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S/N FIELD FARMOR OML FARMEE TERRAIN

1 Asuokpu/Umutu Shell 38 Platform Land 2 Asaramatoru Shell 11 Prime Energy (51%) / Sufolk

Petroleum (49%)

Swamp 3 Atala Shell 46 Bayelsa Oil (100%) Swamp 4 Eremor Shell 46 Excel E&P (100%) Swamp 5 Ibigwe Shell 16 Walter Smith (70%) / Morris

Petroleum (30%)

Land 6 Ofa Shell 30 Independent (100%) Land 7 Oza Shell 11 Millenium Oil (100%) Land 8 Qua Ibo Shell 13 Network Oil & Gas (100%) Land 9 Stubb Creek Shell 14 Universal Energy (100%) Swamp 10 Tom Shot Bank Shell 14 Associated (51%)/ Dansaki Pet

(49%)

Offshore 11 Tsekelewu Shell 40 Sahara (51%) & AOG (49%) Swamp 12 Uquo Shell 13 Frontier Oil (100%) Swamp

2003 Marginal Fields Award Structure

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13 Ororo Chevron 95 Guarantee Oil / Owena Oil Offshore

14 Akepo Chevron 90 Sogenal (100%) Offshore 15 Ogedeh Chevron 90 Bicta (100%) Offshore 16 Ajapa Chevron 90 Britania –U (100%) Offshore 17 Dawes Island Chevron 54 Eurafic (100%) Swamp 18 KE Chevron 54 Del-Sigma (100%) Swamp 19 Oriri Chevron 88 Goland (100%) Offshore

20 Ekeh Chevron 88 Movido Offshore

21 Umusadege Elf 56 Midwestern Oil & Gas (70%) / Suntrust (30%)

Land 22 Obodugwa / Obodeti Elf 56 Pillar Oil (100%) Land 23 Umusati/Igbuku Elf 56 Energia (55%) / Oando (45%) Land 24 Amoji/Matsogo/Igbolo _Elf ₅₆ _{Chorus (100%)} _Land

2003 Marginal Fields Award Structure

S/N FIELD FARMOR OML FARMEE TERRAIN

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Other Marginal Field Awards

• Awards of Okwok field in 2006 and Ebok field in 2007 to

Oriental Energy were made to compensate company for lost part of its OML 115 to Equatorial Guinea due to boundary

adjustment

• Ogbelle field was awarded to the Niger Delta Petroleum

Resources Limited in 1999. The company was the first beneficiary of marginal field in the country

• In 2010, Otakikpo and Ubima fields were awarded to Green Energy Ltd and Allgrace Energy Ltd respectively as part of a lingering award process that commenced in 2004

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

_{Application Form –}

_{– N}

_{N 50,000:00}



_{Processing Fee - N}

_{N 100,000:00}



_{Signature Bonus – 150,000 USD}



_{Data Purchasing – 2,000 USD}

Applicable Fees in the 2003 Award Exercise

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s/n Incentive Marginal Fields Non-Marginal Fields

1 PPT* 55% 65.75%

2 ITA 20% 5% (Onshore)

3 Production Commingling Allowed Not Allowed

4 Fiscal Terms (Royalty) 2.5-18.5% > 18.5%

5 Royalty ≤ 5,000 5,000 - 10,000 10,000 – 15,000 15,000 – 25,000 2.5 7.5 12.5 18.5

2003 Marginal Fields Incentives

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Scorecard of Marginal Field Initiative

• Out of the 24 + 5 marginal fields, nine have started production

• The nine producing fields are:

-Umusadege (Midwestern Oil & Gas) -Umusati (Pillar Oil)

-Ibigwe (Waltersmith)

-Egboma (Platform Petroleum)

-Obodugwa / Obodeti (Energia Petroleum / Oando) -Ajapa (Britania-u)

-Ogbelle (Niger Delta) -Ebok (Oriental Energy)

-Uquo (Frontier) 1st_{Marginal Gas Operator}

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Summary of Achievements (2004 – 2013)

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ITEM

REMARKS

Number of

Producing Fields

9 Initial Reserves as at

2004

141.01 MMbbl

New Reserves as at

2013

302.62 MMbbl

Oil Production Rate

60,000 bopd

Gas Processing

150 MMscf/d

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Contributions to the Nation’s Reserves

The Marginal Field Program has shown a lot of promise

and would be expected to play a bigger role going forward

77.73% 14.52% 6.25% 1.50% JV PSC SR MF

TOTAL GAS (AG + NAG) RESERVES DISTRIBUTION

TOTALGAS RESERVES = 182.753 Tscf 70.86%

22.67%

4.86% 1.61%

JV PSC SR MF

TOTAL CRUDE (OIL + CONDENSATE) RESERVESDISTRIBUTION

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PRODUCTION DISTRIBUTION BY CONTRACT TYPE

58.8% 32.8%

2.1% 6.3%

JV PSC MF SR

Skewed Production Distribution

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 Integrating value

 _{Producing crude oil}  Monetizing gas

 Small scale refining

 Unlocking stranded molecules

through deployment of new technologies

 Creating opportunity for

employment and empowerment

 _{Better handle of local communities}

Other Salient Benefits of the Marginal Field Program

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 _{Assets are sub-economic and}

hardly bankable

 Timely agreement with lease

holders

 Funding

 _Capabilities

 Costs

 Community problems

 Clusters of contiguous fields to aid materiality

 DPR facilitation and update of guidelines

 _{Good assets attract}

investors

 More jobs; competitive EVPs

 Sharing; collaborating

 Amnesty programme

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 _{The Marginal Field Programme may not have evolved as}

intended but it has made its mark on the industry landscape

 Substantial volumes added to the nation’s oil and gas reserves and production mix

 Challenges inherent in Marginal Field operation will be continually analyzed and intervention carried out as necessary

 Suitable enablers will be introduced in future Marginal Fields Bid Round

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Conclusion

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Marginal Field Development: Best Practices & Lessons Learned