How FG Spent $340m, N27bn In Search Of Oil In The North
AFTER 3 decades of elusive search for hydrocarbons in the Lake Chad Basin where the Federal Government spent about $340 million and additional N27 billion, in seismic expedition, Nigeria looks set to continue its crude oil exploration in the North East region.
But petroleum engineers, investment experts and geologists have warned the Buhari administration could yet burn its fingers in the long run as the geography of the zone may not guarantee a commercial find.
It was on the basis of this sentiment that the recent marching order handed down to the management of the Nigerian National Petroleum Corporation (NNPC) to resume oil search in the Chad Basin after 30 years of futile efforts is eliciting reactions from stakeholders in the oil and gas sector.
They have argued that the quest for hydrocarbons in the Chad Basin, which is adjacent to Niger Republic, Cameroon and Chad, would seriously be hampered by economies of scale projections, insecurity and the unwillingness of oil companies to drill outside the Niger Delta with already proven reserves. This may also have been responsible for their inability to invest in the North East after 30 years of exploration.
But the Group Managing Director of NNPC, Dr. Maikanti Baru, had, while receiving the Governor of Bauchi State, Mallam Mohammed Abubakar, disclosed that President Muhammadu Buhari had directed the Corporation to resume its oil search in the Chad Basin and other parts of the North East.
The President’s directive is coming after the Federal Government had burnt a whopping N27 billion and $340 million in the three decades of search for oil in the region without commensurate result.
However, those who are conversant with investments in the sector say the NNPC’s plan to resume exploratory activities in the Chad Basin may not be a viable option for an economy in recession, at least, in the short and medium term.
Studies have indicated that the Nigerian end of the Chad Basin has little potential for commercial oil deposits and would require huge expenditure in addition to security challenges in the zone. In an era of low crude oil prices, international oil companies would be very unwilling to commit resources to drill in the North, particularly as prospects of commercial finds look largely slim.
“While there are about 37 billion barrels of proven oil reserves and about 187 trillion standard cubic feet of gas in the South South of Nigeria, what we want to explore in the North is an unproven reserve of about 2.3 billion barrels of oil reserves and about 14.65 trillion standard cubic feet of natural gas available for four or more countries in the Chad Basin,” the study asserted.
“If you do the cost benefit analysis, you can see that it is not viable in the short and medium term,” said Henry Boise, Petroleum Economics, Management and Policy Researcher at Emerald Institute for Petroleum and Energy Economics, Policy Strategy, University of Port Harcourt.
Notwithstanding, however, Baru has informed that the renewed search for hydrocarbon deposits in the Chad Basin would entail extensive probing of some allocated and non-allocated oil blocks in the region to establish the magnitude of the deposits. And this would involve huge investment from the public treasury.
The NNPC GMD noted that the Corporation has identified specific oil blocks in the area where some of the finds have been made and would move to re-invigorate exploration based on fresh strategy.
“You know that very close home, we have exploration activities on the frontier basin in the Chad and some areas close to the Kolmani River where Shell had made some indicative discovery of hydrocarbons. Now, Mr. President has directed me to go into that area to further explore the magnitude and prospect of those finds.”
“We are taking steps to re-strategise and get into those regions. We will re-invigorate the frontier exploration and see how they can collaborate with NNPC that is holding Block A09 where some of the finds have been made, and also for the Department of Petroleum Resources (DPR) to assign redundant blocks,” he said.
Boise, however, faulted Baru’s position, insisting that “exploration is an expensive activity. You can explore an entire field and you might not find anything. In the Chad region, oil has been found where the water is deeper. The Nigerian region has shallow waters.”
Who should take the lead?
Having explored the Chad Basin for some decades without any success in oil discovery, experts have advised that the NNPC should not take the risk by getting involved in the process, rather, private sector operators and International Oil Companies (IOCs) should be the ones driving the process that would eventually lead to oil discovery and subsequent exploration activities.
They argued that it would not be economically rational for the nation’s leadership to commit to financing exploratory activities in the North East with the staggering economic headwinds buffeting the nation.
Director, Centre for Petroleum Economics and Energy Law, University of Ibadan, Prof. Adeola Adenikinju, said considering the huge financial obligation of the NNPC, adding the burden of oil exploration in the Chad Basin would be foolery.
He specifically mentioned the inability of the NNPC to manage its upstream assets in the Nigerian Petroleum Development Corporation (NPDC), coupled with its failure to meet up with its cash call obligations currently put at about $6 billion in its various Joint Venture (JV) operations with IOCs.
The petroleum economist explained that committing huge resources for oil search in that region at a time the global oil market is going through a difficult time would not be a good investment decision for the country to take.
‘‘I doubt if NNPC has the resources to commit to such cause. Again, this is where the issue of political interference comes in. This is not an issue of politics but business. Directing the NNPC to resume oil search in that region is not good for the corporation. The corporation should run as an independent business entity devoid of political interference. They should be able to determine whether to resume oil search or not, and not the government telling them what to do,’’ he warned.
His views were equally supported by the publisher of Africa Oil and Gas Report, a magazine focusing on the petroleum sector, Mr. Toyin Akinosho, who warned against the involvement of NNPC in the resumed search for oil prospects in the Chad Basin.
Akinosho said though the IOCs were not interested to get involved in exploration activities in that region, they prefer to concentrate their energy and resources in deep water operations, having gradually moved out of onshore prospects as a result of attendant security challenges.
The publisher who is also a geologist with several years of working experience with Chevron, advised NNPC to allow those that are more experienced in that terrain to develop the assets and then pay returns to government, stressing it would be a more sustainable approach.
What should be done?
But while Adenikinju and Akinosho acknowledged the need for more oil fields to be discovered outside the Niger Delta region, considering the security challenges associated with that part of the country, they advised that such risks should not be for the NNPC to take. Let private sector players, who are more knowledgeable in playing in that terrain take the risk and deliver the benefits to government for the good of the country,’’ said Akinosho.
Akinosho said it was a good idea for government to make new discoveries through exploration activities because exploration is all about knowledge seeking, and not necessarily about discovery of oil because it creates a lead to solving other problems.
He explained that in trying to explore for oil in Chad Basin, gas could be discovered in the process, and such could be used to generate about 100 megawatts of electricity for that region, which, he said, is value addition since that was not the original intention.
He disclosed that there are several smaller oil and gas companies operating in Kenya, Sudan, Angola and some other parts of the world that have taken on similar projects located in the desert just as the Chad Basin, that are giving good returns to the owners of the assets.
On his part, Adenikinju said what the NNPC should do is to complete the seismic programme in order to actually determine if there is oil in that region, and having done that, now share them among IOCs and other interested investors, who may be willing to take on the risk having seen the prospect inherent in the region based on the result of the seismic operation.
He equally advised that the NNPC should quickly complete the seismic operations programme and bring the data for experts at the Nigerian Association of Petroleum Explorationists (NAPE) to subject it to analyses and scrutiny.
Meanwhile, Head of Energy Research, Ecobank Transnational Corporation, Mr. Dolapo Oni, said the NNPC has spent quite some time prospecting for oil in that region to no avail and needs to consider deploying the funds to developing reserves in other parts of the country – offshore Lagos, onshore Ondo, Southeast of the Niger Delta – areas where there are less security issues or spend the funds on creating infrastructure to provide alternate routes for oil and gas fields to move their products when facilities are damaged.
He equally submitted that Nigeria can resume the exploration in the North when oil prices recover above current levels.
Efforts on exploration in C’Basin
Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, had, while in the saddle as the NPPC GMD, said the national oil company, through its Frontier Exploration Services and Renewable Energy Division (FESRED), progressed reasonably with seismic acquisition activities in the Chad Basin frontier area until insurgency led to its suspension.
Kachikwu said eight phases out of the planned 12-phase project to cover 3550sqkm had been acquired when the operation was suspended in November 2014.
“A total of 1,962sqkm was acquired and processed, interpretation is on at 90 per cent completion, and drilling activities will commence by the last quarter of 2016,” said Kachikwu.
Between 2011 and 2013, Prof. Jerry Gana, then chairman of the Northern Economic Summit, said it got a $240 million approval for oil and gas exploration activities in the Lake Chad Basin and other areas of the North including the Benue Trough, Bidda Basin and the Sokoto-Rima Basin.
Exploration soon commenced in the region and in 2013, following former Vice President Namadi Sambo’s declaration that “oil prospecting in the Lake Chad Basin is yielding promising results and may lead to commercial exploitation of oil and gas,” an additional $100 million was earmarked for the project in addition to the N27 billion he claimed had been spent.
Prospects for oil in Chad Basin
But despite the huge resources that have been committed to the seismic activities in the region, geologists are wary of the possibility of finding oil in commercial quantity in Nigeria’s end of the Chad Basin. “The Chad Basin from the Nigeria end has been proved to be non-petroliferous,” said Omagbemi Kakayor, a petroleum geologist.
Another energy consultant for major oil and gas companies, Christopher Renaldi, advised agencies involved in the reform of the power and gas market that this is not a wise move at this time.