Marginal fields have met cardinal objectives -Thomas
- April 7, 2015
- Posted by: frontier_admin
- Category: News
Dada Thomas is the Managing Director of Frontier Oil Limited, one of the operational marginal fields. In this interview with Sebastine Obasi, he talks about the challenges facing marginal fields operators, domestic gas development and imperative of getting the refineries to work. Excerpts: eleven years down the line, has the purpose of the marginal fields programme been achieved?
First of all, the marginal field award started 14 years ago, in 2001 and finally in February 2003, 24 marginal fields were awarded to 30 companies. My understanding of the reason for initiating that programme, under the presidency of Olusegun Obansajo, was to increase Nigeria content in the upstream exploration and production, E&P sector. Two, is to provide the platform for competent Nigerian professionals from the industry to participate in the upstream E&P, rather than be employees of IOCs.
And thirdly, to create and increase employment for Nigerians within the upstream E and P sector and lastly, to increase the contributions of Nigerian E&P producers to the overall production and reserve base of Nigeria. When we look back 14 years later, I have to say that it is relatively successful. Why do I say relatively successful? First of all, out of the 24 fields that were awarded, Nine, I believe are in production.
What does that mean?
There are nine managing directors – all Nigerians, there are most likely nine HR managers, and nine of each of those key posts occupied by Nigerians also. When you go down below that to the technical, engineering and operations level, they are all manned mostly by Nigerians. In my view, nine companies have certainly created employment opportunities for Nigerians than hitherto.
In 2003, there were zero production from marginal field operators, but today, you can see that, for instance, Midwestern is producing 18,000 barrels per day. Energia is producing 5,146 barrels; Brittania-U, 4000 barrels; Waltersmith 4000 barrels, and they are all marginal field producers. Also, come to our own small self, Frontier Oil, we are producing 74 million standard cubic feet of gas a day.
That wasn’t possible in 2003, 2006 or 2008, but in 2015, we are contributing to Nigeria’s crude and even more importantly, domestic gas production. I think therefore, on the basis of what I have listed out, Nigeria has benefited from the marginal fields programme and that most of the four cardinal objectives have been met. That doesn’t mean they couldn’t have been better, I would have been happier if they were 20 out of 24 marginal fields in production, or even happier if all 24 were in production but life doesn’t go like that.
I think that the success rate of 30 to 35 percent is a mark of success for a programme that is unique, and has never been done before in Nigeria. It isn’t very often that the first time you do something, you score a 100 percent. So, I think in my view, it is successful.
Frontier’s Uquo field is among the successful ones. What is behind your success?
I can assure you that there is no magic behind our success. What is behind our success is determination, share hard work, professionalism, integrity and a belief that there is a future for gas in Nigeria. We pursued the development of the gas field, which in most cases others would have abandoned. When we knew it was a gas field, nobody had any use for gas in Nigeria. But we pursued it diligently and we have proved today that Frontier Oil has a unique capacity and capability for not only developing oil, but developing non associated gas.
Without sounding immodest, Frontier Oil is an indigenous E&P company. We won the Uquo field in 2003, in what I believe is still the most competitive bid round ever held in Nigeria. We won it 100 percent and eventually teamed up with a funding partner in 2006. The funding partner ran out of money in 2008, and they were taken over by another company in 2009.
Frontier Oil and our partner have brought to realisation the first and largest non-associated gas development of its type by an indigenous group in sub-Saharan Africa. The only company that have bigger gas plant than ours are Shell, the Gbaranubie Gas plant, which is 1 billion standard cubic feet, SCF a day, our own is 200 million SCF. Ours is a world class company.
Today, Frontier’s Uquo gas is being supplied to the following companies; Ibom IPP in Akwa Ibom State; Notore Fertilizer Company in Onne, Rivers State. It is Uquo gas that Seven Energy is supplying. We sell it to Seven Energy, and then they supply to Notore. The same Uquo gas goes to the Cement Company in Calabar. We are proud that this small marginal field developed by Frontier and its partner is today powering four industries in Nigeria.
Our gas is rescuing the power sector, in Nigeria today. We are the majority partner in the Uquo field. We own 60 percent of the working interest in the Uquo field. Frontier Oil, in operating the Uquo field does not have one single expatriate. We are all Nigerians. We have a direct staff strength of about 150. We are fulfilling the Nigerian content law, not only in name, but in fact.
It took a long time from when the fields were awarded to the time they were brought to production. What caused the delays?
It is indeed true that for many people the fields were awarded in 2003. We actually officially collected the fields in 2004. For Frontier, for instance, it took us eight years to bring the first production out of the Uquo field. We achieved first production on the 29th of December, 2012. We actually achieved commercial production in January 2014. The reasons for the long gestation or achievement of production differ from company to company, but there are a few common factors. The most important common factor is the inability to access funding for most companies.
Remember when we were awarded the field in 2003, the Nigerian capital market was not matured or did not understand; it hadn’t the platform to provide funding for the upstream E&P sector especially when those proposals are brought by indigenous marginal field operators. So, many of us suffered terribly in looking for funding and technical partnership. It took us a very long time to find a technical partner.
For instance, it took us over three years to find a suitable funding partner, and when we did find one, we ran out of money very quickly between 2006 and 2008. So, funding has always been the number one challenge that all marginal field operators face. The second thing is that a lot of the companies have had internal problems, in terms of ownership, structure and tussles. Within that is a lack of understanding that you cannot eat your cake and have it.
If you’ve got an asset and you have no money and somebody has money and no asset, you need to come to a win-win arrangement to ensure that you both create value. I think that too many of the winners of these marginal fields, wanted to hold on to everything while requiring people to give them money to develop the field. That doesn’t work. You have to go for a win-win relationship where you synergise the assets, money and skills and you create value for everybody to share.
The third thing is that, we suffered issues of community and security disturbances. For marginal fields, for instance, we have as many as 100 JTF securities in a small field. This is because there are minimum numbers the JTF will release to do a patrol. They have their standard groupings and would not break it for you. So, if you say you want to guard an installation, first of all, it is two shifts a day, and with a certain minimum team. The cost of security alone is huge on a single field operation. Then of course, we have to learn how to deal with community matters.
And remember that the federal government gives you the license to operate from Abuja, but the communities give you the freedom to operate. You can have all the papers and the permits but if you can’t step into the field to work, you haven’t got anything because you do not have the freedom to operate. The fourth is contracting; the ability to buy goods and services was very difficult for many of the marginal field operators. The reason is that most service providers were international companies or affiliates of international companies. They did not have any faith that these indigenous players can pay for their services.
So, contract terms were onerous. In many cases, they would demand a 100 percent payment upfront before leaving their base to work for you. If that wasn’t that, it would be something else. If that wasn’t, you would get a bill that was so high that you will have to go through the process all over again. So contracting and procurement of goods and services was a major bottleneck for most of us.
Then there is manpower. Remember that 24 fields were awarded in 2003, increasing the number of companies demanding a limited number of manpower by 24. Nigeria may have been producing oil and gas for a long time, but to truly get very good people, all of you competing for the same limited resource was very difficult, and so a lot of the companies found it very difficult to recruit the right quality of personnel for their operations.
I think that in my view those are the five cardinal issues that inhibited the fast pace development of the marginal fields. But we are learning and I think we are doing it better on a daily basis and those who would come after us, would certainly do it better and faster than what we did. The reality is that it was a frontier journey and all of us made many mistakes in getting along that journey, but the good thing is that nine out of 24 made that journey successfully. By this month, we will know how many of the 15 out of the 24 that are not producing will get their licenses renewed by the DPR.
From your experience, how much does it take to develop a marginal field?
It is all a function of the type of marginal field. Is it an oil prone marginal field asset or a gas prone marginal field asset? Is it on dry land, swampy land, or offshore? These determine the kind of cost to develop a marginal field. I would say that a marginal field development can range anything from $30 million to $200million. So, it is a very wide range and it is all of those factors that will determine what it will cost you.
For instance, a gas field will cost you easily, three times the cost to develop a similar oil field. This is simply because the nature of the development is more complex and the infrastructure required is more complex. Also, the technology needed to apply is more complex, the distance between you and the people who are going to consume your gas is far. Often, you have to develop totally brand new infrastructure to ensure that the gas you produce can reach the man who is going to consume it.
Therefore, this is a wide range of between $30 million to $200 million or above. When you are talking about $120 million, it is not a small figure in any shape or form.
The federal government gave a March deadline for revocation of non-productive fields. What is the right step to take to get these fields operational?
This is a difficult question to put to me because I am a sort of volunteered chairman of the marginal field operators’ group and a number of us fought hard for the extension that was given four years ago. Remember the fields were given initially for a term of five years which you have to make substantial progress, and the federal government then had the option to renew it if you demonstrated to their satisfaction that you had either come into production or made substantial progress.
Four years ago, a four year extension was given. And that deadline expired as at 31st of May. The reason why marginal fields were declared as marginal fields is that a marginal field when they were taken from the IOCs was defined as a field which no development has been undertaken in it for about 10 years, or in which after three years production has stopped.