05 December 2012, Sweetcrude, Houston - Management of the Nigerian National Petroleum Corporation, NNPC, have bungled on-going discussions on multi-billion dollars projects, stalling most of them perpetually, ultimately affecting the final cost, and abandoning some altogether in a manner that undermines the objectives of the Nigerian Content Development Act, and crude oil growth aspirations of the federal government.
Investigations reveal that the call for tender on the Erha north phase II project was concluded over two years ago and all the packages submitted to the NNPC in November 2011, and same thing applies to the Satellite Fields Development Project Phase II, but the NNPC refuses to move both projects along.
The Bonga SW/NW field development project, Egina field development project and the Funiwa Gas Project are also victims of the NNPC’s inability to think bring to a close discussions started years ago, denying thousands of Nigerian youths jobs and skills acquisition opportunities.
Chevron had to abandon its ambitions to develop the multi-billion dollars Nsikko field development over the past few years owing to the uncertainties surrounding the Petroleum Industry Bill, PIB, especially concerns over the fiscal terms contained therein, and the NNPC’s inability to propose a way forward.
Similarly, the $7 billion Brass LNG project has been perpetually stalled for over 4 years because the NNPC management has been repeatedly changed during the period, and final investment decision, FID, moved severally.
Erha north, Satellite II, Bonga SW/NW, Egina, Funiwa GP stalled
Erha North Phase II
We gathered that the Erha north phase II field development is a tie back to the main project and that even though the commercial bids had been concluded and submitted to the group executive committee of the NNPC by NAPIMS, the corporation’s investment arm, the NNPC management has refused to move the project along.
An official in the NNPC exploration and production division who pleaded anonymity disclosed that the NNPC management has indicated plans to move the project forward but wants the terms contained in the PIB to apply retroactively when it is eventually passed by the National Assembly.
However, ExxonMobil, parent company of Mobil Nigeria unlimited has expressed its misgivings over the current PIB, noting that if it is passed into law in its current form, the company will not invest a dime in Nigeria.
The Erha north phase II project has suffered four bids validity extensions in the last 4 years and the current bid validity extension will expire on December 31st, 2012.
It was gathered that obtaining any further extension would come at significant price increase or a retendering process.
A Mobil official disclosed that by 1st January 2013, if approval is not received from the NNPC for the project to go ahead, the project will be suspended and the project teams demobilised resulting in ‘significant cost escalation for Nigeria and avoidable delay in execution.
Satellite Fields Development Project II
The SDFP II is a roll-over of phase I, with bids already taken and budget estimates put in place, but more than one year later, the commercials opening for some of the bids have been stopped by the NNPC in what appears a deliberate attempt to truncate the whole exercise.
It was gathered that the directive for stoppage was issued by the NNPC group executive director in charge of exploration and production under the guise he wanted a price reduction.
Curiously, the call for tenders on the SDFP II took place under the leadership of his predecessor, Andrew Yakubu, who is now the group managing director of the corporation.
While the stoppage of the exercise appears to question the three-tier tendering processes of the NNPC and an indirect indictment of the Andrew Yakubu tenure, indications are that contractors would have to demobilise their project teams and start laying-off Nigerian workers.
The general mood in Mobil Producing Nigeria is ‘how long does it really takes to renegotiate bids and obtain a price reduction if really that is the motive of the current NNPC group executive director, exploration and production’.
Checks revealed that there is a budget for the Mobil promoted SDFP II and the longer the delay by the NNPC management, the higher the risk of cost overruns, bringing into sharp focus, the group executive director’s limited understanding of time value of money.
The Bonga field development opened up a new vista for Nigeria in the deepwater. After acquiring and processing 3D seismic data in 1994 and drilling the first well between 1995 and early 1996, recoverable reserves was estimated at some 600 million barrels.
In May 2001, Shell drilled an exploration well on Bonga southwest, in water depths of 1, 245m, and located 10 km southwest of the Bonga field.
The well reached its final depth of 4,160m and was logged and suspended.
The well encountered a substantial amount of net oil sand and an initial evaluation of the well results indicated that the recoverable reserves discovered was large enough to form the basis for a new deepwater development in OML 118.
An extension to the field, Bonga northwest is situated in OML 118. It lies at a water depth in the range of 2,953ft to 3,937ft. It is expected that this field will be developed by 12 subsea wells tied back to Bonga’s FPSO.
These multi-billion dollar projects are anticipated to create thousands of jobs, investment expansion and skills acquisition opportunities but the development has been stalled owing to the foot dragging over the PIB and the inability of the NNPC management to show any initiative.
It was gathered that the Egina field development project has already gone through rigorous due process superintended by NAPIMS, the upstream investment arm of the NNPC, the Department of Petroleum Resources, DPR, the Nigerian Content Development Board, NCDMB and Total Upstream Nigeria Limited, TUNPI.
It was gathered that when he was NNPC group executive director in charge of exploration and production, Andrew Yakubu signed the required documents for the Egina project to proceed to the group executive committee, but for some inexplicable reason, it never came up for discussion.
It was gathered that since his appointment as group executive director, exploration and production, Abiye Membere has put the whole exercise in jeopardy, causing Nigeria added cost at the expiration of the bids validity period, calling up individual contractors and demanding price reduction.
A staff of one of the IOCs involved in the Egina project development disclosed that ‘through his (Abiye Membere’s) bungling intervention, he has changed the initial scope of work all in a bid to achieve a price reduction at any cost. Nigeria is set to benefit greatly from the highest levels of capacity building and infrastructure development such as an umbilical plant and pipe mill. This will be a first for Africa, let alone Nigeria. This opportunity is at grave risk due to mismanagement of the process and delays of award’.
“Total had loaded the project with contingencies such as post 1st oil costs including new wells, among others, because the company did not want to be caught up in any draw back post PIB. But when Abiye Membere made the costing an issue, Total took out the contingencies leaving only the cost of first oil.
“I believe that this has brought the cost down from the projected $15 billion to about $12.5 billion. But this doesn’t amount to any real savings because by the time the partners are ready to move forward post first oil, prices would have gone up significantly. This just makes you wonder if the management of the NNPC really knows what negotiations of this nature are all about,” the staff who did not want his name in print disclosed.
Funiwa Gas Project
Development of the Funiwa Gas Project is estimated to gulp $3 billion, create job opportunities for Nigerians; help accelerate development of in-country project management capacity and skills acquisition, among other positives.
However, the development of the Funiwa Gas Project is tied to the Brass LNG, and cannot happen if the latter project fails to take off.
Indications are that given the current reality within the NNPC management, this project might as well be off the table already.
Multi-billion dollars Nsiko project abandoned
Five years ago, it was anticipated that all things being equal, the Nsiko field, in OPL 249, which was expected to produce 150,000 barrels per day of oil within one year of initial start-up, would come on stream in 2011 and later rescheduled to late 2012.
The Nsiko field lies in 1311 metres of water and will be tapped from a leased FPSO. Technical bids went in late 2009, while commercial bids were invited later.
However, all this has faded into oblivion owing to current realities – uncertainties surrounding the PIB and NNPC’s inability to propose a way forward for mega projects such as this.
Multi-billion dollars Brass LNG project stalled
While speaking during a briefing before federal lawmakers in Abuja recently, Andrew Yakubu, the NNPC group managing director noted that despite the divestment of ConocoPhillips from the project, discussions are already on with other critical stakeholders to key into the project, adding that by April next year the Final Investment Decision on the project will be taken.
We recall that his predecessors including Mohammed Sanusi Barkindo, and Auaten Oniwon made similar promises, yet left office unceremoniously without taking the Fid on Brass LNG