E&P Independents Should Harmonise Their Work Programmes to Reduce Costs- MD, Havilah Hydrocarbon Resources

The purpose of this content is to define the drilling and field development environment in Nigeria, so that EnergyHub customers involved in this segment of the E&P business, will get some education and be appraised on the Nigerian drilling market. The content also extends its focus to the successes and mistakes of the marginal field operators and Nigerian independents in general and proffers effective strategies to manage smaller E&P operations in the Niger Delta. With the interviewee being a Well Engineer, issues raised addressed drilling, field development, and well completions.

The indigenous E&P field has had a tortuous history in Nigeria. The very first generation of licensed indigenous operators, like Angus Energy was a total flop. They did not even have a hint of what the oil business was about. Then came Imo Itsueli’s Dubri Oil, which acquired the Gelegele field (OML96) in 1987 from Phillips Petroleum (Itsueli’s former employers), who discovered the field in the 1960s. Thus, making Dubri the first indigenous company to produce oil in Nigeria, although it was a continuation of production from an existing field.

The generation of Nigerian E&P independents of the 1990s was the group that registered in the consciousness of Nigerians as the first generation of E&P indigenous operators. They had everything going for them – government was staunchly behind them, giving them a discretionary allocation of acreages in a campaign started by then Minister of Petroleum Resources, Professor Jubril Aminu, to get Nigerian entrepreneurs more deeply involved in the oil and gas business. Success was limited, mainly due to very little knowledge of the industry and poor judgments in some investment calls. But there were visible success stories though – like Famfa Petroleum, whose Agbami field attracted interest and farm-in from the then Texaco (later bought by Chevron), leading to the discovery of the one billion barrel reserve; Mike Adenuga’s Bella field, which he single-handedly funded, made his then Consolidated Oil (later Conoil Producing), the first indigenous producer to get to first oil with no foreign input in cash and technical expertise. A dogged team led by Nigerian exploration legend and ex-Shell International explorationist, Dr. Ebi Omatsola drilled the successful Bella-1 well, which changed Adenuga’s story.

Many other success stories, as well as failures, were recorded. Theophilus Danjuma’s South Atlantic Petroleum joined forces with Total to deliver the iconic Akpo field and Egina field – some of Nigeria’s most prolific reserves; Alhaji Mohammed Indimi’s Oriental Energy Resources and its Ebok and Okwok fields have added to the legacies of indigenous operators among several others.

Michael Ibru’s Queens Petroleum did not appear to make any headway, unlike some of its peers; MKO Abiola’s Summit Petroleum, along with Mai Deribe’s Cavendish Petroleum and Aminu Dantata’s Express Petroleum and Gas, were among companies whose oil blocks were recovered by Department of Petroleum Resources in 2019 for non-performance.

The 2013 class of E&P independents (which may be seen as the third generation), saw a more audacious entry of Nigerian professionals, mostly alumni of the IOCs with their companies competing as operators, as well as oilfield service contractors. Two outstanding cases of innovation recorded with this group were Niger Delta Petroleum Resources, which operates the Ogbelle field. Indeed, the Ogbelle field was the first true marginal field to be successfully farmed out to an indigenous operator. The field was excised from Chevron’s OML 54 in the Eastern Niger Delta (in Rivers State) and production started from an initially booked reserve of five million barrels, in 2005. The reserve was later upgraded to 20 million barrels.

What was unique and innovative about Ogbelle field was that it set out to integrate some of its products and operations onsite – condensates are processed onsite to produce propane and LPG for the local market; a 1000 barrels per day diesel refinery is also onsite and products are refined and sold locally as well. The company also became the first third-party supplier of natural gas to the Nigeria LNG plant in Bonny.

The other example of even more audacious innovation was Energia Limited, operator of the Ebendo field, where a group of indigenous service providers came together to contribute field development services ranging from drilling to logging services, well completions and casing among others, to deliver the filed, without resorting to outside borrowing. The Energia model was a major turning point that opened so many doors for Nigerian indigenous E&P contractors and operators.

However, despite these huge strides and achievements, there were equally huge losses and lost opportunities due to poor management of several oil blocks by the indigenous operators. Many operators lacked both technical capacity and financial resources to deliver their fields on target and within budget. Indeed, many relied on ill-equipped foreign technical partners, who neither had the financial muscle nor understood the geology of the Niger Delta, leaving them stranded and their fields abandoned.

Havilah Hydrocarbon Resources Management Limited is a company that has risen to the occasion, to fill the void left by the absence of competent technical advisers for new investors and block owners, especially marginal field operators. Havilah has been neck-deep in securing rigs and overseeing drilling campaigns for many indigenous operators, with more than 50 wells drilled for marginal field operators in Nigeria, as well as providing well services advice for them.

Charles Adekuajo is an outstanding well engineer and Managing Director of Havilah Hydrocarbon Resources Management. Before he took the helm at Havilah, he was stuck pipe focal point and borehole stability adviser for Shell Nigeria. He was also Project Manager responsible for the clay mineral depositional mapping of the Niger Delta, which gave rise to the phased production of synthetic mud for shale drilling in Shell. He has strong knowledge and experience in well design, well technology, operations planning, rig operations, well site supervision, and general project management.

Charles is credited with the conceptual design of Rig-75, the first multi-well swamp rig with skidding capacity in the world. He is a professional engineer, registered with COREN in Nigeria, and maintains memberships with the Association of Professional Engineers, Geologists, and Geophysicists of Alberta (APEGGA); Nigerian Society of Engineers (NSE) and the Society of Petroleum Engineers (SPE).

He graduated with a B.Sc. degree in Mechanical Engineering from the University of Ibadan, Nigeria in 1986, and earned an MBA from Delta State University, Nigeria.

The following is an email Q&A with Ikechi Ibeji.

Many Nigerian operators, especially the indies, lost time (and some ended up losing their blocks) because they have to queue endlessly for rigs brought by other operators to the West Africa region, rather than order rigs directly from far places like the Gulf of Mexico (because they cannot afford it). From your experience, is this still a problem for the Nigerian independent E&P operators?

There are times when rigs are lying fallow without activity, and due to surge in drilling operations sometimes, rig availability becomes a big challenge. What we have suggested in the past was for the Nigerian independent E&P and marginal field operators to harmonize their work programme. This can be achieved by a project management company; the outcome will be beneficial for the operators as they will cut costs from trying to import rigs for one or two well-drilling programmes.

Many of the failed projects from the 2003 marginal field rounds had to do with funding their exploratory and appraisal drilling programmes, because many relied on their so-called technical partners, who failed to raise the money in many instances. This model was used by the first generation independent E&P operators in Nigeria when the defunct Abacan Resource Corporation of Canada drilled discovery wells for Amni International Petroleum Development Company and Allied Energy Resources. They also did initial work for Yinka Folawiyo Petroleum in their Aje field. All three companies were left in the lurch and had to look for other ways of continuing their journey to first oil. Several operators from the 2003 awards suffered similar and even worse problems because the government took back their fields. Why are Nigerian independents still vulnerable to this type of funding challenges for their drilling campaigns?

The two examples cited were products of a lack of experience in the well engineering project management business. Midwestern Oil & Gas suffered the same fate after their first well, which was dry. But they quickly realised the need to engage a home-based well project management company to advise them, rather than rely solely on a foreign Technical Partner that knows little about the geology of the Niger Delta environment.

Why did some companies fail? They lacked operational experience in managing logistics, community relations, and operational issues and ended up overrunning their budgets. Proper planning is essential. Understanding the environment is important. Contractors always want to deploy all sorts of tools at a heavy cost in the drilling operation. The operator must have the capacity to challenge this, and still obtain data that are adequate for well and reserve evaluation. The cost must be well managed, and the contract benchmarked with the competition. Companies like Havilah Hydrocarbon Resources Management, which interfaces with many operators, are required here to help with optimized costing and project management.

Enhanced oil recovery experts have argued that the Federal Government and the operators should develop a robust strategy to manage the brown fields in the Niger Delta, so as to extract maximum resources from the aging fields. With the IOCs which have the financial muscle, dumping the brown fields on the much smaller independent operators, do you think the latter can muster the resources to deploy new technologies and enhanced oil recovery techniques required to continue producing from these fields optimally?

I believe the brownfields are more onshore and in the swamps, where the operating costs are manageable. However, because enhanced oil recovery (EOR) is a very expensive operation, the economics of the operation, which entails changing the actual properties of the hydrocarbons, must make economic sense. Therefore, each field must be properly evaluated to determine which type of EOR will work best on the reservoir. To make the EOR project viable, the government through the DPR should consider putting identified brown fields in clusters for screening, reservoir characterization and modeling. This is one way small independent operators can make the business case to source for funding and deployment of appropriate technologies.

About 12 years ago, Professor Wale Dosunmu and his research team at the University of Port Harcourt, through a Shell sponsored research, came up with a software known as Optiwell, to address well stability challenges in the Niger Delta. How prevalent is the problem of unstable or collapsing wells in the Niger Delta?

Optiwell must have been introduced after I left SPDC on cross-posting to Shell Malaysia in 2004. I was the focal point for STABOR, another Shell E&P application for wellbore stability. As stuck pipe and wellbore stability adviser for SPDC, prior to 2004, we managed to put a check to the prevalent problems of unstable shales and managed stuck pipe issues as they arose. We also introduced the use of Pseudo Oil Based Mud (POBM) in wells drilled in the Niger Delta. Therefore, I can say with authority that we made appreciable success in addressing well stability issues in drilling operations.

There are hundreds of abandoned wells across the Niger Delta region. Many of the former leases of Shell and other major operators, which hold small pockets of hydrocarbons, are now in cities and built-up areas. Are there prospects that these wells can be re-entered or completed to drain the resources which may be quite substantial, at least by the standards of independent operators?

Your observation about huts and villages developing around wells across the Niger Delta region is valid. As you may be aware, production and re-entry of these well pose huge safety risks like blowouts and fires. One key challenge is getting drilling or workover rig to the well location as the emerging communities around the wells have taken up significant footprint required for rig re-entry; hence they were abandoned. The logical thing that can be done is to use extended well technology to access these drain points, if the resources are discovered to be quite substantial.

For more than 10 years now, Nigeria’s crude oil reserves have been declining (dropping from 37 plus billion barrels to about 36 billion now). With little new exploration campaigns going on – whether speculative or commissioned, should we still be mentioning the 40 billion barrels reserve target we have been touting since the 1990s? In other words, are there incentives for big exploration companies like PGS Exploration to invest for instance in Nigeria’s deep-water regions?

I think the non-passage of the PIB is one of the big issues preventing investment in the upstream sector. Passage of the PIB could support a framework that might incentivise the IOCs and indeed new operators and investments in the offshore sector.

The Federal Government apparently introduced the modular refineries licensing policy in response to calls to create an enabling environment for Niger Delta youths who operate illegal refineries to join the mainstream business legitimately. Do you think the problem of stealing crude oil and using environmentally destructive refining methods has been addressed by the modular refinery programme?

Stealing itself is an addiction, a habit born out of greed. I see oil theft from two sides – the desire of the affected youths to be in a certain “class” and secondly, a need to vent vengeance or desire to teach the society a lesson. I see the people involved in the business as onshore pirates who will steal, whatever the situation. As much as the modular refineries will provide jobs for the youths, the efforts to discourage the die-hard Niger Delta youths from vandalizing, bursting pipelines, and stealing crude to operate illegal refineries will be achieved if the government develops the Niger Delta, builds industries and provides jobs to engage the youths. The boys believe they are not getting anything from the government, hence they do what they have to do to collect part of their crude oil.

The modular refineries programme, if implemented and the products are made available cheaply to the inhabitants, the illegal refineries will phase out naturally. If the setup does not favour the people, the project may be frustrated, and where they are built, very soon they will no longer work or may be destroyed.

Some have asked the government to adopt the model used for the artisanal mining programme for gold and other solid minerals in the north, in addressing the problem of youths stealing crude oil to refine in the bush and setting everywhere on fire. What are your thoughts in this regard?

This is like giving amnesty to thieves and vandals. The oil and gas business is a huge capital intensive business. Doing exactly what you suggested will encourage more bursting of pipes to raise capital to finance exploration and development activities with these people. What is needed firstly, as I suggested, is transparency on the part of the rulers and the provision of funds for support services in the sector. The government can assist the locals to develop capacity for boat building to support logistics; they can be engaged in catering supply services, security support services, and all other support services that the people can provide – even coming together to own and manage a rig if they show such interest. The most logical thing I think the government can do that will come close to the model you highlighted above, is for the government and DPR to reserve about 50 percent of marginal fields specific to local indigenes. This will encourage local participation and will enable the youths to build adequate local capacity for the highly technical oil and gas exploration and production activities.

As an industry insider, can you estimate the opportunity cost for Nigeria and operators like you, of having the Petroleum Industry Bill languishing in the National Assembly for nearly 20 years now?

Sad! Indeed, it is very disturbing. Ghana has taken advantage of the non-passage of the PIB to get her act together, learning from our mistakes, and showing more seriousness with the governance of her oil industry. The outcome is that Ghana is booming and investors are trooping there at our expense!

More Nigerian oil and gas service companies have also moved to Ghana to help set up local capacity there. Their educational sector and the economy generally are in an uptrend. We are still discussing when a new PIB will be sent to the National Assembly here. This has made it very difficult to get investors to commit to funding oil and gas capital projects. This has slowed down growth in that sector, and just as you noted previously, Nigeria’s crude oil reserves have declined significantly. For those who are able to get funding, the costs of securing such funds have also increased. I believe that once the PIB is passed and assented to, the sector will “shake body” and we’ll see a boom again!

Should the renewed drive to pass the PIB succeed, what aspects should the industry and government be fast-tracking in view of lost time?

I really don’t know in what form the new PIB will be re-presented to the National Assembly. Notwithstanding the form, I believe all aspects of the bill are inter-related and the joy of this endless wait can only be achieved if the Bill is passed as a complete legislation. If I can recollect, the initial Bill was segmented into following four frameworks: Governance, Administration, Commercial / Fiscal and ancillary institutions / Impacted Communities. A very important stakeholder that the bill addresses is the host communities. I am aware of previous efforts being canvassed to ensure that the region obtains economic benefits from the natural resources in their domain; foster peaceful coexistence between the host communities and the oil companies; eventually putting an end to the Niger Delta crisis, and potentially ending the vandalism previously talked about. An agitation to include a Petroleum Host Communities Fund (PHCF) specifically for the development of the economic and social infrastructure of the host communities in the earlier version of the PIB was made. Passing any aspect of the PIB without addressing how the host community benefits going forward will be an effort in futility. The investors are also keen to know the fiscal terms and other aspect of the bill as it may affect their operations. Therefore, I expect all the aspects of the bill are very important and should be addressed simultaneously; and the document passed and signed off as one piece of legislation.